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China hopes that it can meet its growing energy demands by exploiting its huge shale gas reserves, much in the same way that the US is aiming to achieve energy independence on the back of its shale boom.
With this in mind the People’s Republic set itself ambitious targets of producing 80 billion cubic metres of shale gas by 2020, despite the fact that it is currently producing nothing. Analysts from Bloomberg have now estimated that China will never achieve its target and will more likely produce just 18 billion cubic metres by 2020.
Chris Faulkner, the CEO of Breitling Oil and Gas, a shale drilling company, said that “China’s production targets are not realistic. The only way China is going to be able to meet its output goals is for the government to pour money into exploration and development and ease up on the price controls.”
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Those price controls that Faulkner mentions are one of the main reasons for the lack of development in China’s shale industry, and the lack of investment from experienced shale drillers.
In the latest auction most of the companies that won contracts to drill for shale gas have no experience, and the largest gas producers failed to make a successful bid at all. This is due to China’s policy for dictating the fuel prices, rather than allowing them to be controlled by free market economics. By setting the prices too high China has priced the fracking companies out of the running, ensuring that little investment is offered due to the high risk that no profit will be made from the gas produced.
As a result of their ability to boost shale gas production quite as quickly as they would like, China will increase their natural gas and LNG imports from foreign suppliers. This will likely benefit ExxonMobil and Woodside Petroleum, as well as nations such as Turkmenistan who pipe gas to China.
By. Charles Kennedy of Oilprice.com
Charles is a writer for Oilprice.com