ConocoPhillips retreats from China shale

China

CHENGDU, July 22, 2015 – ConocoPhillips is no longer in discussions with China National Petroleum Corporation (CNPC) to lead a shale gas development project in China, the company has confirmed to Bloomberg news agency. The decision marks the end of an agreement signed in February 2013, between Conoco and CNPC’s listed subsidiary, PetroChina, to study the shale potential of the around 2,000-square-kilometre Neijian-Dazu block in the Sichuan Basin in southwestern China.

This is the second retreat from the Chinese shale market by the Houston-based super-major. In October 2014, the company confirmed plans to terminate a joint-study agreement with PetroChina and state rival Sinopec on the 4,047-square-kilometre Qijiang block. Conoco said the block had been designated as a military zone and would therefore be closed to foreign involvement.

China is believed to hold the world’s largest shale gas reserves. According to a 2013 report by the US Energy Information Administration, China contains 31.6 tcm (1,115 tcf) of technically recoverable shale gas, compared to the US’s 18.8 tcm (665 tcf).

However, factors such as challenging geology, lack of infrastructure and issues with exploration rights have frustrated China’s shale exploitation campaign. Of the six major oil and gas companies that have signed joint study agreements with China’s state energy entities (Sinopec, CNPC and PetroChina), only Shell has so far entered into a production-sharing contract.

In 2014, China was forced to cut its 2020 shale production goal to one-third of its original estimate of 60 bcm-80bcm (2.11 tcf-2.82 tcf). The country’s shale production is projected to be around 17 mcm (600 mcf) per day in 2015, compared to the 1.3 bcm (45.9 bcf) per day that the US will produce.

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