By Darrell Delamaide
Royal Dutch Shell (NYSE:RDS.B) further intensified its relationship with China in a new 30-year accord to appraise and develop tight gas reserves in the Sichuan basin.
The new project in the 4,000-square-kilometer Jinqiu block is Shell’s third venture in unconventional gas development with the China National Petroleum Corp. in the past six months.
The new deal marks once again China’s resolve to secure both domestic and foreign energy resources to supply its rapidly growing economy. Chinese oil and gas companies have announced deals in Argentina, Uganda and Iraq in recent weeks.
Earlier this week, Shell and CNPC, through its PetroChina (NYSE:PTR) unit, announced an accord with Arrow Energy, a leading producer of coal-seam gas in Australia, to acquire the company for A$3.5 billion ($3.15 billion). The acquiring companies sweetened their original bid of A$3.3 billion from earlier this month to win Arrow’s agreement.
Reports this week suggested that CNPC may try to export some of Arrow’s coal-seam gas, which cannot be liquefied, via pipeline to China.
In November, Shell and CNPC agreed to jointly develop a shale gas project further south in the Sichuan Province, in the Fushu block, also 4,000 square kilometers.
Tight gas, or basin-centered gas, is gas trapped in rock. As with shale gas, the rock must be fractured to allow the gas to escape into the well.
The Jinqiu venture is Shell’s second tight gas project with CNPC. The Changbei block in the Ordos basin of Shaanxi Province began production in March 2007 and now supplies 3 billion cubic meters of gas a year to Beijing and other cities in eastern China.
The success of unconventional gas ventures in the US, such as the Barnett Shale in Texas, has spurred interest in these resources around the world. Shell already has onshore tight gas production operations in the US and Canada, as well as the Changbei venture.
Reuters reported that Shell will provide all the capital for the Jinqiu development, and as a result will own more than half the gas produced. The Jinqiu project is expected to yield 2 billion to 3 billion cubic meters a year when it starts production in two to three years, the news agency said.
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