A Sichuan Knife Fight

There's a sense that everything is cheaper in China.

But attendees at the Global Unconventional Gas Summit in Beijing this week heard there's one Chinese good that's still much too high-priced: shale gas wells.

Ma Yongsheng, Chief Geologist for state petro-giant Sinopec, told the conference that Chinese well costs are still very high compared to established basins in the U.S. Yongsheng noted that Sinopec's Fuling shale gas project in the Sichuan Basin is seeing drilling and fracking costs of 90 million yuan ($14.4 million) per well.

These wells are 2,000 to 3,000 metres deep. They take about about 3 1/2 to 4 months to complete in China.

Yongsheng noted that this is still well behind U.S. standards. Where a similar well would be complete in a month, at a cost of just $3.2 million.

Therein lies the challenge with foreign shale gas. Since the advent of the U.S. shale "miracle", there have been lots of bold projections about massive shale reserves globally being unlocked.

Sichuan certainly fits the bill, geologically. But the problems cited above demonstrate the key barrier: a lack of a hyper-competitive oil field services sector. The kind of "knife fighting" amongst contractors that has relentlessly driven innovation and cost control in North America. Allowing shale here to become the only widespread development in this space to date.

The lack of well-developed services in other shale-rich nations is a daunting challenge. In fact, officials from several major oil companies told an industry conference earlier this month that the shale revolution simply "isn't exportable" outside North America for this reason.

Chinese firms are attempting to ramp up their services work. But there are two main issues: cost and quality. Judging from Sinopec's results, both are a long way from being satisfactory. The firm noted that its Sichuan shales are producing only 60,000 cubic metres per day (2.1 million cubic feet per day) of gas from five wells. That's very low productivity. Especially given the high costs of drilling.

It's almost certain such a development wouldn't yield a positive return on investment. Until services evolve to the point where it can, shale here is going to be an uphill battle.

Here's to battling for lower costs,

By. Dave Forest