(EnergyAsia, July 13 2012, Friday) — The following is an edited commentary by Chris Faulkner, CEO of Dallas, Texas-based Breitling Oil & Gas, on the prospects of China becoming a major natural gas producer through the development of its shale and unconventional gas reserves.
There is much speculation about China’s potential to become a major global natural gas player, given its reported huge reserves and projected fast-rising consumption.

But as history has shown, nothing is simple when you’re talking about China.

With the world’s largest shale gas reserves and proven recoverable gas resources estimated at 22 trillion cubic metres, China has given clear indications that it would welcome a shale boom similar to what’s been happening in the US.

Aside from the huge profit potential, China’s increased interest in tapping its vast reserves is fuelled by its own initiatives to lower its greenhouse gas emissions. Natural gas was first used in China nearly 3,000 years ago, yet the country with the largest natural gas reserves in the world has been powered by coal for many generations. China remains the world’s largest coal consumer and a distant 8th in natural gas consumption.

But all this is set to change radically. In its latest report, “Golden Rules for a Golden Age of Gas,” the International Energy Agency (IEA) predicts China’s natural gas consumption to grow by 13% per year, doubling by 2015 and trebling by 2030.

As early as 2013, China could emerge as the world’s third-largest natural gas consumer behind the US and Russia.

Production challenges

But China’s projected natural gas production will not grow as fast its consumption as it faces a host of environmental and land access issues while its geology poses technological problems unique to the shale gas industry.

The country lacks the technology and infrastructure to handle the potential volume. It is handicapped by a fractured pipeline network, a lack of processing and storage facilities, and insufficient water supply vitally needed to reach shale reserves using hydraulic fracturing methods.

China will also face green concerns over the use of unconventional drilling techniques.

Along with the high water requirements, critics worry about potential drinking water pollution from chemicals and byproducts of hydraulic fracturing, as well as the release of methane gas. Such concerns have led to bans on fracking in France and ongoing efforts to increase regulation in other countries. Attempts to introduce best practices will help China minimise the environmental impact, but will lead to higher production costs.

To date, dozens of exploratory shale gas wells have only yielded disappointing results.

China is looking to more experienced foreign partners like Shell Oil to help unlock the resource, and courting private investment to underwrite infrastructure improvements to increase domestic production and imports.

Despite its great need for foreign investment and technology partnerships, China has yet to offer incentives in the form of tax breaks or subsidies.

Interestingly, while the government is courting foreign investors with the technical know-how to exploit these reserves, China’s large state-owned oil companies have not shown that they are ready to make the investments.

While the Chinese government is integrating the country’s fractured pipeline network and plans to add nearly 25,000 km of new lines, analysts worry it is underestimating the time and cost required to expand and improve the infrastructure.

China is expected to expand its import options that will benefit a number of gas-exporting countries in North America, which is poised to become a net exporter of liquefied natural gas, Australia, and piped gas suppliers in Central Asia and Russia.

While it faces formidable challenges to become one of the world’s top natural gas producers, China’s single-mindedness in pursuing its commercial and political interest cannot be under-estimated as shown by its socio-economic achievements in recent decades.

Chris Faulkner is the Founder, President and CEO of Breitling Oil and Gas, an independent oil and natural gas company based in Irving, Texas.
Founded in 2004, Breitling Oil and Gas employs state-of-the-art petroleum and natural gas exploration and extraction technologies for the development of onshore oil and gas projects. Mr Faulkner serves as an advisor to the ECF Asia Shale Committee and sits on the Board of Directors for the North Texas Commission.