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Shell Produces Gas at Record Low Cost in China

Royal Dutch Shell has announced it is producing natural gas at its Changbei project in China at a major discount and plans to start test production in the second phase by late next year or early 2015.

In partnership with PetroChina, Shell is producing natural gas from the Changbei field at $1 per barrel, or 91% lower than PetroChina’s lifting cost of $11.74 per barrel as of 2012 in similar projects.

Shell, taking advantage of China’s unconventional gas sector, is investing a total of $1 billion in China this year, and the Changbei project’s cheap production is helping to offset investment costs. Shell has also said it would continue to invest the same amount annually in China.  

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Changbei is the largest onshore venture between a Chinese entity and an international company. The first phase of the Changbei joint venture in northern China’s Shaanxi province came online in 2007 and is set to churn out 3.3 billion cubic meters of natural gas annually at its peak. As of January 2012, the field had produced 18.33bcm in total. Reserves are estimated at 96.1bcm of natural gas.

Xu Li, Shell’s general manager of the field said that Shell will drill more wells at different depths in the second phase. Test production from the second phase could start in late 2014 or early 2015 based on test results and government approvals.

“We have started to drill more test wells in the second phase of development in the Changbei project, and we expect the second phase to bring a significant amount of output,” in addition to the first phase, Xu Li, Shell’s general manager of the field, said.

Shell and PetroChina are looking expand their operations in the field, as China moves to reduce its energy dependence from coal to cleaner sources like natural gas. At present, two-thirds of China's electricity is generated by coal-fired power plants, which emit greenhouse gases that lead to pollution.

By. Charles Kennedy of Oilprice.com

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