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Shell Revises Agreement With CNPC To Boost Tight Gas Output

July 25, 2012

By Wayne Ma and Alexis Flynn

BEIJING–Royal Dutch Shell PLC (RDSB) Wednesday revised an existing agreement with China National Petroleum Corp., or CNPC, to further develop tight gas at the joint Changbei project in northern Shaanxi Province.

Tight gas is an unconventional natural gas that is harder to extract because the deposit is surrounded by rock and sand.

Under an amended production-sharing contract, Shell and CNPC will develop tight-gas sands in addition to its already producing main reservoir and boost output beyond a current peak of 320 million cubic feet per day, it said in a statement.

The Changbei block, in northern China, covers 1,692.5 square kilometers in the Ordos Basin, Shell said. Although no financial terms were disclosed, Shell said the amendment was still subject to government approval.

Further moves into Chinese tight gas adds another leg to Shell’s exploration efforts.

The Anglo-Dutch firm has been particularly bullish about China’s potential as a shale-gas producer, signing its first shale-gas production-sharing contract with CNPC in March. Shell’s Chief Financial Officer Simon Henry said earlier this year that China’s potential as a shale gas producer “could be very powerful.”

Meanwhile, CNPC’s listed unit PetroChina Co. (PTR) plans to prioritize development of unconventional gas, focusing initially on tight gas, then coal-bed methane gas and finally shale gas, PetroChina Vice Chairman Zhou Jiping said earlier this year.

China plans to boost the contribution of natural gas to the country’s energy mix, to 10% by 2020 from less than 5% in 2010, to cut its dependency on coal, which accounts for around 70% of the mix.

Write to Wayne Ma [email protected]

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