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Massive capital investment will be needed to meet infrastructure challenges of China’s five-year shale gas development plan.
China has set high goals for shale gas development, but the challenges could pose too much of a hurdle to overcome in only five years, according to a natural resources analyst.
GlobalData called China’s five-year shale gas development plan optimistic, considering the country’s water shortage, insufficient pipeline infrastructure, environmental issues, and government-controlled natural gas prices.
“China’s 2015 aim is ambitious and will face several challenges,” said Matthew Jurecky, director of energy and consulting for GlobalData. “There is a massive gap between current activity in the country, which is limited to exploration and appraisal activity, and full-scale development – a gap that will require massive capital investment, but can be achieved with support from the government in the form of subsidies, tax breaks, and inclusion of foreign participants.”
Drilling and completion costs could exceed US $10 billion, with the need for more than 1,000 wells to meet the 2015 production goal, he added. That could pose problems because “operators in China have yet to even identify a fraction of the well locations to support this, let alone secure the capital, technology, infrastructure, and capability to reach their aim.”
The world’s most populous country released its gas development plan for 2011-15 in March with hopes of producing 229 Bcf of shale gas annually by 2015. Already, the country boasts 4,744 Tcf of onshore shale gas reserves and exploitable shale gas reserves of 886 Tcf, according to the Chinese Ministry of Land and Resources.
The plan also calls for:
• A two-year appraisal of its shale gas reserves, increasing shale gas technology expertise, and developing regulatory framework;
• Supporting R&D of shale gas technology;
• Accelerating the permit process for developers of shale gas reserves;
• Establishing a contract management system to control and monitor industry activity;
• Providing an adequate policy environment for shale gas development as well as the construction of LNG or compressed natural gas facilities; and
• Encouraging the construction of natural gas pipelines.
“In terms of potential development bottlenecks, the oncoming gas supply will require significant build out of a pipeline network to reach demand centers, which will require lead time for … approval, engineering, and construction,” Jurecky said. Pipeline expansion will be one gauge to assess progress toward the 2015 production target.
With such a large-scale development, sufficient services and equipment will be required. To help with the need, Jurecky suggested the government look to gain assistance from non-specialized companies and foreign participants to help alleviate the shortage.
China consumed more than 4.6 Tcf of natural gas in 2011, up from 4.65 Tcf in 2000, according to GlobalData’s estimates. With the country putting more emphasis on natural gas as part of its energy mix, last year’s usage figure is expected to skyrocket to 13.2 Tcf by 2020.
Already, demand is exceeding supply. China’s residents and businesses consumed about 4.65 Tcf of natural gas in 2011, while only 3.6 Tcf was produced in the country. The demand prompted, according to GlobalData, major Chinese national oil companies – including China Petrochemical Corp., China National Petroleum, and China National Offshore Oil Corp. – to seek overseas assets to help secure long-term gas supplies.
Obstacles also include finding millions of gallons of water needed for the required fracturing process to release natural gas and getting water to drilling sites.
“A remote resource pool could justify the government allowing access to distant and inconvenient water sources if not locally available, but the shale resource would have to be of significant size,” Jurecky said. “Furthermore, surface features and difficult terrain will also complicate development, but can be overcome.”
Diversification of the country’s natural gas supply, including coalbed methane (CBM) development, could assist China in helping meet energy needs. The country aimed to produce 1.06 Tcf of CBM by 2015, partly from ground-based and coal-mine projects.
Sights also are set on LNG. Five terminals currently operate in the country with a total regasification capacity, according to GlobalData, of 1 Tcf – a figure that is expected to rise to 2.8 Tcf by year-end 2016 when 11 more terminals are operating.
But “alone, no single supply source will be sufficient to fuel the country’s demand for energy,” Jurecky said.
Contact the author, Velda Addison, at email@example.com.