ConocoPhillips ends all shale gas projects in China

Want China Times, Staff Reporter 2015-07-23

A ConocoPhillips booth at the 12th China International Lubricants and Technology
Exhibition in Beijing, Nov. 16, 2011. (File photo/CFP)

American energy company ConocoPhillips confirmed on July 21 that it has suspended all shale gas projects in China, the National Economic Daily reports.

According to Yan Ou, a spokesperson of ConocoPhillips in China, the company has ended its contracts with China National Petroleum Corp (CNPC) and China Petrochemical Corp (Sinopec) for shale gas exploration in the country.

Yan said the discontinuation of the contracts does not mean that ConocoPhillips will completely exit from China's shale gas sector, since the company is still positive about the potential of the Chinese market.

ConocoPhillips signed a joint exploration deal with CNPC for shale gas in Qijiang in the southeastern city of Chongqing in 2012 and another deal with Sinopec in the area between Chongqing's Dazu and Neijiang city in Sichuan province in 2013, the newspaper said.

Li Li, an analyst with Shanghai-based commodities researcher ICIS-China, said the low crude prices have impacted the performance of oil companies, which are forced to cut spending on exploration.

According to Li, the drilling costs and the market consumption in China are not particularly attractive to foreign companies, compared to the North American and Middle East markets.

This leaves state-owned CNPC and Sinopec the main driving forces behind the shale gas exploration in China, since the private sector is not expected to move into the business before crude oil prices reach another high, Li said.

Similarly, foreign oil companies Shell and Chevron are also reported to have encountered hurdles with their shale gas exploration projects in China, the newspaper said. Han Xiaoping, chief information officer at an energy news website run by state-run People's Daily, said foreign companies' confidence in the Chinese market has been hit by the fact that they cannot freely sell the gas they excavate.

Despite the waning foreign interest in the Chinese market, CNPC and Sinopec have seen rapid growth of shale gas output, which is expected to rise to 7.6 billion cubic meters this year from 2.1 billion cubic meters in 2014.

Two private Chinese companies that obtained rights to explore shale gas through two rounds of auctions held by the Chinese government are maintaining a wait-and-see position, the newspaper said.

China's National Energy Administration last year slashed the projected shale gas output in 2020 from 60 billion-100 billion cubic meters to 30 billion cubic meters, and has cut the government subsidy between 2016 and 2018 from 0.3 yuan (US$0.048) per cubic meter to 0.2 yuan (US$0.032), the newspaper added.