04 January 2013 11:20 [Source: ICIS news]
By John Richardson
PERTH (ICIS)--The shale gas revolution offers huge opportunities for petrochemicals, perhaps not only in the US but also elsewhere in the world.
One day, China, which, according to the US Energy Information Administration has the world’s biggest shale-gas reserves, might make use of the technology that has transformed the global energy picture.
But geological, political and technological challenges abound that could hold back the revolution in China and elsewhere – perhaps, in fact, in every location outside the US.
In China’s Sichuan province, in the South China Basin where many of its reserves are located (see the map below from China National Petroleum Corp), gas reserves are said to contain high amounts of corrosive and potentially lethal hydrogen sulphide.
Carbon dioxide and nitrogen levels could also be high.In Sichuan, some of the shale reserves have only a third of the thickness of a typical US gas-bearing shale deposit and two to three times lower porosity, according to PetroChina.
The country’s shale-gas fields are also situated in mountainous regions, making drilling a challenge while increasing the cost of building roads, bridges, pipelines and other infrastructure.An often-expressed global concern is the amount of water needed for hydraulic fracturing (fracking).
In China’s case, water is scarce in mountainous regions and is needed for agriculture in Sichuan province.
However, Tony Regan of the Singapore-based energy consultancy Tri-Zen, believes that, whilst water will be an issue in China, it needs to be put into perspective
“The coal industry is, in fact, the biggest industrial user of water, followed by industries such as pulp and paper, with agriculture being the biggest user of water overall – and yet none of these sectors suffer the same negative publicity as shale gas,” he said.
Regan concurs with the view that China has a long way to go if it is to realise its shale gas ambitions.
"One of its problems is that many of its shale basins have a high clay content. High clay content shales tend to be ductile and deform when fracked rather than shattering, and so productivity is very low,” he added.
"The US is a much more fortunate position as its shale is impermeable, very hard, and so it is much easier to frack.
"Thus, solving China's problem will quite possibly require new fracking techniques, new drills and new fracking fluids,” he continued.
“Whilst costs in the shallower Sichuan Basin are similar to the US they are likely to be substantially higher, perhaps double, in for instance, the deeper Tarim Basin shale.
“Above ground costs also look to be higher than in the US and even in the Sichuan Basin, shale gas production costs are about 50% higher than for conventional natural gas production."Interestingly, the US is prepared to partner China in its effort to exploit its shale gas potential through the US-China Shale Gas Training Programme, which has been launched by the independent White House agency, the US Trade & Development Agency (USTDA).
The USTDA has announced that an initial $378,000 (€291,060) will be invested to enable the US industry to travel to China and "help introduce Chinese energy sector officials and project sponsors to US shale gas best practices, policies and technologies”.
In November, the USTDA signed a Memorandum of Understanding with China’s National Energy Administration (NEA).
Four two-day workshops will be held by a USTDA contractor in China over a twenty month period, with the aim of attracting 50-75 Chinese participants selected by the NEA.
According to Regan, the motive behind the initiative is commercial rather than geopolitical.
“There are a lot of government-to-government connections between the US and China over shale gas,” he said.
"This is being driven by collaboration between, say, a university in the US and one in China to develop new shale-gas techniques that will be commercialised and, hopefully make money for companies in all three countries, while solving China's shale-gas problems.”
The objective of the Chinese was to develop shale-gas technologies first for domestic use and then for sale overseas, he added.
However, although there has been a lot of talk about China being on the shale-gas fast track, other obstacles remain.
To date, there have been two auctions of shale gas reserves, both of which were restricted to Chinese companies only, despite technology shortfalls.
“A Chinese company has to first of all win an auction, and then find a foreign partner, which slows the whole process down,” said Regan.
A March 2012 Barclays Capital report said that China had set itself a target of producing 6.5bn cubic metres (bcm) per year of gas by 2015, accelerating to 60 -100 bcm/year by 2020.
But since then, the target, set by the country’s Ministry of Land, had been drastically reduced, according to Regan. The Ministry now expected only 3-5 bcm to be produced by 2015 and 15-30 bcm by 2020, he said.
From first identification through to significant commercial production of any gas resource normally took 10 years, he added.
“China shale is likely to take more than ten years to become commercially significant because of all these issues,” he said.
“Shale gas development will continue to attract a lot of media attention but potentially by 2020 production of gas from other unconventional sources in China, such as coal-bed methane, tight gas sands or even coal gasification, could be higher than from shale.”
($1 = €0.77)Read Paul Hodges’ Chemicals and the Economy blog
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