China Shale Gas Delay to Boost LNG Imports
China’s ambitions to unlock the natural gas trapped in shale rocks are likely to take longer than planned, boosting the nation’s reliance on overseas suppliers from Exxon Mobil to Royal Dutch Shell.
Shale gas output will rise to 23 billion cubic meters in 2020, or 29 percent of the government’s 80 billion target, below the average estimate of seven analysts surveyed by Bloomberg. The shortfall, stemming in part from tougher geology, should boost liquefied natural gas imports from about $5.8 billion in 2011 while curbing speculation that the nation can duplicate the U.S. shale boom that has upended global energy markets.
Drillers in China, the world’s biggest holder of shale reserves, have yet to produce shale gas commercially, with Shell helping China National Petroleum Corp. to sink the nation’s first horizontal well. Explorers such as Cnooc and China Petrochemical, which have invested more than $5.7 billion in so-called unconventional oil and gas assets overseas, have found their technology lacking at home.
“There are resources in China but the geology is different and more challenging than in the U.S.,” Liu Zhenwu, a vice president at state-run CNPC’s advisory center, said in a Feb. 7 interview in Bangkok. “Technical issues need to be solved first. It may take a few years, maybe a decade, maybe more, before large quantities of shale gas are produced in China.”
Until then, China will need to boost purchases of LNG from providers such as Exxon, Chevron and Woodside Petroleum to meet demand. The nation imported 12.2 million metric tons of LNG in 2011, worth $5.8 billion at last year’s average price, customs data show. Paris-based GDF Suez estimated shipments may almost quadruple to 44 million tons in 2020.
The global LNG market last year was valued at about $123 billion, based on an average price of $10 for a million British thermal units and 336 billion cubic meters of shipments.
Grieder forecasts China will produce 20 billion cubic meters of shale gas in 2020. “The government’s target is ambitious,” he said. “It reflects their confidence about the resource base and about strong domestic and foreign investor interest in the sector.”
The U.S. produced 96 billion cubic meters in 2009, overtaking Russia as the world’s biggest natural gas provider. Output surged to 142 billion cubic meters in 2010, causing prices to slump.
Natural gas prices in New York were close to $10 per million British thermal units end of 2000 and rose a record of $15.38 per million British thermal units in December 2005, spurring drilling investments. Prices on the New York Mercantile Exchange have dropped this year to around $2.50.
Chinese shale may hold 1,275 trillion cubic feet (36 trillion cubic meters) of technically recoverable gas, 12 times the country’s conventional gas deposits, an April report by the U.S. Energy Information Administration said.
That’s almost triple the 482 trillion cubic feet in the U.S., according to a Jan. 23 estimate by the EIA. “On average the shale deposits in China are deeper than in the U.S. and more difficult to get to,” Neil Beveridge, an energy analyst at Sanford C. Bernstein in Hong Kong, said Feb. 10. “The mineralogy of the shale rocks in China is also primarily what is called non-marine, which means their productivity could be lower. The U.S. has marine shales which have much lower clay content and are more easily fractured.”
Teams that unlock gas with hydraulic fracturing, or fracking, in the U.S. found success mostly from 2 kilometers (1.2 miles) to 4 kilometers deep, while in China some key deposits are found 6 kilometers down, according to Beveridge.
Source: Times Leader