China's shale development gets off to slow start

BEIJING, Oct. 1 (UPI) -- Development of China's vast shale resources is getting off to a slow start amid challenges, experts say.

"Gas is the future for China, but it's in the next decade when shale will really flourish," said Neil Beveridge, a senior energy analyst at Sanford Bernstein in Hong Kong, was quoted as saying by The New York Times on Monday.

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.

Under the Chinese government's latest five-year plan, China aims to produce 6.5 billion cubic meters of shale gas a year by the end of 2015.

So far, China has held two auctions to launch shale gas development, with more than 20 blocks leased to 18 companies, The Wall Street Journal reports. A third auction is expected to be held later this year.

Southwest China's Sichuan basin in southwest China is the most likely region that will experience early shale gas success, Beveridge says. There, flow rates on test wells in the Changning block being explored by state-run PetroChina reached 5.3 million cubic feet per day in June, which Beveridge says is comparable to U.S. wells.

But EIA said in a May report that development is a challenge as most Chinese shale basins are tectonically complex with numerous faults -- some seismically active – and not conducive to shale development.

While U.S. shale gas deposits typically are located 6,600 feet to 13,000 feet below the surface, China's shale gas deposits are deeper in the ground, at around 13,000 feet.

The first horizontal shale well drilled by PetroChina, the Chinese oil and gas firm that has been most actively exploring shale, needed 11 months to drill compared with the usual two weeks for North American shale well drilling, EIA says.

Fei Kwok, a Shanghai-based lawyer at Norton Rose Fulbright who has advised foreign companies looking to invest in China's shale sector, acknowledged to the Times that the country's rough terrain, limited paved roads and the need to drill deeper to reach Chinese shale "will require additional investment and higher upfront costs."

In the first half of this year, China had 56 shale gas wells in the exploratory phase, but only 24 of those were producing gas, Caixin News reports.

"As we are facing enormous cost pressures and other problems, the speed of exploration has been slower than anticipated," Zhang Dawei, director of the Mineral Resources and Reserves Evaluation Center of China's Ministry of Land Resources was quoted as saying by Caixin.