China’s demand for natural gas will more than triple over the next 25 years, according to a new report from the U.S. Energy Information Administration.
Natural gas demand in China is projected to hit 17.5 trillion cubic feet (tcf) in 2040, a greater than three-fold increase from the 5.2 tcf of demand in 2012. There is a big question mark over how the country will meet that need, but the EIA says the vast majority of it will come from two sources: domestic production and liquefied natural gas (LNG) imports.
China is potentially sitting on 1,115 tcf of technically recoverable shale gas – the world’s largest reserves. While energy rich, China has had trouble developing its mammoth shale resources. The lack of fresh water is an enormous challenge. But so is a lack of infrastructure, dearth of pipelines, complex geology, and high costs. The problems have tempered China’s ambition, and the government recently downgraded its 2020 production target by half.
Overcoming these challenges will require the experience and technical skill of experienced players – veterans of the U.S. shale revolution. China decided to up the incentives to attract international investment. “Chinese oil companies are giving U.S. firms a bigger stake in exchange for the tools and technology of hydraulic fracturing,” according to Collin Eaton of The Houston Chronicle.
Joint ventures with American companies will allow China to access some of the tools that fueled rapid growth in the U.S. – pressure pumps, horizontal drilling, multiple wells per pad, and water-efficient equipment, for example. Halliburton and other oil services firms are taking advantage of China’s urgent need to ramp up natural gas production. Halliburton is working with STP, a Chinese company, to frack the Tarim Basin in northwest China.
The EIA predicts that China will be able to overcome many of these hurdles and produce 10.1 tcf of natural gas by 2040, or the equivalent of 58 percent of demand.
What is not met by domestic production will need to be imported. Although only a small fraction of demand at this point, China’s imports of LNG are set to skyrocket in the coming decades. Much of this will come from Australia, which will dominate LNG trade for the foreseeable future, but U.S. LNG exporters could also capture some of the Chinese market. China will lean on LNG to meet one-fifth of demand in 2040, up from 13 percent today.
Pipeline imports will play an important, if lesser role, in meeting China’s natural gas demand. China expects to more than triple the volume of imported natural gas from Turkmenistan over the next six years. China already receives 0.7 tcf from Turkmenistan, but intends to increase that volume.
In fact, the pipeline connection made with Central Asia has been critical for China’s gas supplies. Originally commissioned in 2009, the China-Central Asian pipeline has been a vital source of natural gas to China. Since then, two more lines have been added – Lines B and C. A fourth line is set to begin construction this year, and will be completed by the end of the decade. The four lines will account for 2.3 tcf per year, which represents over 13 percent of China’s gas demand in 2040.
The China-Central Asian pipeline has enhanced China’s leverage with Russia over its landmark natural gas deal. Russia became more desperate earlier this year over its fraying relationship with Europe, and finally agreed to sign a $400 billion deal, largely on China’s terms. China’s access to Central Asian gas allowed it greater leeway to hold out against Russia, culminating in an agreement that will see Russian gas flow to China at a lower price.
Once it’s completed in 2018, the Russian pipeline to China will have a capacity of 1.3 tcf per year. But although it is truly a monumental agreement, in 2040, the pipeline will only account for 7 percent of China’s gas needs.
By Nick Cunningham of Oilprice.com