New shale gas discovery in south-west China adds to already prolific Fuling field

Drilling rig in China
Source: DollarPhotoClub

Despite initial challenges, China is confidently moving forward in exploring its huge shale resources. Last week, China Geological Survey (CGS) announced the discovery of a yet another huge shale gas field in its Guizhou Province.

Guizhou province is believed to hold as much as 13.54 trillion cubic meters of shale resources, with seven potential shale gas-bearing strata – 1.95 trillion cubic meters of which is believed to be recoverable.

Last week’s discovery was of shale oil and gas in Anye Well 1 in Zunyi, CGS said, adding that a test conducted in one of the layers resulted in steady daily output of 100,000 cubic meters. This, CGS added, could meet the residential, industrial and agricultural needs of approximately 10 million people in the region.

Meanwhile, China’s highest-producing shale field – Sinopec’s Fulling field in south-west China’s Chongqing municipality, has produced 2.7 billion cubic meters (bcm) of gas during the first six months of 2016. This is twice the level recorded during the same period in 2015. According to recent statements, the company’s target is to produce 15.bcm by 2020.

Ministry of Land and Resources (MLR) said country’s shale gas output reached 4.47 bcm in 2015, up almost 259 percent on year. However, last year’s production missed government’s target of 6.5 bcm.

Suffering from exceptionally high levels of air pollution, China is committed to moving away from coal, which currently accounts for 64 percent of the country’s energy, to much cleaner natural gas. Developing the country’s huge shale resources – estimated by the EIA at 1,115 trillion cubic feet – is one way of achieving this target.

This goal is not without its challenges. Geological complexity, shortages of water, land access, and the limitations of infrastructure and the service industry have all contributed to ambitious production targets remaining unrealized.

As Forbes points out, gas is China’s fastest growing major fuel, with demand quadrupling in the past decade. Gas is now about 6-7 percent of China’s energy demand, double the market share in 2007, and the Party seeks gas to be 10 percent of energy by 2020. To further encourage consumption, the ruling Party has lowered the prices of gas by as much as 30 percent. This, however, has the side effect of discouraging domestic production rendering it uneconomical.

Unsurprisingly, Chinese gas imports have soared. China is now the world’s third-largest LNG importer after fellow Asian giants Japan and South Korea. Compared to 1.2 bcf/day in 2010, China now imports about 2.7 bcf/day of LNG. This is about 15 percent of total national gas demand and over 7 percent of the global LNG market. On top of that there is the giant “Power of Siberia” pipeline that will carry 3.67 bcf/day from gas fields in Russia’s far east to Shanghai” by 2019 – the effect of the $400 billion deal with Russia, signed in 2014.

However, despite shale development being 2-4 times more expensive in China than the U.S., China insists it’s making progress in developing its unconventional resources. According to official sources, China’s recoverable shale gas reserves last year jumped 109 bcm to 130 bcm.

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