Sinopec: China will surpass its shale production goal – but not everybody agrees

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Source: DollarPhotoClub

There has been conflicting news about Chinese forecasted shale output, with the likes of Bloomberg arguing that the country is not likely to meet it’s self-imposed (in 2012) annual production target of 6.5 billion cubic meters for this year. Meanwhile, Sinopec’s Chairman, Fu Chengyu, announced that, thanks to recent discoveries, as much as 10 years can be cut off from China’s planned development time for shale gas energy.

The commitment for China to develop its massive shale reserves has been well documented. The country’s government has stated the transition from coal-powered energy generation to natural gas as a priority for the country which suffers considerably from air pollution.

Despite this clearly-stated commitment, according to the latest data from the National Development and Reform Commission, China’s recent demand for natural gas has diminished quite considerably, with natural gas consumption increasing by 2.7 percent year on year during the first 10 months of 2015 – a significant fall when compared to a 7.1 percent growth during the same period of 2014.

This is partly down to the slowing growth in energy consumption – only a 0.7 percent rise from 2014 levels – caused by the economical slowdown of the Asian powerhouse.

“However, the lower gas demand growth this year does not necessarily indicate that China has lost its appetite for natural gas,” Jane Nakano, a researcher specializing in global gas market at the Center for Strategic and International Studies, a think tank based in Washington, D.C., told E&E News.

The imperative to tackle air pollution still stands and Chinese Government is still heavily committed to developing its prolific shale fields. However, the situation gets further complicated when we consider that one of the two state-owned energy majors, PetroChina, is holding back shale gas expansion at Sichuan in southwest China partly because they’re already struggling to sell conventional gas, which is cheaper to produce – according to Bloomberg.

According to Bloomberg, PetroChina, with its current production of about 1.6 billion cubic meters of the unconventional gas this year is lagging behind its stated target of 2.6 billion cubic meters. The combined production of PetroChina and its rival Sinopec currently stands at 5.1 billion cubic meters per annum and accounts for almost all of China’s commercial shale gas output. This is still a far cry from China’s goal, announced three years ago, of 6.5 billion cubic meters to be produced in 2015.

“We’ve seen very limited growth in the domestic market and an oversupply in terms of imports, that’s led to lower-than-expected production this year,” Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co., told Bloomberg. “Shale gas is going to get cut when we’ve got an oversupplied market and companies focus on the lower end of the cost curve.”

This, however, is not how Sinopec sees it. At the end of last month, the company announced that it discovered a major shale gas field near Southwest China’s Chongqing. The Fu-Ling field has estimated reserves of 2.1 trillion cubic meters, China’s CNTV reported, adding it’s also the first large-scale discovery of its kind in China.

The discovery spurred Sinopec’s Chairman, Fu Chengyu, to announce that this new development is likely to shave off as much as ten years off China’s planned development time for shale gas energy.

“Our Fuling project, which will ultimately produce 10 billion cubic meters a year by 2017, will build shale gas capacity to 5 billion cubic meters a year by 2015.” Fu Chenyu said.

The discovery of the Fuling field means China’s official target for annual shale gas production, 6.5 billion cubic meters a year, will be easily surpassed, CNTV said.

The announcement flies in the face of what most Western analysts are saying about the diminishing production from China’s shale fields. It has to be noted that China has been known to be over-optimistic when it comes to its production levels in the past. Event the super-optimistic CNTV has commented that Sinopec may be faced with a cash squeeze as it looks to develop the field.

Back in 2012, realizing the importance of switching to a cleaner burning and domestically-produced energy source, Chinese Government announced long term plans regarding the extraction of shale gas, with the purpose of bringing it up to account for at least 8 percent of the country’s energy generation by 2030. Whether they succeed in reaching this target still remains to be seen.

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