Chinese oil company Sinopec will put its first shale gasfield into commercial operation sooner than expected, aiming for annual production of 10bn cubic meters by 2017 as the country seeks to reduce its reliance on imported oil and gas.
China’s second-largest oil company is positioning itself as the flag-bearer of a drive to develop more domestic fuel as the country seeks to mimic the US shale revolution.
Sinopec’s decision could help China reach its target of producing 6.5 bcm from shale by 2015, a target that most analysts had thought could not be met because of disappointing early results.
Sinopec engineers were excited by initial results at wells drilled this year at Fuling, near the southwestern metropolis of Chongqing. The company plans annual capacity at Fuling to reach 1.8 bcm by the end of this year, rising to 5 bcm by 2015, well above its earlier target of 2 bcm by next year from all its shale plays. Media reports say it could spend $4bn on Fuling, a number the company did not confirm.
Proceeds from a planned sale of a 30 per cent stake in Sinopec’s cash cow petrol stations could be ploughed into shale.
“The new capital from outside investors will be used for adjusting capital structure, further exploiting shale gasfields, investing in environment and safety, and upgrading quality of oil products,” chairman Fu Chengyu told reporters in Hong Kong on Monday.
The development gives Sinopec a leg up in its perpetual rivalry with CNPC, parent of listed PetroChina, which has been hampered this year by a corruption probe that has netted several of its top executives. The two companies formerly jostled to build their international portfolios under the previous Chinese leadership’s strategy of “going out” to secure natural resources needed for China’s rapid growth.
Not to be outdone, smaller rival Cnooc announced on Monday that it has discovered a midsized gasfield in the Bohai Sea, in northeast China. Cnooc, which normally focuses on offshore exploration, has moved into onshore gas development with a coal-bed methane joint venture in inland China.
US shale gas production reached 265.3 bcm in 2012 or more than one-third of that country’s natural gas production, driving down energy prices and leading to plans for more fuel exports. Tellingly, high energy prices have led companies such as chemicals giant BASF to rethink proposed investments in China while expanding projects in Texas.
A drop in international crude oil and chemicals caused a surprisingly large fall in Sinopec’s fourth-quarter earnings on Sunday. Net profit for 2013 rose 3 per cent to Rmb66.1bn, on revenue growth of 3.4 per cent. By contrast, listed PetroChina said this month that net profit rose 12 per cent to Rmb129.6bn, on revenue growth of 2.9 per cent.
Sinopec, PetroChina and Cnooc all cut back on capital expenditures in 2013, coming in under budget for the year and signalling further cuts in 2014, in line with a global trend by oil groups to reduce capex.
PetroChina cut capex by 10 per cent in 2013 and plans another 7 per cent cut in 2014. “We expect the CNPC group will be more prudent in its acquisition strategy under the new management,” wrote Moody’s analyst Kai Hu.
Sinopec for its part cut expected capital expenditure by 4 per cent to Rmb161.6bn ($25.96bn) this year, after coming in 7 per cent under budget last year.