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Data revolution before shale revolution

China needs to replicate the US approach of making more data available before it can hope for game-changing shale production growth

A September shale gas discovery by the PetroChina arm of China ‘big three’ oil firm CNPC, in the Sichuan basin, has been hailed as a breakthrough because of the shallower-than-usual depth at which it was made. But it will make little difference to China’s likelihood of hugely undershooting its 2020 shale gas production target. 

Beijing remains hopeful that funding shale gas exploration will help reduce China’s growing reliance on gas imports, as part of a wider growing concern over the country’s energy security in the wake of geo-political tensions with the US and its significant Asian naval strength. But analysts argue that root-and-branch reform of the structure of the Chinese gas industry will be required if the country really wants its shale production to take off.   

The September discovery is at least likely to accelerate development in PetroChina’s blocks, says Xi Nan, vice president, gas and power markets at consultancy Rystad. Indeed, the drilling in the Taiyang structure in the Zhaotong block is “quite a breakthrough”, says her Rystad colleague Pranav Joshi. Reserves were discovered in shallower depths of 1,000m, whereas shale is usually found in depths ranging from 3,000-4,000m in China and 2,000-3,000m in the US.

The EIA in 2013 estimated China’s technically recoverable shale gas reserves to be the largest in the world

 Longer-term, Rystad sees China’s shale gas output rising to 35bn m³/yr by 2025 and 52bn m³/yr by 2030. For PetroChina alone, the consultancy predicts it will produce 8bn m³/yr of shale gas by 2020 and 20bn m³/yr by 2025, from less than 4.3bn m³ in 2018. China has set a target to produce 30bn m³/yr of shale gas by 2020, but most analysts doubt the target will be even close to being met.   

The new discovery, even if it opens up an entirely new play, will not be a game changer in terms of the country’s overall gas supply-demand balance ,warns Philip Andrews-Speed, principal fellow at the National University of Singapore’s Energy Studies Institute. While more shale reserves will be “nice to have”, they will not materially change China’s underlying import dependence, he says. The International Energy Agency (IEA) predicts that, in 2030, more than 60pc of Chinese gas consumption will come from imports. 

Big data needed

The US’ Energy Information Administration (EIA) in 2013 estimated China’s technically recoverable shale gas reserves to be the largest in the world. But fully exploiting those reserves remains a distant prospect. BP, ExxonMobil, Shell, Italy’s Eni and US independent ConocoPhillips have all come and gone in the quest for Chinese shale gas. 

One key constraint, Andrews-Speed argues, remains geology. The rocks are generally more highly faulted than in the US basins, with complex stress patterns. Add to this the lack of diversity of players and weak competitive environment, and you have a “generally unfavourable situation for shale gas and shale oil”, he says. Discoveries will continue to be made and output of shale gas and shale oil will grow, Andrews-Speed predicts, but they are “unlikely to make much of a dent in China's import requirements.” 

52bn m³/yr – China’s shale production forecast by 2030

China in June extended shale gas subsidies to 2023 to take account of the long exploration pay-back cycle. But Beijing could be doing more to encourage exploration. Researchers led by Zhong Wang at the Chengdu University of Technology have argued that the historical monopoly of gas pipelines by the ‘big three’—CNPC, Sinopec, and Cnooc—continues to make it hard for other gas producers to get access. Moves by the government in 2014 to provide unused gas pipeline capacity to new users lacked quantitative indicators, or a method for calculating the price of transportation, the research argues.

In contrast to the US, where the EIA database gives publicly available information on geological conditions, production quantities and numbers of drilling wells, such data is hard to find in China, according to the research, raising the exploration risk for companies and deterring potential investors.

The paper argues that China needs to standardise data on shale gas development, and then establish a big data platform to make it widely available. Whether China—where transparency as an advantage is hardly a generally held principle—has the appetite to take such a bold step remains to be seen.

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