US fracking giant heads to China

Last updated 14:05 12/06/2014

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State-of-the-art American fracking technology is coming to China's vast shale deposits as a result of a joint venture between FTS International and Sinopec.

SinoFTS, as the joint venture will be called, marks an important milestone on the road to exporting the North American shale revolution around the world.

FTSI, formerly known as Frac Tech, was one of the first providers more than a decade ago of hydraulic fracturing equipment and services in the Texas Barnett shale, the first shale basin to be developed in the United States.

Since then, the company has grown into the largest supplier of well completion services in U.S. shale formations, including pressure pumping, wireline logging and water management.

FTSI has started to export its expertise around the world through a series of strategic alliances. Since 2012, it has concluded joint ventures with local partners in Brazil as well as Saudi Arabia and Oman.

Other specialist shale drilling and fracking firms are also taking their first steps overseas.

In March, Helmerich & Payne, one of the largest drillers in North America, announced it will transfer 10 of its modern FlexRigs to exploit Argentina's Vaca Muerta shale under a five-year contract with state-owned YPF, which has teamed up with Chevron.

Royal Dutch Shell is developing plans with local partners to produce shale gas from beneath South Africa's Karoo semi-desert wilderness.

But this is the first time that a specialist hydraulic fracturing firm from North America has entered the Chinese market.

TECHNOLOGY TRANSFER

"SinoFTS will serve both Sinopec and other exploration and production companies throughout China," FTSI announced.

The joint venture will initially concentrate on Sichuan, China's most promising shale play, with operations expected to commence there in 2015, but it expects eventually to deploy its fleet of pressure pumping equipment to sedimentary basins throughout China.

The joint venture will be based in Beijing and managed by a team of experts drawn from both countries. It is an important piece of technology and know-how transfer.

"SinoFTS will use new equipment that FTSI will custom-manufacture in the United States, featuring the latest innovations and adapted to the specific requirements of the Chinese environment," FTSI said in a press release.

"FTSI will leverage insight from its own vertically integrated U.S. operations to evaluate a similar vertical integration model at SinoFTS."

ENORMOUS GAS POTENTIAL

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China has the largest technically recoverable shale resources in the world, according to updated estimates published by the US Energy Information Administration and Advanced Resources International in 2013.

China's shale gas resources are half as much again as Argentina or Algeria and double the United States. 

"China has abundant shale gas and shale oil potential in seven prospective basins," Advanced Resources explains.

More than half the technically recoverable resources lie in the Sichuan basin beneath Sichuan province and the neighbouring provincial-level city of Chongqing in southwestern China.

Sichuan has been producing natural gas from conventional fields for more than 2000 years and the area has been the heart of China's small onshore gas industry.

The region has plenty of water for fracking, pipelines to transport the gas away, and well-developed gas markets.

The basin contains at least three separate shale layers which are thought to be prospective for gas at various depths, ranging from the relatively shallow Permian-period Changxing-Longtan formations to the Longmaxi and the ultra-deep Qiongzhusi.

In theory, drillers could target all three layers in the sort of stacked three-for-one play now common in Texas and North Dakota.

Like North Dakota's Bakken, Sichuan's shale formations were all deposited on the floor of ancient seas, rather than lakes, which makes them more attractive.

Sichuan's "marine-deposited, quartz-rich, black shales of Cambrian and Silurian age ... are roughly comparable to North American analogs," according to Advanced Resources.

All the formations are thermally mature or over-mature, which means the hydrocarbons have been cooked beyond the oil stage and are now likely to yield mostly gas and condensates.

The total organic content is a bit lower than in the most productive North American plays, ranging from 3-4 percent, but coupled with the thermal maturity, there should be plenty of gas locked in the formations. Low clay content makes them good for fracking.

GEOLOGICAL CHALLENGES

Sichuan's shale formations lie thousands of feet below the surface (up to three miles in some parts of the play) which makes them harder but not impossible to tap.

The real problem is the geology in Sichuan, which is much more complex than in North Dakota's Bakken or the Eagle Ford and Permian in Texas.

The basin is heavily faulted and in parts seismically active, both which make it much more complex to drill and frack.

The Sichuan earthquake, which occurred on the northwest margin of the basin in 2008, had a magnitude of about 8.0 and killed almost 70,000 people.

Much of the basin has been ruled out for fracking because it is too faulted, too mountainous or contains too much deadly hydrogen sulfide gas (which would be too expensive to remove). In 2003, a sour gas well in a conventional field blew out and killed 223 villagers.

Only the southwest corner is thought to meet the standard criteria for shale development. Even here, drilling and fracking is proving a challenge.

"The Sichuan basin's considerable structural complexity, with extensive folding and faulting, appears to be a significant risk for shale development," according to PetroChina.

PetroChina's first horizontal shale well took 11 months to drill (compared with two weeks in the mature North American plays) and produced a disappointing flow rate.

Shell tested a more successful well nearby but noted the horizontal part kept wandering out of the target formation because of complex faulting.

"Considerable work is needed to define the geological sweet spots, develop the service sector's capacity to effectively and economically drill and stimulate modern horizontal shale wells, and install the surface infrastructure", Advanced Resources concluded.

AMERICAN SHALE EXPERTISE

China's shale plays are difficult to develop but not hopeless.

Not every shale play is successful, even in the United States. Of the 20 or so potential shale plays which have been explored in the United States, almost all of the oil and gas has come from around half a dozen. It is unlikely that all of China's seven shale gas basins will be developed successfully in the medium term.

Every shale play presents unique geological challenges that have to be overcome. But that can only be done with a mixture of persistence and experimentation.

It took almost 20 years to perfect the combination of horizontal drilling and hydraulic fracturing that unlocked gas from the Barnett shale and then spread to other North American plays.

The United States has drilled tens of thousands of shale wells so far, while China has drilled fewer than 100 in total. Hundreds more wells need to be drilled to gain experience and improve techniques.

PetroChina and Sinopec, China's two major oil and gas producers, are already experimenting in the Sichuan basin. International majors including Shell, Chevron and Conoco are also active.

However, FTSI brings the involvement of a specialist fracking firm that has been present since the creation of the shale revolution, which is why it is a major step forward.

No one knows where or when the next breakthrough will occur. China, Argentina and South Africa are all plausible candidates given their large shale gas resources and involvement of international firms.

The timing is impossible to predict. But it seems more likely than not that one of these countries will emerge as a significant producer within the next five years and the prize, in terms of energy security, is enormous.

- Reuters

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