Chevron May be Interested in Tapping Chinese Shale Through JVs

Chevron (NYSE:CVX) may be in talks with Chinese companies to start joint ventures that will look to explore the country’s vast shale reserves. ^[1] China plans to hold a second auction of blocks in 2012; foreign companies are not yet directly involved in the initial efforts to drill for shale gas in the country, but are allowed to invest in and offer technology to local exploration companies. China holds 50% more technically recoverable shale reserves than the U.S. according to the EIA. British major BP (NYSE:BP) is also looking to enter the Chinese shale sector through JVs. We have a  $109 price estimate for Chevron which is a 7% premium over its current market price.

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Boosting domestic production

China’s shale reserves are 12 times the country’s conventional deposits. The country has been ramping up domestic production of hydrocarbons and plans to boost oil and natural gas output from 280 million tons in 2010 to 360 million tons in 2015 and 450 million in 2030 to meet growing local demand. ^[1] The government has set a target of producing 80 billion cubic meters (Bcm) of gas by 2020. Shale gas is an attractive option for the Chinese government, which has been hit by supply disruptions in the import of oil and gas in the past while the option of transporting LNG from distant fields in Central Asia and Australia may prove to be costly.

The second round of auctions is expected to be held for around 10 blocks. ^[1] With government policy favoring exploration and the reduced opposition of environmentalists in China, shale exploration may ramp up quickly in the country. Players like Chevron will look to establish a presence in the sector through JVs to benefit from China’s growing energy demand.

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1. China keen to increase energy production from its own reserves, Commodity Online [↩] [↩] [↩]