China cuts down its shale estimates while investing in coal gassification

Air pollution over Shanghai.
Source: DollarPhotoClub

Wu Xinxiong, the head of China’s National Energy Administration, has downgraded the amount of shale gas China is aiming to pump by 2020 from 60-80 billion cubic metres (bcm) mapped out in 2012, to just 30 bcm – Reuters reported today. As the shale dream flounders, China looks to coal gasification to fulfil it’s ever-growing appetite for energy

The revision to 30 bcm is bad news for oilfield services companies operating in China, such as Anton Oilfield, but conquering Chinese shale market has always been a struggle for foreign companies. So far, only Royal Dutch Shell and Hess Corp have secured production sharing contracts, while others, including Exxon Mobil and BP, have barely progressed beyond the preliminary stage of studying the blocks.

China is the richest country in the world when it comes to shale gas deposits, with EIA estimated 1,115 trillion cubic feet of shale gas. As far as shale oil is concerned, China ranks third, behind Russia and the U.S. with estimated deposits of 32 billion barrels. But this is all on paper. In reality, after four years of early evaluations and drilling, only one field – Fuling field, in southwest Sichuan – has proved promising. Other areas have turned out to be difficult due to complicated geology, water shortages, and high production cost.

The future does not look optimistic. According to Forbes, the preceding two auction rounds of Chinese shale blocks proved disappointing: “the first shale sale in June 2011 was largely a staged play among the six state-run bidders; the second round held in 2012 was open to private investors, but shortlisted candidates included the bizarre choices of a home-appliance company and a hardware firm that mainly sells hand tools.” And the much-delayed third round does not instil bidders with hope either.

Unlike in the previous rounds, the bidding process in the current auction will be managed by local authorities, rather than the central government. This rises concerns that officials will favour local enterprises over any other entity.

Reuters predicts that the new 30 bcm shale gas target would mostly be contributed by the country’s top two state oil firms, PetroChina and Sinopec Corp, as they hold the majority of the country’s oil and gas blocks, as well as the expertise. But it’s also possible that in the current round of auctions local officials will move against the state-owned giants that offer them nothing but meagre tax revenues. As Forbes points out, awarding a good block to local firms will surely guarantee more benefits.

All this means that China is still a very long way from realising its shale gas potential. In the mean time, it concentrates on another source of energy that it has in abundance – coal. It was reported today that China is on course to build 50 new coal gasification plants in a bid to cut smog plaguing its urban agglomerations.

Two coal gasification pilot plants have been built, three more are under construction, and 16 have been approved for construction, while the rest are in various planning stages. Eighty percent of the 50 plants are to be located in northwest China, in the provinces or regions of Xinjiang, western Inner Mongolia, Ningxia and Gansu.

The coal gasification plants will produce gas that will in turn produce electricity to power China’s major cities. The move is referred to as ‘clean energy’ by state-owned power stations, despite the fact that coal gasification emits seven times more greenhouse gases than natural gas, and almost twice as much carbon dioxide as a coal plant.

China needs tremendous amounts of energy to feed its expanding economy and it clearly does not view the reduction of greenhouse gas emissions as a major goal. This means that the development of China’s shale gas deposits seems to be in everybody’s interest, as the alternatives are not acceptable to anybody concerned about the global warming and the future of our planet.

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