ConocoPhillips (NYSE: COP) Interested in Chinese Shale Gas

Brian Hicks

Written By Brian Hicks

Posted September 13, 2012

ConocoPhillips (NYSE: COP) has got its eyes set on the Chinese market, particularly in the shale sector. China, of course, had no shale production on a commercial scale as of 2011. However, the country has set an ambitious goal of producing 229.5 billion cubic feet of shale gas yearly by 2015. ConocoPhillips, which already holds stakes in several Chinese offshore drilling operations, may be just what China needs to achieve that goal.

Over the next few weeks, China will put 17 shale gas blocks up for auction in an attempt to seduce U.S. energy firms into partnerships with Chinese energy companies. The long view, of course, is to emulate the American shale revolution.

Within the U.S., companies like Chesapeake Energy (NYSE: CHK) and ConocoPhillips have relied on advanced drilling technology to completely change the face of American natural gas production—from 56 billion cubic feet a day in 2001 to 66 billion cubic feet a day in 2011.

Shale gas accounts for 40 percent of domestic natural gas output; without it, the U.S. would be forced to import enormous amounts of expensive liquefied natural gas.

A Chinese shale revolution could not only benefit any American companies involved, but it could also serve to meet China’s rapidly increasing domestic demand for energy. China currently consumes 39 billion cubic feet of natural gas daily.

However, the aforementioned goal set by 2015 may simply be too ambitious, even if various American firms can collaborate with China to develop the estimated 1.28 trillion cubic feet of recoverable shale gas. Lack of necessary infrastructure, trained personnel, and technical knowledge are seen as major factors that would likely hinder China’s progress toward their stated goal.

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