Introduction

Exactly how much unconventional shale gas lurks outside America is a matter for conjecture, but the list of countries with potentially large reserves grows steadily. Canada and Mexico are known to have lots. Australia already produces coal-bed methane and has plenty of shale and tight gas too. Argentina and India could join the shale club, and so could countries that already export conventional gas, such as Algeria and Libya. Even Russia and Saudi Arabia, the largest conventional oil producers, have the stuff. But the biggest shale-gas reserves may be lurking in China. At the end of last year the IEA estimated the country’s total recoverable resources at 50tcm, over 70% of it in shale beds, most of the rest coal-bed methane.

Big plans but little output

China is the world’s largest energy consumer with 68% of the national power supply coming from coal, 20% from oil and 5% from gas. Mindful of the environmental impacts, the Chinese government had set ambitious plans to diversify the energy mix and forecasted production of 6.5 billion cubic metres (bcm) of shale gas by 2015, 60–100bcm by 2020. These forecasts have been shown to be wildly inaccurate.

Wu Xinxiong, the director of China’s National Energy Administration, recently predicted that only 30bcm a year will come on stream by 2020. That would barely meet 1% of China’s energy needs now, let alone in 2020. With more than 30 trillion cubic metres of recoverable shale gas, China has the largest reserves in the world, almost 70% more than in America, home of the shale-gas revolution. It is also a setback to the country’s efforts to reduce pollution; dirty coal now makes up about 70% of energy consumption and, despite fast growth in renewable energy, gas is the only cleanish energy source that could displace enough coal to rein in carbon emissions quickly.

Pipes, Price and Precipitation Problems

Americans have taken 60 years and 200,000 wells to lay the groundwork for the shale gas revolution by combing horizontal drilling with hydraulic fracturing. With this approach, high-pressure water with fracking additives is used to increase fissures in the rock opening networks of fractures in the shale, holes in the well casing allow fluid to exit and gas to enter, and then gas flows from the fractures into the pipe follow the contour of a shale layer access to as much as 3 km or more at depths of more than 2 km.

The Chinese government offers subsidies for the development and utilization of shale gas at both the central and local levels. It comes as no surprise that China’s two biggest state oil companies, Sinopec and China National Petroleum, have been fracking furiously, but so far only Sinopec has a commercially significant shale-gas project up and running, in Sichuan’s Fuling district. It claims the field will yield 5 billion cubic metres next year, compared with just 200m cubic metres of shale gas produced nationally in 2013. Few other large shale fields are set to come online, while other natural-gas projects have missed their production targets.

Despite the opportunities to develop shale gas in China, replicating America’s shale strategy is proving harder than it expected.

The technologies for developing China’s shale gas are in an early stage and rely on cooperation with foreign enterprises. The main equipment needs to be imported from abroad and because of the differences in geological characteristics; the technologies employed in other may be unsuitable for the development of shale gas in China. For example, the shale gas in China is buried deeper than in the U.S.A. It is estimated that the average burial depth of shale gas in the U.S.A. is about 800–2600 m, while in Sichuan Basin the average depth is 2000–3500 m.

China also lacks gas infrastructure to serve shale fields. Much of what it has was built to connect conventional fields to markets. The country has a record of building infrastructure at lightning speed: the Turkmenistan pipeline, for instance, went up much faster than it would have done in the West. Yet coal-bed methane, although in development in China for ten years, in many places still lacks suitable pipelines linking it to markets.

china shale gas
Map of China Shale Gas Deposits

The trunk pipeline network of natural gas is still imperfect and fragmented. Some areas are even not been covered, and regional distribution network is underdeveloped too. China’s gas-rich centrals are mainly concentrated in the western mountainous areas, especially the Sichuan Basin in Southwest China and the Tarim Basin in Northwest China. Complex geological conditions and long distance far away from China’s main consumption centres in the eastern coastal regions make the pipeline network construction in these areas are difficult and costly. In addition, Gas storage capacity is seriously lagging behind, storage volume of the gas storage warehouse only accounts for 1.7% of the total consumption at present. The newly added working storage volume will reach about 22 bcm by 2015, accounting for approximately 9% of the total natural gas consumption, but this still lags behind the global average of 12%.

Furthermore, historically, Chinese central government decided and controlled energy prices, especially the natural gas resources. Government interference in the price mechanism made the gas market imperfection and uncompetitive, compared with coal and oil. Comparing with the imported gas price, terminal price of natural gas which belongs to the scope of “state pricing” is generally low. Margins, already stretched by the additional challenges of extraction and transportation, have proven difficult to support.

china shale gas
Pressure on water reserves in China

Finally, most of the major basins containing shale gas in China are located in the arid or semi-arid regions, with precipitation of fewer than 800 mm per year, and many of these basins are densely populated areas with a very high water supply pressure. How to balance the contradiction between shale gas development (with each well consuming 10,000–24,000 m3 water per day) and rational water resources utilisation is a major challenge. China’s per capita availability of water resources is less than 1/4 of the world average, but water consumption per unit of GDP is 3 times as much as the world average. Massive shale gas development will undoubtedly exacerbate the water resources competition between shale gas extraction and agricultural, industrial, ecological system, as well as domestic sectors.

Where from here for China shale gas?

Despite the great opportunity for China shale gas to develop, there are great challenges, technical and social, developmental and environmental, for the Chinese to address. Without advanced technologies being employed, without the eco-environment being well protected, without water-use being well balanced, without a good relationship being established and maintained between the industry and the local community the development of shale gas cannot bring China any benefits, but merely more serious environmental problems, a greater water shortage, and an unstable, unjust social situation in the development regions. There are several good choices facing China, but these choices are limited. Although China’s policymakers have recognised the need to transform its energy policy and have taken measures to promote the development of a shale gas industry, to what extent these limited good choices can contribute to the realisation of a possible golden age of shale gas resources in China appears questionable. Repeated downgrades in outputs – both actual and forecast – blow a cold wind.

It is hardly surprising, then, that in May China signed a $400-billion deal with Russia’s Gazprom to import 38bcm of natural gas a year over the next three decades.

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References
  1. Is China really ready for shale gas revolution -Re-evaluating shale gas challenges Environmental Science & Policy Volume 39, May 2014, Pages 49–55
  2. A world of plenty – http://www.economist.com/node/21558457
  3. Natural gas reserves – http://www.economist.com/blogs/graphicdetail/2012/06/focus
  4. China’s shale gas development plan (2011–2015) – http://www.gov.cn/zwgk/2012-12/03/content_2280785.htm
  5. Shale game – http://www.economist.com/news/business/21614187-china-drastically-reduces-its-ambitions-be-big-shale-gas-producer-shale-game

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