BP, CNPC sign second Chinese shale gas PSC

BP PLC and China National Petroleum Corp. (CNPC) have signed a second production-sharing contract (PSC) for shale gas exploration, development, and production covering a 1,000-sq km area at Rong Chang Bei in the Sichuan basin.

The firms’ first agreement occurred in March and encompasses the adjoining Neijiang-Dazu block. As with the earlier contract, CNPC will operate the Rong Chang Bei PSC (OGJ Online, Mar. 31, 2016).

BP’s Energy Outlook 2016 expects that, by 2035, shale gas will account for a quarter of the total gas produced globally and China will become the world’s largest contributor to growth in shale gas production.

The US Energy Information Administration estimates in its most recent report on shale oil and gas resources, last updated in September 2015, that China’s technically recoverable shale gas reserves total 1,115 tcf, the largest in the world. State-owned companies, namely CNPC and Sinopec Ltd., own the vast majority of the country’s shale gas resources, EIA notes.

Chinese shale gas production, mostly from Sinopec’s Fuling block and CNPC’s Changning-Weiyuan block in the Sichuan basin, expanded fivefold during 2013-14 to 46 bcf/year. The Chinese government, however, has reduced its output targets due to “geological risks, lack of water needed for shale resource development, and lower-than-expected production rates,” EIA says.

The latest PSC builds on BP’s and CNPC’s framework agreement on strategic cooperation that was signed almost a year ago (OGJ Online, Oct. 21, 2015).

In addition to unconventional resource exploration and development, the framework agreement covers possible future fuel retailing ventures in China, potential new oil and LNG trading opportunities globally, and carbon emissions trading, as well as sharing of knowledge around low carbon energy and management practices.

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