Will China Shale Gas Attract?
A 2013 US EIA study estimated China held the world’s largest shale gas resources at over 1,160 Tcf. Since then, the Chinese shale gas sector has failed to meet growth expectations. Complex geology, coupled with significant above ground challenges – including topography, high population density and water access – and weak fiscal and regulatory support has kept costs high. Numerous IOCs with significant shale experience evaluated the opportunities, but few committed and today the only significant players are PetroChina and Sinopec, with almost all activity limited to the Sichuan Basin in central China.
Despite this, China’s shale gas production increased to over 1.9 Bcfd in 2020, an impressive 30% year-on-year jump. Whilst this was only two-thirds of the government’s 2020 target, it remains a credible performance. PetroChina and Sinopec are reinventing domestic shale gas development by chasing shale formations in far deeper formations than those in the US. Most of the current shale production comes from the Sichuan Basin’s so called middle shale plays (2,000–3,500 metres depth). The NOCs have made significant progress understanding the geology there, and appraisal and development is now turning to deeper resources at depths ranging from 3,500 to over 4,500 metres.
Deeper wells inevitably mean higher costs and reducing these costs will require new technologies and less reliance on foreign suppliers. Wood Mackenzie recently upgraded its forecasts on production growth based on NOC’s progress, but this will rely upon whether the deep shale in the southern Sichuan Basin, which they see as having huge untapped potential, can be successfully exploited.
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