FT.com - article

Sinopec, the Chinese oil and gas group, said on Monday that it was in talks with BP over potential collaboration in the exploration and development of shale gas. The move underlines growing international interest in China’s shale gas fields. In a company newsletter, Sinopec said the talks were going “smoothly” and that any deal would help China use foreign technology to speed up the development of its potentially large shale gas reserves. The talks follow an announcement last November that Royal Dutch Shell and PetroChina, another of the country’s state-owned oil groups, had signed a joint development project for shale gas resources in Sichuan, south-west China. For companies like BP and Shell, which have in the past found it difficult to increase their oil and gas production and replenish reserves, shale gas provides a new opportunity. Teasing gas out of shale deposits requires companies to pump large amounts of water into the ground to break up the rock. It has only recently become an attractive proposition because of improvements in technology. Developing shale gas is a relatively new area for BP, which acquired stakes in US fields through two deals it struck with Chesapeake Energy in 2008. Those deals, worth a combined $3.65bn, were aimed at giving BP the know-how to develop shale gas around the world. BP is already involved in extracting methane from coal in China. BP is keen to expand in China and already has several joint ventures with Sinopec. However, it would not confirm it was in talks with Sinopec over developing shale gas deposits. During President Barack Obama’s visit to China in November, the US and Chinese governments signed a co-operation initiative, which is expected to promote investment and joint studies of China’s shale gas potential. China is eager to develop shale gas and coal-bed methane to reduce dependence on coal for much of its energy generation and to limit oil imports. For oil and gas multinationals, keen to invest more in China’s rapidly evolving but relatively closed energy sector, shale gas presents an attractive opportunity . Some of the foreign companies have technical expertise gained in the US and other countries which China badly needs in order to tap its own reserves. Sinopec did not give any further details about the extent of the future partnership with BP, although it said that any agreement might include two blocks it has charted – a 2,000 square kilometre area in Kaili, in southwestern Guizhou province and a 1,000 square kilometre block in Huangqiao, Jiangsu, a province in eastern China