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Shell and PetroChina Reveal Cheap Gas Costs at Changbei Field

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By Aibing Guo – Nov 20, 2013 3:19 AM GMT

Royal Dutch Shell Plc (RDSA), Europe’s largest oil company, and PetroChina Co. (857) are producing natural gas from the Changbei field in China at a 91 percent discount to PetroChina’s average lifting cost last year across all of its assets.

The cost of output from the field in the Shaanxi province is $1 per barrel of oil equivalent and that’s much lower than similar projects, Xu Li, Shell’s general manager of the asset told a group of reporters at the unit’s headquarters on the outskirts of Yulin yesterday. PetroChina’s lifting cost in 2012 was $11.74 per barrel of oil, according to its annual statement.

Shell is spending $1 billion in China this year and is stepping up its investment in the nation’s unconventional natural gas sector. China, the world’s largest energy consumer, is seeking to lower its reliance on coal and replace it with cleaner sources, such as gas.

“We have started to drill more test wells in the second phase of development in the Changbei project, and we expect the second phase to bring a significant amount of output,” in addition to the first phase, Xu said. All output from Changbei is sold to Beijing.

Shell, the operator of the project, will drill more wells at different depths in the second phase. Test production from the second phase could start in late 2014 or early 2015 based on test results and government approvals, Xu said.

Capital Spending

The first phase of Changbei, which started output in 2007, has annual production capacity of 3.3 billion cubic meters of natural gas. That’s equal to 2.97 million barrels of oil equivalent based on BP Plc’s gas to oil conversion chart.

The field is a production-sharing venture between Shell and PetroChina, both of which have refused to provide details of the project stating the need to protect business secrets.

Shell and PetroChina signed the production-sharing agreement in 2005. Changbei project covers an area of 1,588 kilometers in northwest China’s Shaanxi Province and Inner Mongolia Autonomous Region.

Shell “is investing $1 billion” in China on capital expenditure in 2013, Li Lusha, Shell’s head of media relations on China and North Asia, said in the same interview. Most of the spending went to Shell’s shale gas exploration in Sichuan, and the rest went to other projects including the Changbei project, she said.

Shell and China National Petroleum Corp., Petrochina’s state-owned parent, signed a product-sharing agreement in 2012 to explore and produce shale gas in an area covering about 3,500 square kilometers in southwest China’s Sichuan Province.

Shell is China’s biggest liquefied natural gas supplier, importing around 5 million tons of the fuel to China a year since 2010, according to the company’s website.

To contact the reporter on this story: Aibing Guo in Hong Kong at [email protected]

To contact the editor responsible for this story: Jason Rogers at [email protected]

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