Halliburton , Baker Hughes and Schlumberger are the leading players in shale drilling and related services and have an opportunity to boost their Asian revenues with China looking to tap into its massive shale reserves to meet its exploding energy demand.
EIA data shows that China holds the world’s largest shale reserves at approximately 1.275 tcf of technically recoverable shale gas. [1] The country currently does not produce any gas from its shale reserves commercially, but it has recently launched a tender for local companies to explore four shale blocks. [2]
Asia and the Middle East contribute to 13% of our $57 price estimate for Halliburton, 14% of our $89 price estimate for Baker Hughes and 29% of our $105 price estimate for Schlumberger.
China’s Growing Gas Demand
China is the world’s largest energy consumer and the second largest importer of oil. The country is looking to double its gas share of total energy demand to 8% by 2015 – necessitating a 20% annual increase in gas usage over the next five years. [3] With the growing demand for gas driving imports exponentially, China is now looking to tap into its local shale reserves. Presently, China imports 11.4 bcf of natural gas, representing 21% of its gas demand. With demand outstripping production growth, the share of imported gas is only expected to increase in the future.
Technological Bottlenecks
The present tender for four shale blocks in southern China was seen by analysts at Cambridge Energy Research Associates as an attempt to access reserves and understand the feasibility of their extraction. [3] China National Petroleum Corp. took 11 months to complete the country’s first shale well while players such as Baker Hughes claim that they can complete well drilling in 16 days.
To work across the technological bottlenecks, Chinese companies have formed joint ventures with players such as Royal Dutch Shell and Chesapeake Energy seeking to gain access to technology. CNOOC, China’s largest offshore oil and gas producer, forged two multi-billion dollar deals with Chesapeake over the last year to gain access to the company’s expertise in extracting gas from shale deposits. [4]
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Oilfield services firms such as Halliburton, Baker Hughes and Schlumberger have played a large role in making shale extraction economically feasible in the U.S., and adoption of their technology in foreign markets such as China can result in a significant upside potential for the revenues of these firms.
Click here for our full analysis for Halliburton | Baker Hughes | Schlumberger.
Notes:
- EIA Annual Energy Outlook 2011, EIA [↩]
- China Enters Shale Gas Era With Tender Offer, FT [↩]
- China to Offer New Shale-Gas Areas This Year to Tap Reserves Topping U.S., Bloomberg [↩] [↩]
- Cnooc strikes second US Shale Deal, FT [↩]
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