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China's shale development faces obstacles

May 1, 2013 at 4:24 PM   |   Comments

BEIJING, May 1 (UPI) -- China's shale natural gas development is facing hurdles, experts say.

The U.S. Energy Department's Energy Information Administration reports China may hold nearly twice as much as the estimated 862 trillion cubic feet of shale natural gas in the United States, where the resource has transformed the energy sector.

China aims to produce 6.5 billion cubic meters of shale gas a year by the end of 2015 and the National Energy Administration estimates annual output to reach 100 bcm by 2020.

But so far, there has been no Chinese shale production. Research firm IHS CERA says about 60 shale exploration wells have been drilled over the past two years in the country. That's about the number of wells drilled in North Dakota every 10 days, The Washington Post reports.

"China is a newcomer to the shale gas industry," David Xu, an analyst at KPMG International, was quoted as saying by The Washington Times. "Over time, it could become one of the world's largest producers" if it learns the technology and resolves numerous obstacles to development.

Compared to more accessible areas where shale is located in the United States, in China's mountainous Sichuan Basin "the formations seem to be more faulted and folded," Briana Mordick, an Oil and Gas Science Fellow at the Natural Resources Defense Council and formerly a geologist at Anadarko Petroleum told Bloomberg.

Those characteristics, Mordick says, make it more difficult and less economic to drill long horizontal well bores associated with shale.

Most of China's shale-gas reserves also lie in remote areas where there isn't enough water for hydraulic fracturing, or fracking, the water-intensive technique used to unlock gas trapped in the rock.

Meanwhile, Chinese companies are looking to tap into U.S. expertise in shale developments for domestic development. For example, Sinopec in 2011 paid $2.2 billion for access to five shale plays in a deal with U.S. company Devon Energy Corp.

Although China has held two shale gas auctions since 2011, no foreign-funded joint ventures were awarded in either round.

But in March China approved a shale gas exploration deal between China National Petroleum Corp. and Shell.

The deal, covering 4,000 square kilometers of the Fushun shale gas block in Sichuan province is considered an important step in accelerating China's shale gas exploration activities and enhancing its drilling techniques, said Che Changbo, the deputy director of the Oil and Gas Research Center under the Ministry of Land and Resources, when announcing its approval.

More such cooperation deals "will be released gradually," Che told China Daily.

Zhou Xizhou, who heads IHS CERA's China Energy practice, says Chinese shale won't be an important domestic energy source until into the 2020s. But Martin Stauble, who heads Royal Dutch Shell's exploration and production in China, told Bloomberg that commercial development "is likely to be in a three- to five-year time frame."

© 2013 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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