China and shale gas: growing operational confidence from CNPC and Sinopec

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In May, we attended the 4th US-China shale gas workshop in Beijing hosted by China's National Energy Administration and the US Trade and Development Agency and delivered a presentation on M&A in US unconventionals. Among the workshop's other attendees were key Chinese shale gas operators, including CNPC, Sinopec, Huadian and Huaneng, and US-based service providers and LNG exporters, including Cheniere, Air Products and Chemicals, and Harcros Chemicals.

At the workshop, representatives from both CNPC and Sinopec shared progress updates on their shale gas projects. By the end of 2016, roughly 500 wells had been completed and 400 wells fractured at the marine Fuling, Weiyuan-Changning and Zhaotong shales. Yanchang Petroluem drilled close to 100 wells in terrestrial shale but found no commercial success.

According to CNPC and Sinopec, China’s 2016 annual shale gas production reached 7.9 bcm/y (760 mmcfd), of which CNPC produced ~270 mmcfd and Sinopec contributed ~455 mmcfd. Sinopec’s more impressive numbers are primarily due to the company’s Fuling development being more advanced and the company’s greater number of drilled wells.

Citing technological progress and efficiency improvements, CNPC reported that its cost per well has decreased  by as much as 50% from 2014 to 2017. CNPC’s shale gas wells currently have an average lateral length at around 1,600 m (5,249 ft), consume around 43,000 m3 (11,359,398 US gal) of fracturing fluid and 2,500 t of proppant per well, and have an average EUR at 95 million m3 as of 2017. In 2014, the company’s wells had an average lateral length of roughly 1,500 m (4,921 ft), consumed around 30,000 m3 of fracturing fluid and 2,000 t of proppant per well, and had an average EUR of 45 million m3.

Sinopec reported that by April 30th 2017, a total of 345 wells had been spudded at the Fuling shale, with 254 wells already brought onto production. The second phase — with a planned capacity of 306 mmcfd — is currently under development and targets the Jiangdong and Pingqiao blocks.

Overall, morale was quite high at the workshop, with CNPC and Sinopec both showing growing confidence in their own shale operational and R&D capabilities.