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China Turns A Corner On Shale Gas

China, Company Strategy, Economics, Environment, Naphtha & other feedstocks, Oil & Gas, US
By John Richardson on 14-Apr-2014

By John Richardson

China2shaleCHINA has more shale gas reserves than the US, and, like the US six years ago, confronts a dangerous reliance on imported energy.

But the development of the shale industry in China is being hampered by water shortages,  poor intellectual property rights protection leading to lack of access to cutting edge US technology and geology that makes commercial extraction more of a challenge than in the States.

Where there is a will, however, there might  be away – and the will is certainly exceptionally strong, given, as we said, a reliance on imported energy. Just about nobody predicted that the US would be where it is today six years ago – perhaps within a decade of becoming energy self- sufficient.

Supporting our view is an announcement last month by Sinopec that:

  • It will put its first shale-gas field into commercial operation sooner than expected, aiming for annual production of 10bn cubic metres by 2017.
  • Sinopec’s decision could help China reach its target of producing 6.5 bcm (billion cubic metres) from shale by 2015, a target that most analysts had thought could not be met because of disappointing early results.
  • The company’s engineers were excited by initial results at wells drilled this year at Fuling, near the southwestern metropolis of Chongqing. It plans annual capacity at Fuling to reach 1.8 bcm by the end of this year, rising to 5 bcm by 2015, well above its earlier target of 2 bcm by next year from all its shale plays. Media reports say it could spend $4bn on Fuling, a number the company did not confirm.

But even if China hits its longer-term target of producing 100 bcm of gas from shale by 2020, this would compare with the approximately 266 bcm produced in the US in 2012.

Complacency is, however, a risk for those who think that the US position in shale, and its connected competitiveness in petrochemicals, is almost beyond any realistic challenge.

“ Sinopec does seem to be drawing ahead and is more bullish over shale than PetroChina,” a gas consultant told the blog.

“Perhaps shale gas not such a high priority at PetroChina, particularly when they may be more focused on getting the Myanmar/China pipeline to work and clinch a deal with Russia for piped supplies.

“The Russian deal could be for anything between 30 and 70 Bcm, and so perhaps it is a higher priority than shale at the moment.”

In other words, it is important to put shale gas developments into the context of China’s overall efforts to achieve greater energy independence.

A much more self-reliant Chinese economy is a strong possibility over the longer term, challenging, perhaps, over-bullish estimates for future import volumes of both hydrocarbons and petrochemicals.