Domestic tech overcoming unique geographical hurdles

China's shale gas exploration sector, which grew to nearly 600 wells and 9 billion cubic meters of production last year, is due to advance further thanks to new domestic drilling technology and cost cutting strategies, according to analysts.

According to Li Li, research director at energy consulting company ICIS China, the country is currently experiencing relatively high shale gas exploration costs due to its different geographical characteristics as compared to the United States.

Shale formations in China tend to be deeper and more tectonically fractured, which requires deeper wells that lead to higher costs and difficulties in maintaining the well while drilling. High population density also makes drilling and hydraulic fracturing harder, Li said.

"The good news for Chinese shale gas is that well costs have gone down considerably－40 percent for exploration wells compared to 2010 levels, and 25 percent for commercial wells compared to 2014," said Yang Tingyun, consultant from research firm Wood Mackenzie. "Chinese national oil companies are starting to get their shale game plan together".

She said while a Chinese shale gas boom like that of the US is not expected in the short term, there is no doubt that China's oil companies will continue to innovate.

Despite the relatively high well costs, Wood Mackenzie said China's domestic technologies, as well as its drilling and completion techniques have helped to save drilling time and reduce costs.

Chinese national oil companies have overcome geographical and technological challenges by developing their own understanding of the unique geology, relying on their own service arms to gain more experience and advance their completion techniques and technology, the research company said.

China Petroleum and Chemical Corp, also known as Sinopec, has developed the Fuling shale gas field in the southwest municipality of Chongqing. By end-May, it had produced more than 17 billion cubic meters of shale gas, with total sales of 16.5 billion cubic meters. The field's gas sales reached nearly 5.8 billion cubic meters last year, an increase of 20 percent year-on-year, while annual production capacity reached 10 billion cubic meters, according to Sinopec.

In addition to the Fuling project, another two shale gas projects also sit in the mountainous terrain of Southwest China's Sichuan Basin－PetroChina's Changning-Weiyuan and Zhaotong projects. A Wood Mackenzie report estimated that around 700 new wells will come onstream between 2018 and 2020 from the three projects in total, with a combined capital investment of $5.5 billion.