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Shale gas blueprint seen as far from satisfactory
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China has announced a range of policies to support its ambitious shale gas development, but the blueprint remains far from satisfactory, industry experts say.
The country, which potentially holds the world’s largest deposits of shale gas, has been seeking technological know-how and drawing up preferential policies in a bid to repeat the US success in shale gas extraction.
The gas is trapped in underground formations previously thought to be unreachable.
New technologies known as horizontal drilling and hydraulic fracturing, or “fracking,” have successfully unlocked deposits in the US, helping eliminate that country’s dependence on foreign gas.
“Although technology is important, the key to China’s shale development is actually ‘on the ground’ — the system,” said Pan Jiping, a researcher at the Ministry of Land and Resources, the main government body pushing the development of shale gas.
The State Council, China’s Cabinet, has approved shale gas as an independent mining resource.
That means shale gas would be managed separately from conventional natural gas.
Smaller energy companies would be allowed to develop the resource upon receiving licenses.
The policy has drawn criticism, however, because it’s not conducive to integrated development and overall efficiency of oil and gas fields.
“In fact, it’s quite difficult to determine whether it is shale gas or just conventional natural gas when you are developing a field,” said Zhang Yousheng, a researcher at the Energy Research Institute of the National Development and Reform Commission, China’s top planning agency.
Also, the government’s output volume-based subsidy program appears to be ineffective, Zhang said.
Last year, the Ministry of Finance announced that shale gas producers would get a 0.4-yuan government subsidy for each cubic meter they produce during 2012 to 2015.
Because shale gas development needs huge capital investment in the exploration stage, a pre-production subsidy would definitely make more sense, Zhang said. The cost of drilling a single shale gas well in China is higher than in the US.
The government has set a production target of 6.5 billion cubic meters of shale gas by 2015 and 60-100 billion cubic meters by 2020. To date, there has been little commercial production in China.
Cut in costly imports
Boosting domestic gas output, including shale and other unconventional gas sources, would mean less dependency on expensive imports of piped gas from Russia and central Asia, and of liquefied natural gas from Australia and Qatar. That’s the long-term plan, if China can keep it on track.
The 16 winning bidders in China’s second and latest shale-gas block auction, announced by the government in January, are making slow progress, said Bao Shujing, director of the shale gas section of Oil and Gas Survey under the China Geological Survey.
The auctions, organized by the land ministry, marked the start of commercial exploration of shale gas in China.
The 16 companies, mainly power and coal firms, and investment firms — rather than players in the oil and gas industry —- have little expertise and do not know about exploration, analysts said.
The auctions have become more of a land grab than a serious attempt to develop the shale gas industry, they said.
In the second round, state-owned giants Sinopec Corp and PetroChina Co weren’t among the winning bidders because they already control shale blocks within their existing fields, analysts said.
Experts have also questioned the government’s production targets.
“Can we achieve them?” Zhang at the NDRC said of the 2015 production target. “Is that possible?” he said of the 2020 goal.
“These targets may actually become a hurdle for the development of the industry,” he said.
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