China: Drilling Rigs Maker Honghua Hopes to Ride Shale Gas Boom

Honghua Group, a Chinese drilling-equipment maker whose rigs are in use in the US, is hoping to expand at home as the world's second-largest economy prepares to set off its own shale gas revolution.

At present, Honghua derives just about 20% of its sales from China, which holds more extractable shale gas reserves than the US.

The Chengdu, Sichuan-based firm now hopes to profit from an emerging opportunity in China, which is looking to boost gas production from shale formations to meet the nation's rising energy demand and reduce its dependency on fossil fuels such as coal, said Honghua chairman Zhang Mi.

"It's highly likely for China to develop shale on a large scale like the US," Zhang said.

"China needs natural gas very badly," Zhang told Bloomberg.

The world's most populous nation is also the largest holder of natural gas reserves confined in shale rock formations.

However, shale production is more expensive in China than in the US owing to challenges such as higher population density, deeper formations and mountainous terrain, Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein said in a 28 March report.

China Petroleum & Chemical, Asia's largest refiner, has prioritised shale gas development this year. The firm has doubled its output forecast from a gas block in the Sichuan region in the nation's southwest.

Exploration Rights

China granted shale gas exploration rights to 16 companies in a second round of auctions in January.

The Ministry of Land and Resources said the companies will invest 12.8bn yuan ($2bn, £1.2bn) to prospect and develop 19 shale gas blocks allotted to them.

The companies comprise of 14 state-owned firms and two private companies, and are part of a larger group of 57 companies that were given rights to explore shale gas blocks in October.

The first round of auctions for exploratory rights for four shale gas blocks were held in June 2011.

The ministry has allotted 26 blocks for exploration so far.

China holds 1,115 trillion cubic feet (31.2 trillion cubic meters) of technically extractable shale gas reserves, the US Energy Information Administration (EIA) estimated in 2013. By comparison, America has about 665 trillion cubic feet (18.6 trillion cubic meters).