Sinopec field could reignite China shale hopes


* Sinopec unit wants to boost development at key Fulingshale field

* Hopes to cut costs through drilling a few wells at once

* China has been struggling to unlock its massive shale gasreserves

By Chen Aizhu and Judy Hua

BEIJING, Oct 28 (Reuters) - Chinese oil giant Sinopec Corp is for the first time pumping shale gasfrom test wells in commercial quantities in what it hopes willbe a breakthrough in the development of a badly needed newenergy source.

Stymied by the cost of drilling and complexity of tappingshale gas, China has struggled in its bid to revolutionize itsenergy supplies and unlock what may be the world's largest shalegas reserves by emulating the frenetic exploration andproduction of the U.S. shale boom.

But the state-owned firm's Sinopec Jianghan unit has morethan doubled its 2015 output target for the key shale area ofFuling in the country's southwest after successful pilotdrilling, hoping to cut costs through measures such as drillingnumerous wells at once and recycling fracking liquids.

That is good news for Beijing, where calls to exploit shalehave taken on greater urgency due to a domestic shortage of gassupplies and longer term plans to prioritise gas-fired energyproduction as part of a battle to clear China's notoriouslypolluted skies.

"The high yield in the Fuling area proves more evidence thatthe Sichuan basin is promising in terms of shale gas developmentand lays the foundation for commercial production in the area,"said a Sinopec Jianghan official with direct knowledge of theFuling drilling, adding that another 50 or so wells are plannedfor commercial development in 2014. He declined to be named ashe is not authorised to speak with media.

Sinopec has drilled nearly 30 pilot shale gas wells in theFuling area of Chongqing municipality in southwest China, partof the Sichuan basin - one of the most promising geologicalzones for the unconventional fuel.

Six of the wells are pumping a daily combined rate of 1.06million cubic metres of gas, according to state media and theSinopec official, or an average of nearly 180,000 cubic metresper well.

They are among the most prolific of the total of around 150wells Chinese companies have sunk over the past three years inpilot explorations. That has led the operator to target anannual production capacity to be built at the field of 5 billioncubic metres (bcm) by the end of 2015, the source said.

That would dwarf company estimates reported by local mediain July of around 2 bcm for the whole of Sinopec's shale outputby 2015, and would be 100 times greater than China's estimatedoutput last year of just over 50 million cubic metres from alltest drilling at shale formations.


Slow development of China's enormous shale gas reserves hadcast into doubt even a modest 2015 output target of 6.5 bcm, butthe development of Fuling should make this goal far more likely.

A Sinopec Corp spokesperson said the company was evaluatingthe Fuling reserves and expected to come to a conclusion onpossible commercial development around year-end.

To reach and sustain output of 5 bcm a year, Sinopec wouldneed to drill around 170 wells, each pumping 100,000 cubicmetres daily.

Of the six Fuling wells that are recording steady testflows, one has daily production as high as 547,000 cubic metres,according to the Sinopec official and a report earlier thismonth by the official Xinhua news agency.

With limited participation from established global servicecompanies such as Baker Hughes and Schlumberger,Sinopec's Jianghan team has improved in key areas such asfracturing and logging - the process of making detailed recordsof geological formations.

At one well, Sinopec Jianghan executed a 22-stage fracturingprocess at a depth of 1,500-metre - a challenging task for acompany with limited experience of such a complex procedure.

Key for commercial production is whether companies canlocate high-yielding shale formations and then drive down costs.Sinopec's Jianghan unit aims to halve drilling costs from ahefty 80-100 million yuan per well ($13-16.6 million) currently,said the official and the Xinhua report.

Shortening each well's drilling period from the currentaverage of 70-75 days by drilling a few wells at the same timeis one of the most effective ways of achieving this due toeconomies of scale, said industry officials. Cost savings willalso come from multi-directional horizontal drilling andrecycling fracking fluids, officials said.

And the Fuling development looks set to help Sinopec takethe lead in Chinese shale gas, overtaking China's top energyfirm PetroChina.

"Compared with PetroChina, Sinopec is weaker in (broad)upstream development. It's keen for a breakthrough." said agovernment official involved in shale gas planning.

PetroChina is China's leading gas producer and has carriedout some successful pilot drilling in the Weiyuan area of theSichuan basin, but has announced a modest target of 2 bcm ofshale gas production by 2015 as it continues to focus on otheroil and gas projects.

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