Chinese Shale to Get $1 Billion a Year

Brian Hicks

Written By Brian Hicks

Posted August 22, 2012

China’s about to receive a major investment in its shale reserves courtesy of Royal Dutch Shell (NYSE: RDS.A), which intends to spend a minimum of $1 billion a year trying to exploit them.

Back in March, Shell won China’s first product sharing contract for shale operations.

From the Chicago Tribune:

Asked if the firm remained committed to a plan to invest $1 billion a year in China’s shale gas over the coming few years, Lim Haw Kuang, Shell’s top China executive, said in an interview: “Yes, yes and yes.”

“If there has been an adjustment to that pledge, it could only be an upward revision,” added Lim, a Malaysian national and a Shell veteran of 34 years.

If you think the shale boom has hit North America in a big way, then you should be very interested to know that China’s shale reserves are projected to be the world’s largest.

Shell is also planning on a $12.6 billion refinery and petrochemical complex in China’s eastern region. If completed, that would represent the largest foreign investment thus far.

Of course, Shell is not alone in this race; Exxon Mobil (NYSE: XOM), BP (NYSE: BP), Total (NYSE: TOT), and Chevron (NYSE: CVX) are all angling for a piece of the Chinese shale pie. The Chinese market is currently extremely attractive, since it is set to triple usage of natural gas over this decade, while its oil demand continues to rise.

Shell will partner with China National Petroleum Corp., the country’s largest energy group and parent company to PetroChina (NYSE: PTR), in the shale gas and the projected Taizhou refinery development. CNPC controls premium acreage, while Shell can leverage its extensive technological expertise.

Shell secures its gas from fields all over the world, including Australia and Qatar, and is a prominent supplier of liquefied natural gas to China. In a sign of Shell’s Chinese commitment, the company intends to relocate its global business unit for coal bed methane to China sometime later in 2012.

Despite all these positive developments, there are some hurdles. China’s refining sector is subject to intensive state controls, which can pose difficulties for profitability. As well, there has been a slow but steady surge of environmental consciousness among the general Chinese population, which has lately resulted in violent protests and state-led cancellation of oil development projects.

Much like in the U.S., shale operations are acquiring the taint of controversy over there, and it remains to be seen how the shale industry will navigate these tricky waters.

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