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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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Why China Can’t Replicate America’s Shale Boom

China has been betting big on developing its shale gas resources, driven by surging natural gas demand and efforts to boost energy security.  State oil and gas majors have been investing heavily in shale gas development in the key shale provinces and have really boosted shale gas production in recent years.   

Although China is estimated to have a lot of shale gas resources, even higher than those in the United States, its shale gas boom has just started. But it could end as early as the middle of this decade because shale gas development in China is more difficult and more expensive than in the United States.  

Unlike the U.S., China is subsidizing the development of unconventional natural gas, and it has recently extended subsidies on all unconventional production through 2023 and, for the first time, included tight gas as an unconventional natural gas source eligible to receive subsidies.

The Chinese government has directed state oil and gas majors, including the biggest companies, PetroChina and Sinopec, to work to significantly boost their natural gas production, including from shale formations, as Beijing looks to bolster its energy security amid rising demand for natural gas. 

 

Unlike in the U.S., the development of shale gas resources in China is much more difficult due to more complex geography and a lack of adequate infrastructure to remote mountainous regions where most of the Chinese shale resources lie. Drilling for shale gas in China requires deeper wells, while fracturing is also tricky because of the mountain terrain and geological constraints. 

Related: Canada Is Cleaning Up Its Oil Sands

Still, Chinese state majors have managed to boost conventional and unconventional natural gas production in recent years. Shale gas output has grown by double-digit percentages over the past few years, exclusively due to the national corporations boosting development as per government directive. 

Natural gas output in China jumped annually by 13.7 percent in December 2020 and by 9.8 percent in full 2020, according to data from the National Bureau of Statistics of China. 

Sinopec reported in November China's highest-ever daily output of shale gas at 20.62 million cubic meters in its Fuling shale gas field in the Sichuan province. Earlier this year, the company also completed construction of the first phase of the Weirong shale gas field in the same province. 

PetroChina, for its part, plans to double the natural gas output from its shale operations in Sichuan in the next five years. 

Shale gas growth is set to drive China's increase in natural gas production through 2025, Rystad Energy estimates cited by Reuters show. 

But after the middle of this decade, the Chinese shale boom could slow because of the challenging geography requiring major technological breakthroughs to extract the resources deep in the ground, analysts tell Reuters. 

To further boost production, China is looking to attract investments in shale gas developments by easing restrictions on foreign entities and subsidizing costs.  

However, it may have to rely only on its own oil and gas majors for sustaining the shale gas production growth as international oil majors abandoned shale exploration in China years ago. 

In 2019, BP became the latest international major to quit drilling for shale gas in China because of poor exploration drilling results.

Commenting on BP's exit, Xianhui Zhang, Wood Mackenzie Eastern Asia upstream research analyst, said at the time:

"We understand that both poor well performance and challenging above-ground conditions contributed to BP's decision. The difficulties, for both national oil companies (NOCs) and oil Majors, highlight the unique challenges of developing shale gas in China. These include complex and deep reservoir geology, low well productivity, marginal economics and infrastructure constraints." 

One should never estimate the determination of the Chinese authorities to get the targets in five-year development plans achieved, so government support to China's shale is expected to help production growth. But even the top Chinese state-controlled majors could, in a few years, find investment in conventional gas more worthwhile than sinking funds into shale development, which is more expensive to sustain and more difficult to scale up.

By Tsvetana Paraskova for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on January 28 2021 said:
    The global natural gas and LNG market is China’s oyster. China is now the driver of both global oil and gas demand.

    Still, one issue is ever present in China’s strategic thinking: energy security, hence China’s efforts to enhance its production of both crude oil and natural gas particularly betting big on developing its shale gas resources.

    And while China has the technical knowhow and financial resources to produce shale gas, it might not be able to replicate America’s success because shale gas development in China is more difficult due to more complex geography and more expensive than in the United States.

    Still, Chinese state majors have managed to boost conventional and unconventional natural gas production by 9.8% in 2020 over 2019 despite the pandemic. Shale gas growth is set to drive China's increase in natural gas production through 2025.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Andre Reyter on January 29 2021 said:
    Without reading the article, I wonder if I could take a wild stab at the answer? Because China doesn't want to contaminate the water supply citizens rely on to live? They value fresh water more than oil. Stupid, backward people the Chinese. Never invented anything. Everything they have was copied from USA. The talk about how they invented paper, steel, compass, gunpowder, keels, blast furnace, ceramics, alcohol and etc etc along with disciplines like math, astronomy and horticulture is merely CCP propaganda!

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