Brazil: Investments in renewable energy

According to a report prepared by Ernst & Young, Brazil is ranked 10th in the list of most attractive countries for investments in renewable energy (renewable energy country attractiveness indices). It has climbed a place on the previous quarter and is eight up compared with the third quarter of 2010. The improvement in Brazil’s position is mainly due to developments in the wind sector.

The report highlights that the third quarter of 2011 was a good time for wind energy developers in Brazil, with four power auctions providing opportunities to reshape Brazil’s electricity market. Wind power attracted the most attention when it emerged that, for the first time, its price had fallen below that of electricity generated by natural gas.

“The ranking shows the maturity of the wind industry in Brazil’s energy matrix,” explains Luiz Claudio Campos, Transactions Partner in Ernst & Young Terco. “Exactly a year ago, Brazil was ranked 18th. In the near future, the country could occupy a higher position, probably due to the wind sector.”

The sector secured power purchase agreements for 78 projects totalling 1,929MW at the auctions, around half the total available capacity. They must start operating in 2014.

Less than 10 days later, Brazil’s Ministry of Mines and Energy scheduled another auction for December. It will award 20-year contracts for wind, biomass and natural gas plants, and 30-year contracts for hydroelectric plants. It has attracted registration from 377 projects totalling 24.3GW installed capacity, of which 79% with a total capacity of 7.5GW relate to wind. Another auction will be held on 22 March 2012.

The 2011 auctions have proved that wind and natural gas plants can compete directly, and that wind power can be cheaper.

According to Agência Nacional de Energia Elétrica, the Brazilian regulatory agency for the electric energy market, Brazilian wind power capacity is on track to grow by 600% by 2014 to more than 7GW, compared with around 1GW at the end of 2010.

The market analysts suggest several reasons for the country’s success, including the recent arrival of Chinese equipment suppliers, who can force local suppliers to lower their prices to remain competitive. The low cost in the auction may also be the result of a growing number of turbine manufacturers in Brazil.

"On the other hand, the economic crisis caused several projects in Europe to be halted, which may have prompted investors to move into other markets with growth potential like Brazil," explains Campos.

Challenges ahead

Nonetheless, Ernst & Young stresses that the industry faces several challenges. The auctions have created competition across the energy sector, and a strong project portfolio with particular emphasis on wind. Abeeolica (the Brazilian Association of Wind Power) has warned though that lower return margins could make projects vulnerable to possible complications during construction.

Brazil’s future electricity planning also needs to reflect the auctions’ positive outcome to ensure long-term investor confidence, and stakeholders will be watching closely to see if the Government introduces the long-term policy framework needed to sustain investment.

The renewable energy country attractiveness indices include and analyse renewable energy markets in 40 countries every three months. China currently occupies first place, followed by the US, Germany, India, Italy, the United Kingdom, France, Canada and Spain.

Brazil : Investments in renewable energy (Luis Ini)

According to a report prepared by Ernst & Young, Brazil is ranked 10th in the list of most attractive countries for investments in renewable energy (renewable energy country attractiveness indices). It has climbed a place on the previous quarter and is eight up compared with the third quarter of 2010. The improvement in Brazil’s position is mainly due to developments in the wind sector.

The report highlights that the third quarter of 2011 was a good time for wind energy developers in Brazil, with four power auctions providing opportunities to reshape Brazil’s electricity market. Wind power attracted the most attention when it emerged that, for the first time, its price had fallen below that of electricity generated by natural gas.

“The ranking shows the maturity of the wind industry in Brazil’s energy matrix,” explains Luiz Claudio Campos, Transactions Partner in Ernst & Young Terco. “Exactly a year ago, Brazil was ranked 18th. In the near future, the country could occupy a higher position, probably due to the wind sector.”

The sector secured power purchase agreements for 78 projects totalling 1,929MW at the auctions, around half the total available capacity. They must start operating in 2014.

Less than 10 days later, Brazil’s Ministry of Mines and Energy scheduled another auction for December. It will award 20-year contracts for wind, biomass and natural gas plants, and 30-year contracts for hydroelectric plants. It has attracted registration from 377 projects totalling 24.3GW installed capacity, of which 79% with a total capacity of 7.5GW relate to wind. Another auction will be held on 22 March 2012.

The 2011 auctions have proved that wind and natural gas plants can compete directly, and that wind power can be cheaper.

According to Agência Nacional de Energia Elétrica, the Brazilian regulatory agency for the electric energy market, Brazilian wind power capacity is on track to grow by 600% by 2014 to more than 7GW, compared with around 1GW at the end of 2010.

The market analysts suggest several reasons for the country’s success, including the recent arrival of Chinese equipment suppliers, who can force local suppliers to lower their prices to remain competitive. The low cost in the auction may also be the result of a growing number of turbine manufacturers in Brazil.

"On the other hand, the economic crisis caused several projects in Europe to be halted, which may have prompted investors to move into other markets with growth potential like Brazil," explains Campos.

Challenges ahead

Nonetheless, Ernst & Young stresses that the industry faces several challenges. The auctions have created competition across the energy sector, and a strong project portfolio with particular emphasis on wind. Abeeolica (the Brazilian Association of Wind Power) has warned though that lower return margins could make projects vulnerable to possible complications during construction.

Brazil’s future electricity planning also needs to reflect the auctions’ positive outcome to ensure long-term investor confidence, and stakeholders will be watching closely to see if the Government introduces the long-term policy framework needed to sustain investment.

The renewable energy country attractiveness indices include and analyse renewable energy markets in 40 countries every three months. China currently occupies first place, followed by the US, Germany, India, Italy, the United Kingdom, France, Canada and Spain.

Brazil : Investments in renewable energy (Luis Ini)

According to a report prepared by Ernst & Young, Brazil is ranked 10th in the list of most attractive countries for investments in renewable energy (renewable energy country attractiveness indices). It has climbed a place on the previous quarter and is eight up compared with the third quarter of 2010. The improvement in Brazil’s position is mainly due to developments in the wind sector.

The report highlights that the third quarter of 2011 was a good time for wind energy developers in Brazil, with four power auctions providing opportunities to reshape Brazil’s electricity market. Wind power attracted the most attention when it emerged that, for the first time, its price had fallen below that of electricity generated by natural gas.

“The ranking shows the maturity of the wind industry in Brazil’s energy matrix,” explains Luiz Claudio Campos, Transactions Partner in Ernst & Young Terco. “Exactly a year ago, Brazil was ranked 18th. In the near future, the country could occupy a higher position, probably due to the wind sector.”

The sector secured power purchase agreements for 78 projects totalling 1,929MW at the auctions, around half the total available capacity. They must start operating in 2014.

Less than 10 days later, Brazil’s Ministry of Mines and Energy scheduled another auction for December. It will award 20-year contracts for wind, biomass and natural gas plants, and 30-year contracts for hydroelectric plants. It has attracted registration from 377 projects totalling 24.3GW installed capacity, of which 79% with a total capacity of 7.5GW relate to wind. Another auction will be held on 22 March 2012.

The 2011 auctions have proved that wind and natural gas plants can compete directly, and that wind power can be cheaper.

According to Agência Nacional de Energia Elétrica, the Brazilian regulatory agency for the electric energy market, Brazilian wind power capacity is on track to grow by 600% by 2014 to more than 7GW, compared with around 1GW at the end of 2010.

The market analysts suggest several reasons for the country’s success, including the recent arrival of Chinese equipment suppliers, who can force local suppliers to lower their prices to remain competitive. The low cost in the auction may also be the result of a growing number of turbine manufacturers in Brazil.

"On the other hand, the economic crisis caused several projects in Europe to be halted, which may have prompted investors to move into other markets with growth potential like Brazil," explains Campos.

Challenges ahead

Nonetheless, Ernst & Young stresses that the industry faces several challenges. The auctions have created competition across the energy sector, and a strong project portfolio with particular emphasis on wind. Abeeolica (the Brazilian Association of Wind Power) has warned though that lower return margins could make projects vulnerable to possible complications during construction.

Brazil’s future electricity planning also needs to reflect the auctions’ positive outcome to ensure long-term investor confidence, and stakeholders will be watching closely to see if the Government introduces the long-term policy framework needed to sustain investment.

The renewable energy country attractiveness indices include and analyse renewable energy markets in 40 countries every three months. China currently occupies first place, followed by the US, Germany, India, Italy, the United Kingdom, France, Canada and Spain.

Jordan's shale oil production (Ian MacInnes)

Since the beginning of 2011 the Sinai Peninsula pipeline has been attacked no less than seven times since the fall of Hosni Mubarak with the most recent attack taking place on 10 November when two improvised explosive devices were reportedly detonated remotely near the town of Al-Arish. The reasons for the campaign against the Sinai Peninsula pipeline could be one or a combination of issues. For instance, many Egyptians are disgruntled with the deal that Mubarak cut with Israel, Bedouin tribes living along the route of the pipeline have been less than happy with the payments they have received for routing the pipeline through their territory, Islamic insurgents or simply something that has just not come up on the radar yet. Indeed, Bedouin tribes were reported as making threats against the pipeline in 2010. The fact is that with seven disrupting attacks on the natural gas pipeline and, with the Egyptian people looking to be heading for an Arab Spring part two scenario, Jordan would do well to consider and implement alternatives quickly. Egypt, even in the throes of its internal troubles, would be wise to secure the Sinai Peninsula pipeline’s flow for much-needed revenues or one day, the customers will have gone elsewhere. Potentially costly legal action has already been instigated in October 2011 by Egyptian Mediterranean Gas, which is part owned by Ampal-American Israel Corp.

Jordan has had to switch its power stations over to diesel fuel in the absence of a reliable supply of natural gas and the cost has been heavy. Jordan’s National Electricity Company reported recently that the total losses due to the natural gas supply disruptions to its power plants have cost around US$1bn up until September 2011 and local media have estimated that the cost up to October is around US$1.2bn.

While many neighbouring countries have substantial fossil fuel reserves to exploit Jordan has, right now anyway, but one, shale oil. Shale oil needs energy to release energy as the shale has to be heated for the oil to flow and it is a trade-off as to whether the amount of energy required and the positive difference in price of the energy released makes the project worthwhile. However, surface mining can be a viable way forward although. For deeper shales, hydraulic fracturing (fracking) is another option. The shale oil reserves in Jordan have been conservatively pegged at around 500bn barrels with viability to extraction price reportedly around US$65/bbl. Of course, not all of this resource can be extracted and it is possible that the estimated reserves could be less or perhaps a great deal more. Whatever the case, Jordan has fossil fuel reserves that could help if move significantly if not totally, along with nuclear and solar power options, towards the utopia of energy self-sufficiency.

Many energy companies are already active in Jordan including, Karak International Oil (KIO), Royal Dutch Shell, Petrobas and oil shale specialist Eesti Energia which has a subsidiary operating in Jordan, Jordan Oil Shale Energy Company (JOSEC). Towards the end of 2010, Eesti Energia said that it had signed an agreement whereby Near East Investment (NEI) and YTL Power International Berhad (YTLPI) will own 5% and 30% of Eesti Energia oil’s shale projects in Jordan with the Estonian based company retaining 65%. The company already has an agreement with the Jordanian government for surface mining at the Attarat um Ghudrun oil shale deposit, which is probably the largest in Jordan. The Eesti Energia partnership, under the first oil shale concession to be granted in Jordan, is planning to construct a 38,000bpd oil plant along with a 900MW shale oil power station at Attarat um Ghudrun, which when built, will be Jordan’s first self sufficient fuel power station and probably the first of many. Reportedly, construction of the power station is set to commence in 2012 with final negotiations set to be completed by the end of 2011.

A subsidiary of UK-registered company, Jordan Energy and Mining Ltd, KIO is not far behind Eesti Energia and has recently signed an agreement to extract and process oil shale from the Al Lajjun, Karak region. The company expects to produce 15,000bpd from 2016 thus contributing around 15% of the oil that Jordan requires. In a statement, Munther Akroush, KIO’s Jordan office director said, “KIO will employ leading edge technology and specialist expertise to unlock the potential of Jordan’s oil shale reserves, the fourth largest in the world. This deal will increase Jordan’s energy self-sufficiency and, ultimately, has the potential to transform the Kingdom from being an importer to an exporter of oil and energy.”

Meanwhile, Shell signed an exploration agreement with the Jordanian government in 2009 and is understood to have drilled over 100 wells in a comprehensive exploration programme. Petrobas is reportedly assessing oil shale possibilities in Jordan and in October 2011, media announced that Jordan was set to invest around US$3bn in shale oil.

Frankly, even with environmental issues and challenges to overcome for major shale oil production in Jordan, it would seem to be a matter of when rather than if the kingdom can become energy self-sufficient and perhaps even an exporter. With the situation in Egypt only likely to get worse before it gets better, Jordan may well accelerate its shale oil plans and be able to cut its natural gas umbilical cord from Egypt within a matter of a few short years.

Jordan's shale oil production (Ian MacInnes)

Since the beginning of 2011 the Sinai Peninsula pipeline has been attacked no less than seven times since the fall of Hosni Mubarak with the most recent attack taking place on 10 November when two improvised explosive devices were reportedly detonated remotely near the town of Al-Arish. The reasons for the campaign against the Sinai Peninsula pipeline could be one or a combination of issues. For instance, many Egyptians are disgruntled with the deal that Mubarak cut with Israel, Bedouin tribes living along the route of the pipeline have been less than happy with the payments they have received for routing the pipeline through their territory, Islamic insurgents or simply something that has just not come up on the radar yet. Indeed, Bedouin tribes were reported as making threats against the pipeline in 2010. The fact is that with seven disrupting attacks on the natural gas pipeline and, with the Egyptian people looking to be heading for an Arab Spring part two scenario, Jordan would do well to consider and implement alternatives quickly. Egypt, even in the throes of its internal troubles, would be wise to secure the Sinai Peninsula pipeline’s flow for much-needed revenues or one day, the customers will have gone elsewhere. Potentially costly legal action has already been instigated in October 2011 by Egyptian Mediterranean Gas, which is part owned by Ampal-American Israel Corp.

Jordan has had to switch its power stations over to diesel fuel in the absence of a reliable supply of natural gas and the cost has been heavy. Jordan’s National Electricity Company reported recently that the total losses due to the natural gas supply disruptions to its power plants have cost around US$1bn up until September 2011 and local media have estimated that the cost up to October is around US$1.2bn.

While many neighbouring countries have substantial fossil fuel reserves to exploit Jordan has, right now anyway, but one, shale oil. Shale oil needs energy to release energy as the shale has to be heated for the oil to flow and it is a trade-off as to whether the amount of energy required and the positive difference in price of the energy released makes the project worthwhile. However, surface mining can be a viable way forward although. For deeper shales, hydraulic fracturing (fracking) is another option. The shale oil reserves in Jordan have been conservatively pegged at around 500bn barrels with viability to extraction price reportedly around US$65/bbl. Of course, not all of this resource can be extracted and it is possible that the estimated reserves could be less or perhaps a great deal more. Whatever the case, Jordan has fossil fuel reserves that could help if move significantly if not totally, along with nuclear and solar power options, towards the utopia of energy self-sufficiency.

Many energy companies are already active in Jordan including, Karak International Oil (KIO), Royal Dutch Shell, Petrobas and oil shale specialist Eesti Energia which has a subsidiary operating in Jordan, Jordan Oil Shale Energy Company (JOSEC). Towards the end of 2010, Eesti Energia said that it had signed an agreement whereby Near East Investment (NEI) and YTL Power International Berhad (YTLPI) will own 5% and 30% of Eesti Energia oil’s shale projects in Jordan with the Estonian based company retaining 65%. The company already has an agreement with the Jordanian government for surface mining at the Attarat um Ghudrun oil shale deposit, which is probably the largest in Jordan. The Eesti Energia partnership, under the first oil shale concession to be granted in Jordan, is planning to construct a 38,000bpd oil plant along with a 900MW shale oil power station at Attarat um Ghudrun, which when built, will be Jordan’s first self sufficient fuel power station and probably the first of many. Reportedly, construction of the power station is set to commence in 2012 with final negotiations set to be completed by the end of 2011.

A subsidiary of UK-registered company, Jordan Energy and Mining Ltd, KIO is not far behind Eesti Energia and has recently signed an agreement to extract and process oil shale from the Al Lajjun, Karak region. The company expects to produce 15,000bpd from 2016 thus contributing around 15% of the oil that Jordan requires. In a statement, Munther Akroush, KIO’s Jordan office director said, “KIO will employ leading edge technology and specialist expertise to unlock the potential of Jordan’s oil shale reserves, the fourth largest in the world. This deal will increase Jordan’s energy self-sufficiency and, ultimately, has the potential to transform the Kingdom from being an importer to an exporter of oil and energy.”

Meanwhile, Shell signed an exploration agreement with the Jordanian government in 2009 and is understood to have drilled over 100 wells in a comprehensive exploration programme. Petrobas is reportedly assessing oil shale possibilities in Jordan and in October 2011, media announced that Jordan was set to invest around US$3bn in shale oil.

Frankly, even with environmental issues and challenges to overcome for major shale oil production in Jordan, it would seem to be a matter of when rather than if the kingdom can become energy self-sufficient and perhaps even an exporter. With the situation in Egypt only likely to get worse before it gets better, Jordan may well accelerate its shale oil plans and be able to cut its natural gas umbilical cord from Egypt within a matter of a few short years.

Shale oil production in Jordan (Ian MacInnes)

Since the beginning of 2011 the Sinai Peninsula pipeline has been attacked no less than seven times since the fall of Hosni Mubarak with the most recent attack taking place on 10 November when two improvised explosive devices were reportedly detonated remotely near the town of Al-Arish. The reasons for the campaign against the Sinai Peninsula pipeline could be one or a combination of issues. For instance, many Egyptians are disgruntled with the deal that Mubarak cut with Israel, Bedouin tribes living along the route of the pipeline have been less than happy with the payments they have received for routing the pipeline through their territory, Islamic insurgents or simply something that has just not come up on the radar yet. Indeed, Bedouin tribes were reported as making threats against the pipeline in 2010. The fact is that with seven disrupting attacks on the natural gas pipeline and, with the Egyptian people looking to be heading for an Arab Spring part two scenario, Jordan would do well to consider and implement alternatives quickly. Egypt, even in the throes of its internal troubles, would be wise to secure the Sinai Peninsula pipeline’s flow for much-needed revenues or one day, the customers will have gone elsewhere. Potentially costly legal action has already been instigated in October 2011 by Egyptian Mediterranean Gas, which is part owned by Ampal-American Israel Corp.

Jordan has had to switch its power stations over to diesel fuel in the absence of a reliable supply of natural gas and the cost has been heavy. Jordan’s National Electricity Company reported recently that the total losses due to the natural gas supply disruptions to its power plants have cost around US$1bn up until September 2011 and local media have estimated that the cost up to October is around US$1.2bn.

While many neighbouring countries have substantial fossil fuel reserves to exploit Jordan has, right now anyway, but one, shale oil. Shale oil needs energy to release energy as the shale has to be heated for the oil to flow and it is a trade-off as to whether the amount of energy required and the positive difference in price of the energy released makes the project worthwhile. However, surface mining can be a viable way forward although. For deeper shales, hydraulic fracturing (fracking) is another option. The shale oil reserves in Jordan have been conservatively pegged at around 500bn barrels with viability to extraction price reportedly around US$65/bbl. Of course, not all of this resource can be extracted and it is possible that the estimated reserves could be less or perhaps a great deal more. Whatever the case, Jordan has fossil fuel reserves that could help if move significantly if not totally, along with nuclear and solar power options, towards the utopia of energy self-sufficiency.

Many energy companies are already active in Jordan including, Karak International Oil (KIO), Royal Dutch Shell, Petrobas and oil shale specialist Eesti Energia which has a subsidiary operating in Jordan, Jordan Oil Shale Energy Company (JOSEC). Towards the end of 2010, Eesti Energia said that it had signed an agreement whereby Near East Investment (NEI) and YTL Power International Berhad (YTLPI) will own 5% and 30% of Eesti Energia oil’s shale projects in Jordan with the Estonian based company retaining 65%. The company already has an agreement with the Jordanian government for surface mining at the Attarat um Ghudrun oil shale deposit, which is probably the largest in Jordan. The Eesti Energia partnership, under the first oil shale concession to be granted in Jordan, is planning to construct a 38,000bpd oil plant along with a 900MW shale oil power station at Attarat um Ghudrun, which when built, will be Jordan’s first self sufficient fuel power station and probably the first of many. Reportedly, construction of the power station is set to commence in 2012 with final negotiations set to be completed by the end of 2011.

A subsidiary of UK-registered company, Jordan Energy and Mining Ltd, KIO is not far behind Eesti Energia and has recently signed an agreement to extract and process oil shale from the Al Lajjun, Karak region. The company expects to produce 15,000bpd from 2016 thus contributing around 15% of the oil that Jordan requires. In a statement, Munther Akroush, KIO’s Jordan office director said, “KIO will employ leading edge technology and specialist expertise to unlock the potential of Jordan’s oil shale reserves, the fourth largest in the world. This deal will increase Jordan’s energy self-sufficiency and, ultimately, has the potential to transform the Kingdom from being an importer to an exporter of oil and energy.”

Meanwhile, Shell signed an exploration agreement with the Jordanian government in 2009 and is understood to have drilled over 100 wells in a comprehensive exploration programme. Petrobas is reportedly assessing oil shale possibilities in Jordan and in October 2011, media announced that Jordan was set to invest around US$3bn in shale oil.

Frankly, even with environmental issues and challenges to overcome for major shale oil production in Jordan, it would seem to be a matter of when rather than if the kingdom can become energy self-sufficient and perhaps even an exporter. With the situation in Egypt only likely to get worse before it gets better, Jordan may well accelerate its shale oil plans and be able to cut its natural gas umbilical cord from Egypt within a matter of a few short years.

Sichuan Shale Gas Reserves (Boston Globe)

SHANGHAI—China is reporting discoveries of major shale gas reserves in its western Sichuan region, a development that could drastically boost its domestic supplies of natural gas and temper demand for imports.

State-owned China National Petroleum Corp. has found shale gas reserves in at least 20 locations, with each able to produce over 10,000 cubic meters of gas per day, a company official confirmed Thursday.

The official, who refused to allow his name to be cited because he said he is not a company spokesman, did not know what the future plans were for developing the reserves.

Technologies that make it possible to free oil and gas from shale formations deep underground at less expense than in the past are helping relieve energy scarcity.

But they are also generating concerns over the potential environmental costs of such extraction processes, which involve blasting chemical-laced water and sand deep into the ground -- a process known as hydraulic fracturing, or "fracking." Critics fear the drilling liquids, which can contain carcinogens, could contaminate water supplies, either below ground, by spills, or in disposed wastewater.

CNPC also reported in an online newsletter of the China Petroleum and Chemical Industry Federation, an industry group, that it had obtained good initial results in production from two exploratory shale gas wells.

The wells, are part of an effort to gauge the extent of suspected shale gas reserves in Sichuan that, if commercially feasible, could relieve pressure for increased imports to meet soaring energy demand.

The CNPC official did not say if the shale gas it succeeded in tapping was found just in blocks being developed by the company alone or also in blocks being explored along with Royal Dutch Shell PLC.

"If Shell has succeeded in producing gas from the pilot wells drilled in the Fushun-Yongchuan block, that's a good sign in terms of the company's ability to overcome the technical and geological challenges of extraction," said Thomas Grieder, Asia-Pacific energy analyst at IHS World Markets Energy in Geneva.

China's economic planning agency, the National Development and Reform Commission, initially reported progress on shale gas drilling in July.

China has awarded exploration rights for shale gas in the Sichuan Basin as part of efforts to launch use of the clean-burning fuel.

A CNPC technical report on its exploratory drilling for shale gas noted the need to comply with numerous environmental regulations and outlined various strategies for ensuring enough water supplies to conduct fracking.

It noted the difficulties of exploiting shale gas in what are mostly heavily populated areas.

China has so far not launched commercial shale gas operations but is partnering with Shell and other foreign companies seeking to improve its own technology. Chinese energy companies meanwhile have been investing in overseas reserves as part of their overall push to ensure access to crucial energy resources.

The US Energy Information Administration has estimated that China has about 36 trillion cubic meters (1,300 trillion cubic feet) of recoverable shale gas, the biggest known reserves. The U.S. has about 23.4 trillion cubic meters (827 trillion cubic feet)

------

Researchers Fu Ting in Shanghai and Zhao Liang in Beijing contributed.

Sichuan Shale Gas Reserves (Boston Globe)

SHANGHAI—China is reporting discoveries of major shale gas reserves in its western Sichuan region, a development that could drastically boost its domestic supplies of natural gas and temper demand for imports.

State-owned China National Petroleum Corp. has found shale gas reserves in at least 20 locations, with each able to produce over 10,000 cubic meters of gas per day, a company official confirmed Thursday.

The official, who refused to allow his name to be cited because he said he is not a company spokesman, did not know what the future plans were for developing the reserves.

Technologies that make it possible to free oil and gas from shale formations deep underground at less expense than in the past are helping relieve energy scarcity.

But they are also generating concerns over the potential environmental costs of such extraction processes, which involve blasting chemical-laced water and sand deep into the ground -- a process known as hydraulic fracturing, or "fracking." Critics fear the drilling liquids, which can contain carcinogens, could contaminate water supplies, either below ground, by spills, or in disposed wastewater.

CNPC also reported in an online newsletter of the China Petroleum and Chemical Industry Federation, an industry group, that it had obtained good initial results in production from two exploratory shale gas wells.

The wells, are part of an effort to gauge the extent of suspected shale gas reserves in Sichuan that, if commercially feasible, could relieve pressure for increased imports to meet soaring energy demand.

The CNPC official did not say if the shale gas it succeeded in tapping was found just in blocks being developed by the company alone or also in blocks being explored along with Royal Dutch Shell PLC.

"If Shell has succeeded in producing gas from the pilot wells drilled in the Fushun-Yongchuan block, that's a good sign in terms of the company's ability to overcome the technical and geological challenges of extraction," said Thomas Grieder, Asia-Pacific energy analyst at IHS World Markets Energy in Geneva.

China's economic planning agency, the National Development and Reform Commission, initially reported progress on shale gas drilling in July.

China has awarded exploration rights for shale gas in the Sichuan Basin as part of efforts to launch use of the clean-burning fuel.

A CNPC technical report on its exploratory drilling for shale gas noted the need to comply with numerous environmental regulations and outlined various strategies for ensuring enough water supplies to conduct fracking.

It noted the difficulties of exploiting shale gas in what are mostly heavily populated areas.

China has so far not launched commercial shale gas operations but is partnering with Shell and other foreign companies seeking to improve its own technology. Chinese energy companies meanwhile have been investing in overseas reserves as part of their overall push to ensure access to crucial energy resources.

The US Energy Information Administration has estimated that China has about 36 trillion cubic meters (1,300 trillion cubic feet) of recoverable shale gas, the biggest known reserves. The U.S. has about 23.4 trillion cubic meters (827 trillion cubic feet)

------

Researchers Fu Ting in Shanghai and Zhao Liang in Beijing contributed.

Shichuan Shale Gas Reserves (Boston Globe)

SHANGHAI—China is reporting discoveries of major shale gas reserves in its western Sichuan region, a development that could drastically boost its domestic supplies of natural gas and temper demand for imports.

State-owned China National Petroleum Corp. has found shale gas reserves in at least 20 locations, with each able to produce over 10,000 cubic meters of gas per day, a company official confirmed Thursday.

The official, who refused to allow his name to be cited because he said he is not a company spokesman, did not know what the future plans were for developing the reserves.

Technologies that make it possible to free oil and gas from shale formations deep underground at less expense than in the past are helping relieve energy scarcity.

But they are also generating concerns over the potential environmental costs of such extraction processes, which involve blasting chemical-laced water and sand deep into the ground -- a process known as hydraulic fracturing, or "fracking." Critics fear the drilling liquids, which can contain carcinogens, could contaminate water supplies, either below ground, by spills, or in disposed wastewater.

CNPC also reported in an online newsletter of the China Petroleum and Chemical Industry Federation, an industry group, that it had obtained good initial results in production from two exploratory shale gas wells.

The wells, are part of an effort to gauge the extent of suspected shale gas reserves in Sichuan that, if commercially feasible, could relieve pressure for increased imports to meet soaring energy demand.

The CNPC official did not say if the shale gas it succeeded in tapping was found just in blocks being developed by the company alone or also in blocks being explored along with Royal Dutch Shell PLC.

"If Shell has succeeded in producing gas from the pilot wells drilled in the Fushun-Yongchuan block, that's a good sign in terms of the company's ability to overcome the technical and geological challenges of extraction," said Thomas Grieder, Asia-Pacific energy analyst at IHS World Markets Energy in Geneva.

China's economic planning agency, the National Development and Reform Commission, initially reported progress on shale gas drilling in July.

China has awarded exploration rights for shale gas in the Sichuan Basin as part of efforts to launch use of the clean-burning fuel.

A CNPC technical report on its exploratory drilling for shale gas noted the need to comply with numerous environmental regulations and outlined various strategies for ensuring enough water supplies to conduct fracking.

It noted the difficulties of exploiting shale gas in what are mostly heavily populated areas.

China has so far not launched commercial shale gas operations but is partnering with Shell and other foreign companies seeking to improve its own technology. Chinese energy companies meanwhile have been investing in overseas reserves as part of their overall push to ensure access to crucial energy resources.

The US Energy Information Administration has estimated that China has about 36 trillion cubic meters (1,300 trillion cubic feet) of recoverable shale gas, the biggest known reserves. The U.S. has about 23.4 trillion cubic meters (827 trillion cubic feet)

------

Researchers Fu Ting in Shanghai and Zhao Liang in Beijing contributed.