Shell gets nod from China to explore shale

ENERGY giant Shell got a boost from its China drilling programme yesterday as the government approved a production sharing contract to explore a shale gas block.

It comes a year after the Anglo-Dutch oil behemoth signed a landmark contract with China National Petroleum Company (CNPC) for shale gas exploration, development and production in the Sichuan Basin.

China's shale gas plans

The production sharing contract with CNPC, finally approved by the Chinese government yesterday, allows Shell to explore 3,500 square kilometres in the Fushan shale gas block in the Sichuan province. It is the first of its kind to be approved.

It comes as Shell prepares to increase its drilling activity in China. The FTSE oil giant, which has spoken about China’s “huge shale gas potential” has previously said it will commit $1bn (£660m) a year in exploration activities in China as it looks to exploit the emerging giant’s potentially vast reserves.

Shell chief executive Peter Voser said yesterday that Shell was preparing for a “significant drilling season” for shale gas in China this year and in 2014.

China is widely believed to hold the world’s largest shale gas reserves, but development of the plans remains at an early stage.

Royal Dutch Shell PLC

Malcolm Graham-Wood, oil and gas analyst at VSA Capital, said yesterday that other UK resource companies look set to benefit from China’s shale gas boom as it brings in overseas experts to develop shale gas reserves using fracking.

“With companies such as Leyshon Resources drilling out there, Dart with its joint venture, Hunting taking the high ground with its early mover advantage as well as Weir Group with its joint venture, a number of UK companies are poised to benefit,” he added.

Shell also has several interests in tight gas blocks in China.