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March 24, 2010

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Home » Business » Energy

Shell and CNPC seal gas deal

ROYAL Dutch Shell and China National Petroleum Corp have signed a 30-year deal to develop natural gas in China, a day after launching a joint takeover bid for Australian gas producer Arrow Energy.

The two firms will jointly develop tight gas deposits in the 4,000-square-kilometer Jinqiu block in Sichuan Province, Shell said yesterday, the second major gas production contract the Anglo-Dutch company has clinched in China.

An industry official familiar with the project told Reuters the block would likely produce 2-3 billion cubic meters of gas a year, with Shell taking a larger share in the contract for undertaking all the exploration risks.

Further financial details regarding the deal were not available.

The deal to tap tight gas, contained in rock that must be broken before it can flow easily to production wells, is the latest example of an oil major seeking out previously uneconomic deposits.

Analysts said the deal was part of a broader alliance between CNPC and Shell, as CNPC uses the huge and rapidly expanding Chinese gas market to help it access global hydrocarbon assets and Shell's proven technologies in unconventional gas.

The tight gas deal follows hot on the heels of Shell and CNPC unit PetroChina's joint US$3.1 billion takeover bid for Arrow.

"In the Arrow acquisition Shell helped bring upstream access to PetroChina in Australia. China is reciprocating this by giving Shell tight gas opportunities in China," said Neil Beveridge of Bernstein Research.

China, the world's second-largest energy user, is on a fast track to develop the fuel that is cleaner than coal and oil, with consumption forecast to triple to about 300 billion cubic meters by 2020, or nearly 10 percent of its total energy needs.

The gas revolution taking place in the United States, where huge discoveries of unconventional gas resources are replacing imports of traditional liquefied natural gas, is an inspiration to China's energy policy setters, Beveridge said.

Shell is already producing gas in Changbei, a tight gas field in the Ordos Basin in northwest China's Shaanxi Province, which began commercial production in March 2007 and now supplies 3 billion cubic meters per year to Beijing and east China.

Shell, one of the few global oil firms producing gas in onshore China, in January began assessing a shale gas block in Sichuan.


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