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Chinese unconventional gas to spoil the LNG boom?

April 22nd, 2011 · No Comments

Well…

But experts and industry executives downplayed the prospect of China exploiting shale gas reserves as quickly as the United States because the geology of the two nations is different. They said China’s shale is older and, tonne for tonne, produces less than half the gas of shale in the US. Water shortages will add to the costs. One of China’s two biggest deposits in the country – the Turpan Basin in Xinjiang – is a desert [The Guardian]

China still faces significant hurdles to getting the gas out of the ground at home, such as clarifying the legal framework for contracts, transporting the gas and delineating the size of the reserves. New York-based consulting firm Eurasia Group also notes that China’s shale reserves are widely dispersed and some are in heavily populated, mountainous, or arid areas. In addition, some of China’s shale reserves are older and denser in geologic terms than those found in the U.S. Existing technology may therefore not be suitable for Chinese conditions and will require adjustments, implying increased costs. [Rigzone]

“Its too early say that shale gas is game changer (in China) but I have great expectations. We are drilling 17 wells this year. That will give us a sense of magnitude of what’s available here,” Voser said on the sidelines of a forum. China does not have any shale gas production yet, but has a rough target to pump some 10 percent of its total gas output from shale gas by 2020. [CNB]

It takes the right combination of technology, entrepreneurial acumen, business practices, access to physical infrastructure, mineral ownership rights and laws, regulatory system and network of many field service companies to turn the resource into reserves and then commercial production. Only in the US can an emerging play go from declination to production in a year. It takes longer in Canada and Australia and will take much longer everywhere else because the right combination does not exist and will have to be fashioned. This is why Poland and China are of such interest to the rest of the world: their models may have more to offer Asia, Africa, Europe and Latin America than the US model. The pressure on China to develop all of its natural gas resources and not only shale is large and immediate. While natural gas use per capita is declining in the US, it is growing rapidly in China and India. In the US, natural gas use is projected (by the US government) to be virtually stagnant over the next 20 years; it is forecast to at least double in China (over the next 10 years) and India over the next 5 years (according to their government agencies).
Currently natural gas accounts for less than 5% of primary energy use in China and 10% in India compared with the global average of 24%. China wants to sharply increase the share of natural gas in domestic consumption over the next 3 decades (quadrupling use over the next 20 years). By the end of this decade primary energy consumption in China may well exceed that in the US. In China, demand for space heating, auto fuel, petrochemicals and fertilizer is propelling gas use. The Chinese government has a goal of producing about half to a trillion cubic feet per year from shale gas reserves within ten years. [Seeking Alpha]

Gas demand is expected to surge at a level of 10% annually during the nex 10 years.
serious water shortages in China may pose problems as a large amount of water is essential to the development of shale gas [eneken]

“With more regasification terminals scheduled to start up this year, demand is set to grow by about 17 per cent a year to 24 million tonnes in 2016.” [Yahoo]

Chinese CBM gas
Three key challenges impede near-term growth. Firstly, a lack of pipeline access for CBM operators; PetroChina and Sinopec dominate onshore gas production and hold monopoly positions in transmission pipeline infrastructure, rarely yielding to third party access. Secondly, a need for large scale investments to accelerate CBM exploration and prove up reserves. Lastly, a need for basin-specific technology to address unique geological conditions in China implies the need for more advanced development techniques. [OGFJ]

Wood Mackenzie’s new study looking at the fundamentals of the China gas industry titled ‘Race for Supply – the Future of China’s Gas Market’ finds that unconventional gas, particularly shale, will increase significantly to help meet China’s strong gas demand growth. Domestic unconventional production will account for over a quarter of total gas supply by 2030. However, unconventional gas resources will take a significant time to develop and therefore meeting its gas demand will require China to import significant additional volumes of LNG and piped gas, particularly up to 2020.
“China’s demand for LNG is driving Pacific LNG market growth. We now forecast China LNG demand in 2020 to be 46 million tons per annum (mmtpa), up from our previous forecast of 31mmtpa. This will expand the opportunity for LNG suppliers seeking to secure markets, particularly those in Australasia. [OGFJ]

The report findings conclude that while the longer term impact of unconventional gas could be profound, the reality is that outside of North America and eastern Australia the economics and logistics of undertaking large scale unconventional gas operations have yet to be proven and some of the key success factors behind the rapid growth in North America are missing. “Therefore, the pace of growth is likely to be slower than that witnessed in North America and substantial volumes on a global scale are unlikely before 2020,” Thomas continues. [OGFJ]

China, already a large producer of tight gas, will likely not see greater production in shale and CBM for several more years.
we believe that China’s shale gas production will not materialize for a few years. Production could reach 0.2 bscf/d in 2015 and 0.9 bscf/d by 2020 under our base-case forecast.
Adding CBM and shale gas together, the total unconventional gas output in China could reach 1.5 bscf/d in 2015 and 2.9 bscf/d in 2020 under our base-case scenario. If these projections hold, unconventional gas output will account for 16% of China’s total domestic gas (natural gas plus unconventional gas) by 2020.
If the production of unconventional gas is large enough, future LNG imports may be affected. However, FGE believes that the direct impact on LNG will be limited through 2020. CBM will continue to meet demand growth in the inner northern regions of China, while LNG’s role will continue to meet the coastal region’s gas demand. Under the above base-case scenario for unconventional gas production, China is expected to import 25.2 mmtpa (million metric tons per annum) and 37.5 mmtpa of LNG in 2015 and 2020, respectively. [NBR]

You’ll decide..

Tags: China · Natural Gas