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Halliburton Company (HAL), Schlumberger Limited. (SLB): Can China Join the Fracking Game?

With the euphoria surrounding the shale gas boom in the U.S., it’s easy to forget that other countries also have vast reserves of shale gas. In fact, China is said to hold the world’s largest technically recoverable shale gas reserves, estimated by the U.S. Energy Information Administration to total some 1,115 trillion cubic feet.

In an effort to develop these reserves, a major Chinese energy company just took an important first step in what the nation hopes will be the beginning of its own shale gas boom. Let’s take a closer look.

Halliburton Company (NYSE:HAL)

China’s first shale gas pipeline
On Wednesday, government-owned China National Petroleum Corp, or CNPC, announced that it has started constructing the nation’s first dedicated shale gas pipeline in central Sichuan province. The 58-mile pipeline will link gas production wells in the Changning block to the Shuanghe gas processing station. With a capacity of 4.5 million cubic meters per day, it will transport gas produced from the Changning-Weiyuan shale gas demonstration zone in the province.

CNPC is currently drilling 15 horizontal shale wells at Changning to gauge the project’s feasibility before it makes a decision on whether to move forward with full-scale development, according to a recent report by Bernstein Research, the consultancy. Test wells yielded better-than-expected flow rates, with one well producing 150,000 cubic meters per day, the report said.

Major hurdles remain
While CNPC’s announcement is encouraging, it’s important to remember that China’s nascent shale gas industry still faces significant challenges including limited experience and technology, a lack of entrepreneurship because of the government’s monopoly over the oil and gas industry, the absence of private mining rights, an underdeveloped pipeline network, and chronic shortages of water — a crucial component in the fracking process.

However, some of these challenges can be mitigated by products and services provided by foreign oilfield services companies. Take water shortages, for instance. Halliburton Company (NYSE:HAL), through its water management services, can help operators reduce unwanted water production and treat produced water for disposal or reuse through offerings that range from chemical and mechanical conformance tools to custom water treatment.

By changing the chemistry of the water, chemical, and proppant combination used in the fracking process, Halliburton Company (NYSE:HAL) has managed, in some cases, to reduce the amount of water required in fracking by half. Last year, for instance, it helped operators save as much as $400,000 a well for some wells in North Dakota’s Bakken field. Applying similar techniques to Chinese shale gas fields could yield similar success.

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