Honghua, Shenhua Enter Shale Gas JV

Honghua Group Ltd, China's largest exporter of oil-drilling equipment, and Shenhua Group, the country's biggest coal producer, have agreed to explore unconventional natural gas together, the latest major move in the booming field.

The two companies on Thursday signed a strategic cooperative framework agreement to improve their core technologies in shale gas development, a Honghua statement said.

The long-term cooperation covers research, consultancy, equipment and exploitation of the unconventional natural-gas businesses.

According to the agreement, Shenhua will be responsible for management and construction costs, and Honghua will provide technology training and services.

The statement didn't reveal the size of the investment.

As China's largest coal producer and trader, Shenhua has a strong capability and rich experience in upstream exploration. In November, the company signed a cooperative agreement with the government of Guizhou province to invest more than 50 billion yuan ($8 billion) in the years up to 2020.

The province has shale gas reserves of about 10.48 trillion cubic meters, ranking fourth among China's provinces and autonomous regions.

Shenhua's investment in the province will include shale gas and coal processing.

"Honghua is very glad to cooperate with Shenhua, an important energy enterprise in China," said Zhang Mi, Honghua's chairman and president. "The cooperation is beneficial for global unconventional natural-gas technology and equipment development."

Zhang said in October that the company was planning to invest 100 million yuan in the shale gas industry by the end of 2012, and that the company wants to take advantage of opportunities in the rapid development of the shale gas industry.

He said the industry will be in a boom period in the following two to three years.

"Countries like China, India, Poland and Argentina will develop shale gas on a large scale, which will bring us opportunities," he said.

As the United States makes efforts in large-scale shale gas development, which has helped the country with its energy needs, China has released policies and targets to follow its steps, with the aim of having 6.5 million cubic meters of production capacity by 2015.

Peng Qiming, an official at the Ministry of Land and Resources, said in January that after the second round of shale gas block tenders in 2012, China will offer more blocks for exploration.

He didn't release the timetable of the future tenders, but said the government welcomes the participation of private and joint ventures in shale gas exploration.

In the second round of shale gas tenders, 16 companies, including two private ones, won bids for the 19 shale gas blocks with a total area of around 20,000 sq km.