India, China to See Major Shale Gas Investments
The coming year will see a major expansion of investment in shale gas plays around the world, notably in Europe, China, India and perhaps even South America. Companies and host countries hope to repeat the North American experience that has transformed energy markets across the continent.
The enormous shale gas potential will reshape global energy markets over the next decades, loosening Russia’s grip on the European market, undermining the economics of massive liquefied natural gas (LNG) projects, and enhancing energy security for major importers such as China and India.
“It’s a big play,” says Amy Myers Jaffe, associate director of the energy program at Houston’s Rice University. “I think it is the gas equivalent to deep-water drilling for oil. We went from getting no oil from deep water, to having it now be 5 per cent of global production, with predictions that it will get to 30 per cent. This is going to be the same thing for shale gas.”
China and India are eager to exploit unconventional gas deposits in their countries to reduce their dependence on foreign sources.
China, for example, has set a production target of one trillion cubic feet per year from shale, tight-gas formations and coal-bed methane - an amount equivalent to 30 per cent of the country’s 2010 consumption.
Chinese state-owned companies are investing in North American shale plays, in part to gain expertise needed to develop their domestic resource. China National Petroleum Corp. is negotiating a joint venture with Calgary-based Encana Corp. to develop properties in B.C.’s Montney and Horn River areas. CNOOC Ltd. - a subsidiary of China National - paid $2.16-billion (U.S.) for a one-third interest in Chesapeake Corp.’s Eagle Ford shale play in south Texas.
Ms. Jaffe of Rice University said the Chinese are investing to gain know-how as much as a share in production revenues. In fact, the U.S. and Chinese have established a formal process to share expertise on shale gas development among experts from industry, government and universities.
“Obviously the Chinese take [their own shale potential] seriously or you wouldn’t have seen the types of investment you are seeing,” she said. “They did this deal with Chesapeake to learn what the business model is, and gain experience in the United States.”
In turn, Exxon, Royal Dutch Shell PLC, and BP PLC will all be pursuing opportunities to develop shale, tight gas or coal-bed methane properties in China.
India’s largest energy company, Reliance Industries Ltd., has also plowed money into U.S. shale plays, and New Delhi signed an agreement this year with the U.S. to benefit from American technical expertise. India plans to auction off land for shale gas development before the end of 2011.
The shale gas business will develop more slowly internationally than it did in the United States, which had the expertise, infrastructure and mature markets to drive down costs and rapidly turn potential into production.
But the seeds of a global gas boom are firmly planted and will be sprouting in the coming year.
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