Royal Dutch Shell PLC said Tuesday it has received approval from the Chinese government for the company's first shale-gas production-sharing contract in China, a significant milestone as the country looks to tap potentially massive unconventional gas reserves and achieve ambitious shale-gas production targets.
Li Lusha, a spokeswoman for Shell, said the Chinese government has approved the Anglo-Dutch company's plan to explore, develop and produce shale gas with partner China National Petroleum Corp. in the Fushun-Yongchuan block in the Sichuan Basin.
Word of the government's approval comes more than a year after Shell and state-oil giant CNPC said they reached a deal in March 2012 to develop the shale reserves. The companies haven't disclosed details of the contract, but the approval suggests authorities in Beijing have developed the regulatory framework needed to spur wider international investment in developing its shale reserves.
China is looking to replicate a boom in North American natural-gas production, which has begun reshaping global energy markets. Chinese companies need international competitors such as Shell to lend technology and operational expertise in extracting the gas trapped in shale rock formations.
Shell Chief Executive Peter Voser said in Beijing on Tuesday that the company is gearing up for what he described as a "significant drilling season in 2013 and in 2014."
Mr. Voser said Shell and CNPC are continuing to explore which drilling locations are best-suited for long-term development and production, and said the company is committed to helping Beijing achieve its shale-gas production targets.
China has set a target of producing some 6.5 billion cubic meters a year of shale gas by 2015 and as much as 100 billion cubic meters a year by 2020, up from virtually zero in 2012. That is a target some analysts have been skeptical the country can achieve.
The U.S. Energy Information Administration has said China has an estimated 1,275 trillion cubic feet, or 36 trillion cubic meters, of technically recoverable shale-gas reserves, more than Canada and the U.S. combined. If extracted, unconventional reserves could help alter China's energy profile, which has become increasingly reliant on imported oil and polluting coal to power its economic growth.
Such massive estimates are sending Shell's international rivals into the market as well. Chevron Corp., for example, has drilled at least one exploratory well in China and has plans for more, but company executives have cited a shortage of infrastructure and geological data as among the reasons it expects slower progress compared with North America.
Soaring gas production in North America has helped lower fuel prices for chemical production and other industrial activity. In also has raised the prospect of liquefied-natural-gas exports from Canada and the U.S. during the coming decade. Mr. Voser reiterated earlier estimates that U.S. exports of LNG might hit 50 million to 60 million tons a year, but said he expects much of the U.S. gas to remain at home to be used as a replacement for coal in power generation and to build up domestic industry.
"I think LNG will be exported out of the United States but I see the volume as being limited," he said.