Economy

CNOOC turns to unconventional gas

By Chen Jialu (China Daily)
Updated: 2010-10-12 08:10

The nation's major oil giants are now competing to harvest unconventional gas.

The unconventional fuel deposits located in bands of rock stretching from the US, Australia and China's Xinjiang, Shanxi, and Inner Mongolia, represent what may be the biggest energy bonanza in decades which is shaking up the global energy markets. Dozens of global energy companies, including China's major oil producers like Petrochina, Sinopec, and China National Offshore Oil Corp (CNOOC) are rushing to drill to unlock the treasure the earth has guarded for hundreds of millions of years.

A worker drills for gas at a coal mine in East China’s Anhui province. [Photo/China Daily]?

As China's largest offshore oil developer, CNOOC recently bet billions of dollars on synthetic natural gas (SNG) development in North China's Shanxi province.

The investment was a significant step towards developing its inland business, a CNOOC head told a domestic energy forum last month.

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At the China (Taiyuan) International Energy Industry Expo last month, CNOOC Group, parent of CNOOC Ltd signed an agreement with the Shanxi provincial government to jointly develop coal-to-gas or SNG in the region.

General Manager Fu Chengyu said CNOOC Group would invest more than 40 billion yuan in a clean coal utilization project in Shanxi over the next five years.

Under the agreement, the company will invest 50 to 100 billion yuan to build a coal gasification project with annual capacity of 10 billion cubic meters natural gas. CNOOC will partner with Datong Coalmine Group, the largest mining company in Shanxi province for first phrase construction.

The company estimates that the project will garner 18 billion yuan in annual sales revenue and 4 billion yuan in profits and taxes, a senior official surnamed Liu with CNOOC New Energy Investment Co Ltd, a subsidiary that executes this investment told China Daily yesterday.

The proposed project is subject to National Development and Reform Commission approval.

CNOOC also signed an agreement with Erdos city in the Inner Mongolian autonomous region to build a 4 billion cubic meter, 40 billion yuan coal gas project, Liu said.

To transport the gas to market, the company aims to build a roughly 1,000 km long pipeline stretching from Inner Mongolia to Shandong province, Shanxi and Tianjin municipality.

Investment in the project is 17 billion yuan, he added. Construction on the pipeline is set to begin before 2012 and is set to be completed in 2013.

Yesterday, CNOOC Ltd announced its acquisition of a one-third stake in the world's major shale gas developer, Chesapeake Energy Corp.

The corporation's Eagle Ford shale gas project in Texas represents the latest move by CNOOC to branch into unconventional fuel exploration.

CNOOC International Ltd, a unit of Hong Kong-listed CNOOC Ltd, will spend around $1 billion to purchase 33.3 percent of Chesapeake's 600,000 oil and natural gas leasehold acres.

"Over the next several decades, the companies plan to develop net unrisked unproved resource potential up to 4 billion barrels of oil equivalent," CNOOC said in its statement. As operator of the project, Chesapeake will conduct all leasing, drilling, completion, operations and marketing activities for the project, it said.

Eagle Ford is estimated to have reserves equaling more than 80 billion barrels of oil. The formation is about 50 miles wide and 400 miles long, extending from Texas's southern border to the east, according to the Railroad Commission of Texas, which regulates the oil industry. Eagle Ford delivers shale gas and oil.

Merger and acquisition opportunities will be an "important driving force" for the company's medium- and long-term growth, Fu said this August.