Conoco to Foray into China Shale Gas

Texas-based energy major ConocoPhillips (COP - Analyst Report) is all set to enter the Chinese market, with a special focus on the shale sector.

ConocoPhillips’ effort of boosting commercial shale gas output in China will assist the country in meeting its targeted shale gas output of 229.5 billion cubic feet annually by 2015. In 2011, China did not produce any commercial gas.

Currently, ConocoPhillips holds stakes in Chinese offshore drilling projects and plans to further capitalize on the future shale gas boom in the region. China plans to auction at least 17 shale gas blocks in the coming weeks and attempts to entice the U.S energy majors to forge partnerships with Chinese energy companies.

U.S. major companies like ConocoPhillips and Chesapeake Energy Corp. (CHK - Analyst Report) have brought about an American shale revolution by deploying advanced drilling technology to augment production.

U.S produced 66 billion cubic feet per day of natural gas in 2011 versus 56 billion cubic feet per day in 2001. The increase in production has saved U.S from importing huge quantity of costly liquefied natural gas as shale gas accounts for 40% of domestic natural gas production. China intends to replicate this phenomenon.

China is estimated to hold recoverable shale gas of about 1.28 trillion cubic feet. The world’s second largest economy currently consumes 39 billion cubic feet of natural gas per day, which is expected to further grow rapidly. China primarily intends to lure U.S companies to share their experience in drilling for shale as they lack the expertise in developing shale reserves, which in turn will help it reach its target set for 2015. However, the target looks too challenging to be fully accomplished in the current scenario within 2015.

ConocoPhillips holds a Zacks #3 Rank (Short-term Hold rating). Longer term, we maintain our Underperform recommendation.