Global Processing

China takes first steps into shale gas development

February 28, 2013

The vast natural resources of China are one reason why the country has become one of the fastest growing economies in the world. After focusing on utilizing coal deposits for decades, the country is now looking at ways to exploit its shale gas.

Estimates show that China has the largest reserves of shale gas globally, outstripping even the reserves lying underground in the United States. The country plans to develop and use these deposits in an effort to offset its greenhouse-gas footprint, increasing the share of natural gas in its energy mix from about four percent currently to ten percent by 2020. However, the path to exploiting those reserves will be far from easy.

Jane Nakano, a fellow of the Energy and National Security Program at the Center for Strategic and International Studies in Washington D.C., told Nature magazine that China's resources were huge but its shale deposits are more complex compared to those of the United States. Moreover, there are challenges above ground that could hamper shale gas development.

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About a year ago, the Chinese government announced that the estimated reserves of natural gas came in at some 25 trillion cubic meters, whereas a previous estimate from the U.S. Energy Information Administration cited an even larger figure. Following the discovery, China decided to focus on shale gas production and boost output from almost non-existent levels to over 60 billion cubic meters by 2020. By comparison, U.S. natural gas production was over 150 billion cubic meters in 2010.

If China manages to achieve these figures, the impact on global emissions reductions would be dramatic. The development of the natural gas industry is not likely to take place soon, as skepticism increased after the latest, just second, shale gas auction in China. The Ministry of Land and Resources granted leases in 19 areas, mostly concentrated in the Sichuan Basin. Hopes for fast development were dimmed by the fact that big national oil and gas companies like PetroChina and Sinopec lost out to state-owned coal and utility companies and to local government organizations that lack any expertise in the oil and gas industry.

Nakano commented that the possibility that national companies did not truly compete to win the auction should not be ruled out. They may have been put off by strict price controls on natural gas and they have little experience in hydraulic fracturing operations.

The pessimistic view on China's shale gas development is not shared by everyone, though. Shu Jiang, a petroleum engineer who works at the University of Utah in Salt Lake City, stated that big oil and gas companies are already investing in shale-gas wells in areas leased for conventional oil and gas development. He added that early results from the Sichuan basin were promising and that China's shale resources will certainly be extracted and used.