Related Articles
Forward article link
Share PDF with colleagues

Chasing Chinese gas dreams

Both the country's unconventional production and reserves are set to soar

By late 2017, it was official. Sinopec has turned the Fuling field in the southwest municipality of Chongqing into the most productive shale gas area in China. According to a statement by the state-owned group, last year it drew more than 6bn cubic metres from the field, up 20% on 2016.

That's below Sinopec's original target of 10bn cm set in 2014, but it's a lot more than almost anybody expected when production began three years ago. The result, demonstrates once again how quickly China can move when Beijing combines with industry to chase a goal considered to be in the nation's long-term interests.

Learning from North America and Australia, where Chinese companies have stakes in groups specialising in unconventional gas exploration, China's overall production of shale gas, in particular, has surprised forecasters. In fact, the state-owned majors are claiming to have achieved technological breakthroughs that lead the world.

Something must be working because, according to the latest official figures, overall production is rising impressively. For example, total output of coal-bed methane (CBM) increased to 3.16bn cm between January and May 2017, up 3.2% on the previous year.

In shale gas, production is through the roof. According to China's National Bureau of Statistics, output rose in the first quarter to 2.67bn cm—a rise of 17.4%. In one month, March, it jumped by over 50%. The Sichuan Basin in southwest China is the top-producing field, providing about one third of the total shale gas volume in 2017.

In tandem with production, the volume of proven reserves is rising. According to official figures, shale gas reserves are due to top 1.5 trillion cm by 2020 as new fields are discovered on a regular basis. In mid-2017, for example, the China Geological Survey announced that a reservoir with a capacity of over 500bn cm had been located in Yichang City, central China.

And China National Offshore Oil Company followed up in December with the discovery of a mid-sized natural gas field in Bohai Bay at a depth of 4,200 metres. Known as Bozhong 19-6, the field was tested to produce 181,000 cubic metres of gas a day along with about 1,000 barrels a day of oil, the company announced.

When Beijing, alarmed by high prices for liquefied natural gas in the Asia-Pacific region, unveiled its targets for unconventional gas production in its 12th Five Year Plan, experts considered them too ambitious. The overall goal for domestic production from both conventional and unconventional was 176bn cm/y by 2015, of which the latter would provide 37.5bn cm. Although its shale and CBM resources are gigantic, China was considered to lack the expertise.

Sceptics also cited scarcity of water resources near the big shale plays—for instance, the Tarim basin in the northwest of the country lies 1,000 miles (1,600km) from the main water sources. Other issues were the difficulties at challenging fields like the heavily faulted Sichuan basin, proximity to heavily populated areas, and serious deficiencies in the pipeline network.

However, with the help of state authorities, the industry has learned fast. The National Energy Administration has been establishing 19 exploration and production areas in cherry-picked "key zones" spread over 13 provinces, while scientific agencies have been working ahead of the upstream companies to identify the best opportunities. To encourage production, Beijing also boosted subsidies for CBM production from the pre-Five Year Plan rate of $0.8 per million British thermal units to $2.5/m Btu.

Looking to the future, in mid-2017 scientists managed to extract gas, in this case methane hydrate, from so-called "flammable ice" in the South China Sea. According to the Ministry of Land and Resources, commercial exploitation could begin before 2030, probably in methane hydrate-rich regions of permafrost as well as under the South China and East China Seas.

China still isn't producing enough unconventional gas, though, to meet its overall targets. Its dependence on natural gas was highlighted in late November at the onset of winter in northern China when pipeline pressures suddenly dropped because of a nationwide shortage, caused mainly by a slump in supplies from Central Asia. China National Petroleum Corporation had to cut sales by about 10m cm in the northern provinces.

In early December, the provincial government in Hebei issued an orange alert, the second most critical for gas shortages. Supplies only returned to normal in late December after Beijing despatched officials to lean on Central Asian suppliers.

If nothing else, the shortages suggest that Beijing's push for unconventional gas started in the nick of time.

This article is part of an in-depth series on Global shale. Next article is: Australia's one-man show

Also in this section
Pre-salt buoys Petrobras
23 October 2020
Booming crude production in the region is helping to offset financial shock caused by Covid-19
Latest licensing rounds
22 October 2020
The industry's most comprehensive list of current and recent rounds for onshore and offshore licences
Petrobras shuffles pre-salt plans
20 October 2020
Long-term production project delayed as economic malaise upends upstream timeline