China curbs conventional gas output, keeps shale target

China’s state energy giants are reducing output from conventional natural gas fields as demand growth for the fuel eases to a multi-year low, local media and sources said, although shale gas targets are being maintained.

Sinopec Corp and PetroChina have restricted production at two major conventional fields – Puguang and Anyue – in the Sichuan gas basin, as a cooling economy curbs fuel use by industries like chemical plants and glass and ceramics makers.

By end-August, Sinopec had closed 12 wells at Puguang, one of the country’s largest with annual production capacity of 12 billion cubic metres (bcm), and planned to shut in another 15 wells, the Sichuan Daily reported, citing a Sinopec official at Puguang.

Sinopec said Puguang was pumping at a daily commercial rate of 10 million cubic metres, which was half the amount at the start of the year, as reported by the paper. The production loss was equivalent to roughly 3 percent of national output.

Puguang is competing with rising production at the Fuling shale gas project, China’s first and largest commercial shale discovery, as well as at the nearby conventional Yuanba gas field.

Petrochina has also capped production at the Moxi block of the Anyue field, which is among the country’s largest gas reservoirs tapped onshore in recent years, said a government source who had been briefed by gas companies.

A PetroChina spokesman declined to comment on output curbs, but said production rates at conventional fields were “adjustable based on market conditions”.

Official data showed China’s domestic gas output rose 2.6 percent in the first seven months of 2015, down from 6.9 percent annual growth in 2014, and a far cry from average double-digit growth over the past decade.

Despite the reductions at conventional fields, the firms said they remain on track to meet a government-set shale gas target this year, as Beijing tries to replicate the shale boom in the United States.

Hundreds of shale gas wells are planned in Sichuan basin this year to build an annual production capacity of about 7.6 bcm by year-end, or roughly 6 percent of China’s estimated gas output this year.

On average, shale gas costs more than twice that of a conventional deposit, but development is aided by a government grant of 0.40 yuan for each cubic metre of production. The subsidy is set to decrease beyond 2015.

To encourage shale drilling, local authorities in Chongqing municipality, a key shale promoter and where Sinopec’s Fuling project is located, this year advanced subsidies to shale producers at the start of the year instead of at the end of the year, the government source said.

Source: Reuters