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ASIACHEM: Effect of Shell Stops Investing Shale Gas Project in Sichuan, China

2017-04-18

News reported on Jun 29, 2016, Maarten Wetselaar, Executive Director of Royal Dutch / Shell Group of Companies Natural Gas Integration and New Energy Business, recently stated in a press interview that, considering the economic benefits, Shell has already stopped continuing invest Sichuan Shale Gas Project, which was cooperated with PetroChina.

 

Shell was the first overseas company settled in China shale gas field. In 2009, Shell is committed to work in cooperation with PetroChina in shale gas projects, thus the birth of China's first shale gas project —— Fushun-Yongchuan shale gas project, with an area of 3818sqkm. The project was once seen as a benchmark for China shale gas industry development and received much attention. During the early implementation of the project, Shell former CEO Peter Voser had confidently said that as the project goes well, the company will invest USD1bn/a in China shale gas project.

 

However, after six years, Sinopec, PetroChina and Yanchang Petroleum respectively built Fuling, Changning & Weiyuan, Ordos Basin shale gas producing areas, Fushun-Yongchuan shale gas cooperation project has never been any breakthrough. During the period, rumor about Shell quit or capacity reduction of shale gas project since 2014. At that time, Shell has not renounced Fushun-Yongchuan shale gas project.

 

In recent, Maarten Wetselaar stated that, Shell has made a lot of effort on the project in Sichuan, completed the PSC required amount of drilling, the company indeed found shale gas in Sichuan. However, due to the complicated geological condition and the feedback situation of wells digging in Sichuan, the company cannot continue large scale investment which may has economic value. However, he stated that, Shell won't quit in China shale gas exploration and exploitation, but will continue to be actively involved in the exploration and development of natural gas in China, and seeking more cooperation opportunities.

 

In February this year, Shell finished acquisition of British Gas Group (BG) use about USD70bn in cash and stock, which is the biggest deal in oil and gas industry for nearly 10 years. Vasella said the acquisition increase the burden of Shell's debt, so Shell plans to sell USD30bn of non-core assets during 2016-2018, and sell up to 10% of oil and gas capacity, exit up to 10 countries, in order to reduce cost. But he stressed that at present Shell doesn't have plans of selling assets in China, Chinese market has a strategic importance for Shell.

 

ASIACHEM believes that for Shell, whether it is to stop investing in Sichuan shale gas project, quit in South Africa shale gas project in 2015, or the acquisition of BG Group, all is part of Shell's global strategic transformation. In the context of low oil and gas prices, rational stripping bad assets, choose relatively strong profitability projects is conducive to long-term development of the company.

 

ASIACHEM considered that Shell stops investing in Sichuan shale gas project will not cause a serious negative impact on PetroChina. Early when the exit rumor started, there has person who close to PetroChina said that, PetroChina was not nervous, because the company equipped with both technical and financial, if Shell quit, PetroChina might do the project itself. But the fact of Shell quit in China shale gas may blow the confidence of the companies who won the bid in the second round of shale gas bidding and other foreign companies who cooperating with Chinese companies.

 

According to the data released by National Bureau of Statistics that the first quarter of this year, China natural gas production, imports and consumption have increased compared to the same period of last year. Specifically, in Q1 China natural gas production, imports and consumption was 37.1bcm, 20.485bcm and 59.7bcm respectively, with an increase of 5.4%, 28.1% and 18.9%. ASIACHEM believes that with the promotion and development of industrial coal transfer to gas, traffic use natural gas and natural gas distributed energy industry, Chinese gas demand will continue to grow.

 

Since the end of "11-5", the industry experienced its infancy to commercial exploitation, China shale gas exploration and development technology, equipment localization, capacity-building, supporting pipe network construction, utilization has achieved gratifying results, while shale gas resource evaluation, exploration and exploitation standard system is also gradually improved. Facing "13-5", China shale gas industry should solve the issues of resource evaluation, mining tenement management and environmental regulatory, etc. With the change of energy supply and demand, as well as an urgent requirement to improve the energy consumption structure, shale gas is still an important supplement to China natural gas.