Shell to unlock gas production in Shanxi

2007-12-27 21:53:25 Shanghai Daily

ROYAL Dutch Shell Plc has acquired a 55-percent equity interest in a coal-bed methane (CBM) venture in northern Shanxi Province and will be the operator, Europe's largest oil company said yesterday.

China's Ministry of Commerce recently approved an agreement for Shell to acquire Verona Development Corp's majority equity position in a 30-year production sharing contract, the Angola-Dutch firm said.

The contract covers the North Shilou CBM block, an area of 1,015 square kilometers in the eastern part of the Ordos Basin. The exploration period will end in December 2010, followed by five years of development and 20 years of production, Shell said.

CBM is a natural gas extracted from coal seams. China boasts CBM reserves of about 37 trillion cubic meters, ranking the third after Russia and Canada and close to the nation's conventional gas reserves.

But due to lack of expertise in harvesting the fuel, more than 1.3 billion cubic meters of CBM is emitted each year without being harnessed and is thereby wasted, according to Merrill Lynch. To boost output, in September China relaxed its grip on the sector by ending an exclusive right for China United Coalbed Methane Corp (CUCBM). This means foreign firms can be involved in CBM exploration.

Canada-based Verona maintains a five-percent interest in the venture with CUCBM holding the remaining 40 percent, Shell said.

The North Shilou block is about 150 kilometers southeast of Changbei gas field, a joint project between PetroChina Co and Shell.

This is Shell's third upstream PSC (production sharing contract) venture in China.