OREANDA-NEWS. January 08, 2015. China Petrochemical Corp (Sinopec) and China National Petroleum Corp (CNPC), two of China's leading oil suppliers, have been gearing up to compete with each other for shale gas exploration rights.

In Chongqing and the Sichuan basin, competition between Sinopec and CNPC for shale gas exploration has been escalating. CNPC plans to invest 10 billion yuan (USD 1.6 billion) in 2015 in its gas wells in Sichuan. The oil company aims to produce 2 billion cubic meters of shale gas in southwest China next year, 5 billion cubic meters in 2017 and 12 billion cubic meters by 2020.

For its part, Sinopec announced in March that its shale gas wells in Sichuan have begun commercial production. Gou Xusheng, president of Sinopec's gas exploration division, said that shale gas production for these wells could touch 3.5 billion cubic meters in 2015, up from the current 1 billion cubic meters.

The Shanghai Securities News, however, said that a plunge in international crude oil prices have erected some obstacles for the two companies' efforts in shale gas development. During the past five months, international crude oil prices fell by about 48%. Crude prices fell to USD 60 per barrel on Dec. 16 from USD 115 per barrel recorded on June 20.

The Shanghai Securities News cited a forecast saying that given such unfavorable circumstances, the already low gas prices will continue to trend lower, indicating that Sinopec and CNPC could witness their earnings from shale gas exploration being eroded further.

Compared with conventional gas wells, shale gas tends to cost more to explore as massive hydraulic fracturing treatments and horizontal drilling makes the production of shale gas more expensive. In addition, the harvest rate of shale gas wells ranges from 5%-60%, lower than the harvest rate of over 60% in conventional natural gas wells, serving as a driver to boost production costs for explorers, such as Sinopec and CNPC, the Shanghai Securities News said.

While shale gas production costs in China fell to between USD 60- USD 70 million per well on average, US producers enjoy an average USD 30 million in production costs, the Shanghai Securities News said.

The report said producers in China, who are faced with some geographic barriers in shale gas exploration, shoulder higher operating costs, and now a plunge in international crude oil has posed more challenges for these Chinese oil companies.

Two years ago, a lot of private energy companies were eager to win a bid during the second round of bidding meant for participation in China's shale gas exploration. But it seems now that an interest in the third round of bidding that Chinese authorities are preparing for has been fading.

The Shanghai Securities News said that some private companies have thought that shale gas development in China has turned lackluster and it is hard for them to earn a profit from its exploration. Some of them, such as the Honghua Group and Lanzhou Haimo Technologies, have shifted their focus abroad as they want to ramp up their experience in shale gas exploration in foreign countries, where investment returns can be higher and business risks are lower.