Oilfield major Baker Hughes lays the groundwork in China's shale gas sector

The shale gas industry in China is still in its early days, but it has not deterred foreign oilfield companies from trying to get into the market with immense potential.

Though many industry experts call shale gas the next "gold rush" for companies, Zac Crouch is more modest and practical in his expectations.

After spending nearly 20 years of his working career in the oil industry, Crouch, the vice-president of the Houston, Texas-based oilfield company Baker Hughes, believes that despite its complexity, shale gas does open up new possibilities for global oilfield equipment companies in China.

Crouch's assessment of the industry could not be far off the mark considering that in April, a month after China announced its shale gas goals, he was appointed managing director of Baker Hughes for North Asia, with special emphasis on shale gas projects in China.

China has set a target of producing 6.5 billion cubic meters a year of shale gas by 2015 from virtually none this year and hopes to produce between 60 billion and 100 billion cubic meters a year by 2020.

"It is an exciting and happening market with excellent long-term potential. There are lots of things that are happening right now to keep us engaged," Crouch says.

The important thing for oilfield companies like Baker Hughes is to lay the proper groundwork for a strong future, he says.

Unlike conventional energy resources, shale gas involves complex extraction procedures, equipment and technology before it can be successfully commercialized.

Global oilfield majors like Baker Hughes are expected to be a key players that can provide a wide range of operational services for shale-gas developers.

Baker Hughes has already made a start in the shale gas market and has been doing the heavy lifting for global oil giants, including the Royal Dutch Shell Plc. The US company has seen its revenue double to $19.8 billion in 2011, compared with $10.4 billion in 2007.

According to Crouch, the development of shale gas in North America and the integration of some other business units, which enables the company to service the entire life cycle of the well, are the major growth drivers for Baker Hughes. The company's business in North America accounted for nearly 52 percent of its total revenue in 2011.

"In China, shale gas seems to be developing a lot more slowly than in the other markets. But there has also been an increase in the number of appraisal wells being dug. This will help us to know more about the reserves, and the capabilities and technologies needed to extract the resources," he says.

The conventional energy market still accounts for most of Baker Hughes' business in China, Crouch says, without revealing any revenue numbers. Baker Hughes is also bullish on the South China Sea and other deep-water projects.

"There has also been a strong growth in our unconventional resources business, such as shale gas," he says.

China has drilled 63 appraisal wells for shale gas till the end of April this year. Baker Hughes, along with China's State-owned oil giants Sinopec Group and PetroChina, is associated with a dozen of these wells, Crouch says.

With the second round of bidding for shale gas blocks in China slated to be thrown open to private bidders sometime later this year, Crouch expects a frenzy of excitement in the sector.

Crouch says that Baker Hughes' rich legacy in North American shale gas development will help it have an edge over competition in China. Though the company does have some high-end technologies that are perfectly suited for China, it will be wrong to assume that the US and Chinese markets are the same, he says.

Crouch says that in some places of China where there are shale gas deposits, there is not enough water or adequate transportation networks, thereby making commercial extraction difficult.

From a geological perspective, the shale gas reserves in China are more complex from those found in the US, he says.

"It's different and there's going to be a learning curve here in the early stages of development, which will impede rapid growth in the short term. So laying the groundwork for the future is extremely important," Crouch says.

In 2011, Baker Hughes set up an office in Chengdu, capital of Southwest Sichuan province and an operational base in neighboring Chongqing municipality. Both the locations have seen active exploitations due to the presence of rich shale gas reserves underground. The two sites are also strategic locations for future shale gas expansions in China.

Apart from the investment in operations, Baker Hughes has also been investing aggressively in its local workforce.

"We have a very aggressive training program and we're sending a significant amount of the local workforce to North America where they can learn about what's going on in the shale gas market in the United States. When the market in China reaches a particular scale, we will be able to redeploy the trained workforce," he says.

Though he does not foresee any major challenge for Baker Hughes, Crouch is well aware of the shifting landscape in China's oilfield market.

"If you look back, you will see that most of the oilfield service companies in China were State-owned and aligned with either PetroChina or Sinopec or CNOOC. That has changed fairly dramatically in China now," he says.

It was reported earlier this year that China's petroleum giant Sinopec is consolidating all its service companies and looking to spin off its oilfield engineering services business as a new company.

But Crouch also knows that competition from other global companies is also increasing. Houston based-Schlumberger, a leading oilfield services company in the world, recently acquired a 20 percent stake in Hong Kong-listed Anton Oilfield Service Group in July.

Luo Lin, chairman of Anton, a private Chinese company, has confirmed that shale gas will be the main focus of its cooperation with Schlumberger.

"It is clear that the shale gas market in China is a developing and dynamic market. My top priority is to make sure that the strategies we have in place will help us deliver to the Chinese market," Crouch says.

Chen Mengfei contributed to this story.

mengjing@chinadaily.com.cn

(China Daily 08/03/2012 page6)