China's Shale Gas Potential Looks Bright, But Development Raises Questions

Abstract

Shell is evaluating shale gas prospects in the Sichuan basin in hopes of replicating its success in the Changbei field, a tight gas project with PetroChina, that required advanced exploration and production technology. China ranks first in the world in shale gas in the ground, based on just two massive basins. But the estimate in a report from the US Energy Information Administration (EIA) is based on what is technically possible, not when, or if, anyone will produce that gas. “The time dimensions are up to infinity. It is a technically recoverable number without a time constraint,” said Vello Kuuskraa, the president of Advanced Resources International, which conducted the World Shale Gas Resources study for the EIA, part of the US Department of Energy. China’s plan to aggressively tilt its coal- and oil-based economy toward natural gas by exploiting its shale resources is on the scale of what the US did to shift from a shortage to a glut of gas. But some question whether China will be able to reach its goal of leaping from virtually no shale gas production now to 60 billion–100 billion m3/a by 2020, equal to 6–10 Bcf/D. The exploration business there is worlds different than the US model that allowed independent gas companies to quickly lease and explore large blocks of land with the support of service companies providing advanced drilling and fracturing services. In China, international companies must partner with government-controlled Chinese ones that control the prospects, and multiple layers of government permission are needed to get things done. High population density and tight water supplies are an issue in one of those basins, the Sichuan. In the other, the Tarim, there are few people to consider, but it is a remote region far from markets. On the plus side, the EIA study estimated that the Sichuan and Tarim basins hold 1,275 Tcf of technically recoverable gas, assuming that about 25% of the gas in the ground can be produced. “These are two massive world-class basins with multiple formations,” offering stacked layers of shale gas, Kuuskraa said. They are in a country with a voracious appetite for energy and a plan to increase its reliance on gas, which represents only 4% of Chinese energy consumption.