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BEIJING, March 23 (Reuters) – Royal Dutch Shell and China National Petroleum Corp have signed a 30-year deal to develop natural gas in China, a day after launching a joint takeover bid for Australian gas producer Arrow Energy.

The two firms will jointly develop tight gas deposits in the 4,000 square kilometre Jinqiu block in central Sichuan province, Shell said on Tuesday, the second major gas production contract the Anglo-Dutch company has clinched in China.

An industry official familiar with the project told Reuters the block would likely produce 2-3 billion cubic metres (bcm) of gas a year, with Shell taking a larger share in the contract for undertaking all the exploration risks.

Further financial details regarding the deal were not immeadiately available.

The deal to tap tight gas, contained in rock that must be broken before it can flow easily to production wells, is the latest example of an oil major seeking out previously uneconomic deposits.

Analysts said the deal was part of a broader alliance between CNPC and Shell, as the state-backed giant uses the huge and rapidly expanding Chinese gas market to help it access global hydrocarbon assets and Shell’s proven technologies in unconventional gas.

The tight gas deal follows hot on the heels of Shell and CNPC unit PetroChina’s joint $3.1 billion takeover bid for Arrow.

‘In the Arrow acquisition Shell helped bring upstream access to PetroChina in Australia. China is reciprocating this by giving Shell tight gas opportunities in China,’ said Neil Beveridge of Bernstein Research.

China, the world’s second-largest energy user, is on a fast-track to develop the fuel that is cleaner than coal and oil, with consumption forecast to triple to about 300 bcm by 2020, or nearly 10 percent of its total energy needs.

(For a related China gas analysis:)

The gas revolution taking place in the United States, where huge discoveries of unconventional gas resources are replacing imports of traditional liquefied natural gas, is an inspiration to Beijing’s energy policy setters, Bernstein’s Beveridge said.

Shell is already producing gas in Changbei, a tight gas field in the Ordos Basin in northern Shaanxi province, which began commercial production in March 2007 and now supplies 3 bcm per year to Beijing and eastern China.

The European major, one of the few international oil firms producing gas in onshore China, in January began assessing a shale gas block in Sichuan province.

‘We are focusing quite strongly into the difficult gas area… these are two big blocks. Lots of explorations. Very exciting,’ said Shell’s China chief, Lim Haw-Kuang.

U.S. TIGHT GAS

The China deal is just the latest move by Shell into tight gas, with its North American operations another key source of production.

Shell Chief Executive Peter Voser said last week that the company had the resource potential to more than double production from its North American tight gas fields to over 400,000 barrels of oil equivalent per day by 2020.

‘Economics are attractive in a $4 to $6 gas price range,’ Malcolm Brinded, Shell’s executive director of upstream international, told analysts on a strategy update conference call, while discussing the North American assets.

‘As we continue with the appraisal and development programme in tight gas, we are seeing sharp improvements in drilling costs and reduced drilling time. This improves the economics of these developments, and I think there is more to come here.’

Shell’s statement about the agreement with CNPC did not give any details of cost, investment or potential output from Jinqiu.

(Editing by Chris Lewis and Simon Jessop)

((tom.miles@thomsonreuters.com; +86 10 6627 1200; Reuters Messaging: tom.miles.reuters.com@reuters.net)) Keywords: SHELL CHINA/

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