Shell shale deal approved, plans more drilling

A Shell logo is seen at a petrol station in London Jan 31, 2013. The global oil firm is preparing to step up drilling activities in China, as the country has approved?a production-sharing contract for the Fushun shale gas block in the southwestern province of Sichuan. [Photo / Agencies]

China has approved a production-sharing contract with Royal Dutch Shell for the Fushun shale gas block in the southwestern province of Sichuan, with the global oil firm preparing to step up drilling activities in the country.

The government nod comes a year after Shell first inked the contract to develop the shale gas block with the China National Petroleum Corporation.

The contract is the first of its kind to be approved by China, Shell spokeswoman Li Lusha said on the sidelines of a conference in Beijing.

Shell has committed to spend at least $1 billion a year exploring China's potentially vast shale gas resource, the company told Reuters last August.

International energy firms have expressed concern that Beijing has not yet established the regulatory framework required to develop shale gas.

But the Fushun approval could signal a way forward. An industry official with direct knowledge of the approval process said the contract was treated in much the same way as a conventional natural gas project.

Shell CEO Peter Voser told reporters that the company was currently preparing for a "significant drilling season" for shale gas in China this year and the next.

"We have plans for a significant drilling season in 2013 and 2014. We are ramping up investment here (in China)."

China is widely believed to hold the world's largest shale gas reserve but development remains at an early stage.

By the end of 2012 China had drilled only around 80 shale exploration and appraisal wells, with tiny commercial production, throwing into doubt a government target of 6.5 billion cubic meters of shale output by 2015.