Sinopec leads China's shale gas revolution with successful drilling

China Petroleum & Chemical (Sinopec)'s discovery of the Fuling field in Chongqing may have set a milestone for the mainland oil and gas industry's "shale gas revolution", but the industry's success in meeting the nation's 2020 production target and emulating the success of the United States is not guaranteed.

This is because drilling completed at the Fuling project is not sufficient to prove that the initial drilling success will be replicated in a much wider area beyond the 200 square kilometre pilot zone, analysts said.

"The Fuling shale is unquestionably the best shale discovery in China to date and arguably one of the best outside North America," said American brokerage Sanford C. Bernstein senior analyst Neil Beveridge in a report. "[But] Fuling is relatively small and may not be representative of the Sichuan basin more broadly. China's shale revolution is still likely to be a long drawn out affair compared with the US."

Sinopec chairman Fu Chengyu late last month delivered at a press conference what investors like to hear: a timetable for Fuling's production capacity construction - five billion cubic metres (bcm) annually by the end of next year and 10 bcm by 2017. The firm had targeted two bcm by 2015 two years ago.

The new target is significant given Fuling is the nation's first commercial-scale shale gas project. Sinopec - the nation's second largest oil and gas producer - last year produced 18.7 bcm of gas from conventional methods.

"Fuling should be considered China's first large-scale shale gas field, marking the arrival of commercial shale gas development," Fu said.

Rival PetroChina, whose 79 bcm of gas output last year accounted for two-thirds of national output, is aiming for 2.6 bcm of annual shale gas production in 2015, higher than 1.5 bcm indicated earlier. It has been conducting trial production mainly in Sichuan province.