Sinopec ups investment in Fuling shale gas field

Sinopec expects to have ploughed a total of RMB 24 billion ($3.9 billion) of investment into the Fuling shale gas field in Chongqing by next year, as part of attempts by the state energy giant to boost production capacity at the project, a top company executive said in Beijing last week.

The figure, provided by Senior Vice President and Board Director Wang Zhigang, is nearly 12% higher than the RMB 21.5 billion estimate given by officials at the Ministry of Land and Resources (MLR) in September (see China preparing to unveil third shale gas auction, 17 September 2014). The MLR said Sinopec would spend that much to drill 253 wells from 2013 to 2015.

Sinopec extracts 36-37 million cubic metres per day (MMcm/d) from 62 operational wells at Fuling, Wang told delegates at the China’s Energy Enterprises Summit Forum.

The field is now capable of producing 2.2 billion cubic metres per year, beating its previous goal of 2 bcm/y by the end of this year, Wang added.

China holds plentiful shale gas resources, but developing them economically has been problematic because of the huge upfront investment required. Sinopec officially started exploring for shale gas in 2009 and drilled 23 wells, including 15 horizontal ones, from 2010 to 2012, according to Wang.

The drilling campaign cost more than RMB 2 billion, which works out to an average cost of nearly RMB 100 million per well – an enormous sum beyond the reach of most private companies.

A shale gas well in China needs to produce 40-60 thousand cubic metres per day (Mcm/d) to be economically viable, said Wang. Some of Sinopec’s earlier wells failed to meet this standard, such as Pengye 1, drilled in June 2012 in the Pengshui Block in Chongqing.

Pengye 1 produced an average of 15-20 Mcm/d, which did not meet the conditions for economic development, so costs had to be reduced, Wang said.

Jiaoye 1, the first shale gas well drilled in Fuling, started flowing gas on 28 November 2012 at an initial rate of 200 Mcm/d, but this has since declined to 60 Mcm/d, Wang said. The well has produced 46.6 MMcm to date and total output over its lifespan could reach 120 MMcm.

Sinopec holds shale gas mineral rights for an area of 6.54 million hectares in China, with 3.3 million hectares in the highly prospective Sichuan Basin, according to Wang. Three shale gas blocks account for 1.63 million hectares, while the remaining acreage used to be conventional oil and gas blocks that have been re-registered as shale gas blocks.