China’s unconventional gas industry to see long-term growth

While long-term growth in shale gas and CBM is expected in China, the industry cannot compare China’s unconventional gas development with that of the US due to China’s unique set of challenges. Petrochina’s corporate strategy also has a bearing on the situation as it is expected to import conventional gas from Central Asia and Russia to meet demand in the short-term which will limit the development of unconventional gas deposits.

Gavin Thompson, Director of China Gas Research at Wood Mackenzie stated, “As China’s gas demand growth has accelerated in recent years and unconventional gas has been proposed as a solution to supply issues, analogies have been quickly drawn to the US, where rapid production growth was achieved after the initial commercial development. However, a unique range of challenges faced by China means that they will not replicate the US experience in a linear fashion.”

In addition to competition with imported supply, China is facing a unique set of challenges.

• China will require accelerated investment to address unique geological conditions.
• Next, companies need to transfer and develop technologies for local conditions.
• Limited third-party access to transmission pipeline infrastructure continues to pose a major obstacle to independent developers.
• Land access and water usage remain critical issues and Chinese landowners lack the same incentives as those in the US to cooperate with upstream operators as mineral rights are state-controlled and land owners do not benefit from production.
• The process of achieving approval for project plans has also been notoriously slow. 

Thompson says, “Petrochina’s role is crucial in maintaining the fine demand-supply balance in China. As China still needs to meet demand in the current decade, we expect that an additional 5 billion ft³/d from Central Asia and Russia will be signed in the next 3 - 4 years to ensure supply by 2017-2018. With oil indexed imports, the more expensive contracted gas makes it less compelling to bring on unconventional supply any sooner. With the contracts in place, there will also be less market demand for unconventional gas in the mid-term.” 

In the short-term, Petrochina is likely to concentrate on onshore conventional and tight gas production to meet China’s energy needs. Unconventional gas does carry significantly higher development costs and this is likely to affect the speed with which Chinas unconventional resources are developed.

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