Petroleum Economist Maps, Books and Reports Shale Gas Report- Additional Sample Pages

Shale gas
project that is commercially viable and
one that is not, he adds.
Indeed, for a company like Dart, the
perceived above-ground risk in China
is less than in the Australian state of
New South Wales, where regulatory
flux has ground their unconventional
campaign to a halt.
But in China investors need to
be well plugged into the business
environment and understand how to
operate.
“Understanding Chinese culture,
as well as your way through the
systems, is crucial to success and
definitely a challenge,” says Justin
Walta, chief operating officer at Dart
Energy.
But Walta, who has spent eight
years working in China and has
experience probing tight-gas sands
at depths of 4,000 metres – which
offers a similar challenge to shale
wells – says that contrary to popular
belief, access to technology and
drilling equipment is no problem
whatsoever.
“We never had trouble finding rigs
or frack spreads. I think in that aspect
China could actually be well ahead of
the curve”.
The Australian-listed explorer, along
with other foreign independents such
as Green Dragon Gas, Sino Gas &
Energy, and Far Eastern Energy, all
have established relationships in the
unconventional space, largely built in
the CBM sector.

Shale access

Dart has leveraged its background
i n C h i n a to a c c e s s s h a l e - g a s
acreage in the Sichuan basin. Last
September, the company, in partnership with the Hong Kong and China
Gas Company, signed a shale-gas
PSC with Henan CBM in the Xiushan
Block.
Henan has split the block, awarded
as part of China’s maiden auction,
into four prospects, one of which Dart
has snapped up.
Walta expects Dart, as joint operator with its Hong Kong listed partner,
to be operationally active early next
year, but only after the PSC is officially
approved.
Although China’s basins still need
to be proven, Dart’s analysis shows
the economics look encouraging and
a wellhead gas price of $7-8 per million British thermal unit (Btu) should
provide a decent margin.
The government no longer sets
wellhead prices but when they
announced the latest pricing policy,
which tied domestic gas prices to an
oil basket, they predicted wellhead
prices would climb from 1.1 yuan/
6

Figure 1: Shale gas in China

Urumqi

Inner Mongolia

CHAIWOPU AREA

SHENGLI AREA

Beijing

Shanxi
Shaanxi

HUANGQIAO AREA

Xi’an

ORDOS BASIN AREA
NINGGUO AREA

Shanghai

QIANXI AREA

LEGEND:
Prospective shale-gas
areas identified

Guiyang

Yunnan-Guizhou Plateau

Provinces with CBM
potential

Source: Petroleum Economist

cm to 1.4 yuan/cm. This equates to
about a $1.25/million Btu rise to
$6.25/million Btu.
This is great news for legacy producers but not such good news for
shale developers, whose costs are
rising faster than the increase to wellhead prices, says Regan.
But shale developers do get a subsidy of 0.4 yuan/cm, which means
they get a wellhead price closer to
$8.2/million Btu. Prices are expected
to rise further.
The latest move, in July, was a
step towards market pricing and the
government has committed to taking
another step soon, which Regan
expects in 2014.
But China has pretty good supply
cover out to 2016, so they might be
tempted to delay the next increase, he
cautions.
Nevertheless, official prices are
not crucial for unconventional producers. Being outside the regulated
market means they can sell gas at
whatever price a buyer is willing to
pay.
Prices can be high, but invariably
buyers will take gas into regulated
markets and come up against government limits.
As a result it’s common for CBM
developers to compress or liquefy

their production and truck it to the
unregulated markets.
For now Chinese shale development
is focused on the Sichuan basin – the
nation’s premier shale-gas area. The
basin, which is a dedicated government pilot area, already has pipelines,
plentiful water supplies, and lies close
to major markets.
Exploration is concentrated in the
southwest of the basin, which is relatively less faulted and low in hydrogen
sulfide – a poisonous and highly flammable gas present elsewhere.
But exploration results have been
mixed. Flows averaging up to 2 million cf/d have been achieved at some
wells, while results from others have
been discouraging, leading to inconclusive findings.
PetroChina’s first horizontal shale
well took 11 months to drill and
produced a disappointing initial rate
of 560,000 cf/d. A similar operation
would have taken two weeks in the
US.
In October 2012, the CNPC-Shell
joint venture reported flow rates
of up to 15 million cf/d at its Yang
201-H2 well targeting the Longmaxi
shale in Luzhou, Sichuan, making it
the highest flowing single shale well
in China. It might only be one well,
but its flow rate is better than even
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