CHINA'S careful step-by-step approach to developing what it says are the world's largest shale gas reserves will give Chinese energy companies time to prepare their own plans for exploration and production.
According to a shale gas industry plan released last month, China aims to produce 6.5 billion cubic meters of shale gas annually by 2015, rising to an ambitious 60-100 billion cubic meters by 2020. That would equal last year's natural gas production in China.
Geological, technical and commercial challenges are all hurdles facing the domestic industry, which is at an early stage of exploring for the fuel, analysts and experts said.
"We have much preparatory work to do, and a very long road to go," Zeng Xingqiu, the former chief geologist of Sinochem Group, China's largest chemical supplier, wrote in Monday's China Business News.
The unconventional fuel, which has helped the US end its dependence on natural gas imports, has been flagged by the Chinese government as a key part of its strategy to use more cleaner-burning fuel and to reduce reliance on foreign oil.
China currently has no commercial production of shale gas, which is extracted from oil-bearing rock formations.
Many analysts said the 2015 production target is reasonable and in keeping with the country's status in technology development, but they say they are skeptical about the more ambitious target for the five years beyond that.
At the higher end, the 2020 goal would comprise about a third of China's total gas use.
The timetable for production shows that the government is in no rush to extricate the fuel because it first has to study exploration expertise by cooperating with foreign partners in projects both home and abroad. But technology is not the only concern.
Geological risks like pollution and earthquake are factors the industry needs to consider, said Sinolink Securities analyst Liu Bo, citing the experience in France, where the government last year cancelled its only three shale gas exploration contracts because of concerns about the negative impact of the hydraulic fracturing needed to release gas from rocks.
The French fields are considered some of the most promising in Europe.
Shale gas is tightly trapped in rock formations, thereby preventing high production rates. In order to achieve commercially viable flow rates, a technique known as hydraulic fracturing, or "fracking," is used. This process requires the injection of chemical-laced water to reduce viscosity and sand to hold the fractures open. Critics say the drilling liquids, which can contain carcinogens, could potentially contaminate groundwater.
France's ban on hydraulic fracturing forced Total SA and US-based Schuepbach Energy LLC to abandon exploration permits because they said they needed to employ that extraction technology.
Because most shale blocks overlap with traditional gas fields, Sinochem's Zeng said the entry of private-sector companies - something the government has promised - could trigger disputes with existing field operators, such as state oil majors Sinopec Corp and PetroChina Co.
The possibility of disputes needs to be addressed by standardizing the threshold for market entry and good planning, he noted.
State oil majors, which have been investing heavily in shale projects in the US to gain expertise, also are focusing on shale gas as a key element in their growth strategies. However, they have said the strategies rely on advances in technology.
Huang Wensheng, a Sinopec spokesman, said the company has made faster-than-expected progress in hydraulic fracturing over the past two years. In some areas, the company is already at the leading edge, he added.
PetroChina President Zhou Jiping said the company plans to produce 1 billion cubic meters of shale gas by 2015.
Sinopec's Huang said it's too early for his company to forecast output targets.
Source:shanghaidaily.com