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China to become second largest shale-gas producer by 2035

BP's chief economist predicts the Chinese will be second only to North America

China will become the world’s second largest shale-gas producer by 2035, behind only North America, according to BP’s chief economist. However, Spencer Dale added the company did not believe there will be any significant shale production in the UK or Europe over the next 20 years.

From 2025 to 2035, China’s shale-gas production will expand by an average 33% per year. By 2035, China and the US will pump some 85% of global shale-gas output, BP latest Energy Outlook shows. 

Dale attributed the explosive growth to China’s rich shale-gas resources – estimated at 1,115 trillion cubic feet (cf) and nearly double the US’ resource – as well as government policy support for exploration, and China’s achievements to date in developing shale gas.

But whether China can bring in more private capital to the industry will be key to its future development, added Dale. 

China has slashed its shale-gas production goal for 2020 to around 30bn cubic metres (cm) – about one-third of its original target – as difficult geology, lack of infrastructure and limited exploration rights dented Beijing’s shale-gas aspirations. That goal still pales in comparison to US shale-gas production, which after around 12 years of accelerated development is running at over 270bn cm/y.

Hong Kong-based analysts at research firm Bernstein project that China’s shale-gas production will hit 6.5 billion cm this year backed by some 25bn yuan ($4bn) of investment. 

Hitting 6.5bn cm of production this year is feasible, given Sinopec will pump 5bn cm of shale gas from its Fuling play, primed to rise to 10bn cm by 2017, while China National Petroleum Corporation (CNPC) plans to produce 2.6bn cm this year.

Positively, national oil companies Sinopec and CNPC, which control about 80% of China’s shale acreage, say that drilling costs are falling.

Drilling costs per well at the Fuling play have fallen from 100m yuan  to 80m yuan  and are set to drop to 60m yuan  or less over the next two years, reported Sinopec. This compares to a average cost of about $4m per well in the US.

But as the development costs fall government subsidies will be reigned in. The Ministry of Finance said that a subsidy of 0.30 yuan would be paid for every cubic metre of shale gas pumped during the 2016-2018 period, down from the 0.40 yuan provided for the 2012-2015 period.

From 2019 to 2020, the subsidy will be cut further to 0.20 yuan   for every cubic meter of shale gas developed, the ministry said, adding that it will adjust the policy in accordance with the sector’s growth, technology and changes in cost.

Elsewhere, Dale said that shale-gas development would gain little traction outside the US before 2035. 

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