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Look for China to Take Lead in Shale Gas

By Daniel J. Graeber | Sun, 04 March 2012 20:55 | 0

There might be enough shale gas reserves in China to keep the country's energy needs quenched for the next 200 years, the natural resources ministry said. While Beijing said it doesn't yet have the capability to take full advantage of the reserves, the recent shale boom in United States shows there's no lack of commercial interest in shale. Beijing expects shale gas to start playing a major role in its energy mix by the next decade. With that comes more foreign investments and it might not be long before China takes the lead in the emerging shale rush.

China's Ministry of Land and Resources announced that preliminary studies revealed there may be as much as 886 trillion cubic feet of shale gas reserves in the country. Shale gas reserves are notoriously difficult to assess, but, in theory, that's enough to meet domestic demand for natural gas for the next 200 years. While ministry officials said the geological challenges were "complex," it noted shale gas could become an important part of the energy mix by 2020.

Beijing expects to use natural gas for 10 percent of its energy consumption by 2020 in order to offset pollution generated from its over-reliance on coal. The U.S. Energy Information Administration expects China's domestic natural gas demand to triple by 2035, moving along at a growth rate of about 5 percent per year. While liquefied natural gas imports and other conventional resources will help meet growing demand, the shale gas future looks increasingly bright for Beijing.

Chinese coal consumption by 2009 represented nearly half of the world's total use. On the other hand, Beijing has looked to foreign investors to help tap into its vast unconventional gas resources to address that dependency. There isn't any commercial-scale production of shale gas in China, but China Petroleum Corp. is already working with U.S.-based Devon Energy to explore shale gas in the United States, the presumptive world leader in shale reserves.

Technically, however, China may already be the world leader in shale. The EIA says reserve capacity could be twice the U.S. estimate of 542 trillion cubic feet. China held its first auction for the rights to explore shale gas deposits just last summer and already supermajors Chevron and Royal Dutch Shell have started developments there.

Ministry officials acknowledged that Chinese exploration technology lags behind other countries in terms of shale gas development. The country is already investing heavily in new energy resources to compensate for its heavy use of coal and another round of auctions for shale is set for later this month. If the shale gas potential in China is even half as good as it's estimated to be, Beijing should have no trouble taking the lead as the world's top natural gas producer within the next 10 years.

By. Daniel J. Graeber of Oilprice.com

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