Is China’s Shale Gas Boom About to End?
February 19, 2021 Topic: Economics Region: Asia Blog Brand: The Buzz Tags: ChinaShaleOilGasEconomics

Is China’s Shale Gas Boom About to End?

Difficult geography and insufficient investment appear poised to cause Beijing some major headaches.

Largely driven by surging natural gas demand and more intensive efforts to boost national energy security, China indeed has been betting big on developing its shale gas resources.

According to recent data released by the U.S. Energy Information Administration, China is blessed with many shale gas resources, which have been deemed to outnumber what’s present in the United States.

China’s shale gas boom may have only started, but there are already warning signs that such progress can come to a screeching halt in the middle of this decade.

According to a recent analysis by Reuters, “complex geology and failure to draw in more investors” will likely make it too expensive for China to extend the rapid growth of the burgeoning industry.

If that is the case, it would be a devastating setback to China’s efforts to further cut its reliance on gas imports, which currently make up 42 percent of the nation’s overall consumption. It would also likely mean that Beijing will have to ramp up development of other more costly gas resources, such as those located in the remote northwest portion of the country.

The analysis pointed out that both PetroChina and Sinopec have already pledged to raise shale gas production by 75 percent to thirty-five billion cubic meters (bcm) over the next five years. Experts, however, have contended that the overall output could peak at about fifty-five bcm by 2035 unless further technological breakthroughs are developed.

According to Zhang Xianhui, who is a gas researcher at Wood Mackenzie, it is vastly more difficult to utilize technologies like horizontal drilling and hydraulic fracking in Sichuan’s mountainous terrain, compared to more flatter areas often seen in the United States.

The latest estimates reveal that China, which has handed out more than $2 billion in subsidies to the shale sector since 2016, has drilled less than two thousand shale gas wells, versus thousands in a single project in the United States.

Moreover, China’s overall shale gas production made up only 3 percent of the United States’ total output last year.

“There are a lot of uncertainties beyond 2025 over further ramp up of shale gas production,” Zhang told Reuters.

Beijing is also dealing with lack of investments in the sector, which is only further stymieing the country’s ambitious shale endeavors. In 2019, BP became the last international oil major to leave China’s shale industry after posting disappointing financial results.

That left China’s majors the task of how to best develop shale, prompting them to take over half a dozen commercial projects in Sichuan, such as Sinopec’s flagship Fuling and PetroChina’s Changning-Weiyuan and Zhaotong.

Analysts, however, have noted that the output at Fuling has plateaued, while discoveries like Weirong and Luzhou are becoming too expensive to further develop.

“Highly complex above and below-ground challenges mean that the Chinese shale gas journey will continue to look very different from that in the U.S.,” Zhang said.

Ethen Kim Lieser is a Minneapolis-based Science and Tech Editor who has held posts at Google, The Korea Herald, Lincoln Journal Star, AsianWeek, and Arirang TV. Follow or contact him on LinkedIn.

Image: Reuters.