(EnergyAsia, September 5 2014, Friday) — With the drastic cutback in its ambitious shale production plans, China will have to revert to relying on oil and gas imports to meet its growing energy demand.
In 2013, China produced just 200 million cubic metres of its vast shale reserves, which the US Energy Information Administration (EIA) believes is the world’s largest recoverable at more than 30 trillion cubic metres (cbm) and about 65% larger than America’s. In 2012, amid the hype, China’s leading state agency, the National Development and Reform Commission (NDRC), set a target for the country’s annual shale gas production to reach between 60 billion and 100 billion cubic metres (cbm) in 2020.
But following a detailed review covering market, geological, environmental and infrastructural conditions, the NDRC’s National Energy Administration (NEA) has concluded that China is not ready yet to fully develop the shale hydrocarbons embedded in remote parts of Sichuan and Xinjiang. Last month, the administration’s director Wu Xinxiong announced that it had slashed that annual production target to just 30 bcm in 2020. If realised, this output will meet less than 0.75 percent of China’s projected natural gas demand of 400 to 420 bcm by 2020.
In contrast, the US produced nearly 270 bcm of shale gas last year and is on course to raise that to 565 bcm by 2040 to support both domestic consumption and exports during that period. North America’s shale reserves are found in easily accessible and flat terrain already served by well-developed infrastructure.
China’s shale reserves, on the other hand, are embedded in deeper geology in remote inhospitable areas that require massive infrastructure investments. Furthermore, Sichuan province, where the bulk of China’s shale reserves are found, suffers from two of the worst conditions associated with the hydraulic fracturing or fracking method for producing shale — drought and earthquakes.
Fracking requires the high-pressure injection of a mix of water and toxic chemicals into the earth to separate gas from rocks. In the US and elsewhere, fracking is said to have contaminated underground water supplies and caused earthquakes or worsened seismic conditions.
Sinopec and China National Petroleum Corp (CNPC), two of the country’s main state firms, have little to show for their efforts after over a year of fracking. Sinopec has made a small commercial find in Sichuan’s Fuling district where it expects to produce five bcm of shale gas next year.
The NEA has also acknowledged that China does not have the expertise and legal system in place to deal with the complex issues and risks associated with shale development. The agency has made a point to slow down the industry’s development while closely following the outcome of the anti-fracking movement in the West.