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China Reports 50% Jump In March Shale Gas Production

Beijing

China reported a 50.4-percent annual increase in its shale gas output for March, to 1.15 billion cu m, with overall gas output rising to 13.6 billion cu m last month, up 8.2 percent from the average for January and February.

The National Bureau of Statistics also said that over the first quarter of the year shale gas output increased by 17.4 percent to 2.67 billion cu m. The increase came on the back of expanded production from the Changning-Weiyuan shale gas pilot zone, in the southwestern Sichuan province, state news agency Xinhua reported.

The overall gas production increase was the result of improving economic activity: Asia’s second-biggest economy has been growing for two quarters in a row and energy demand is growing too, by 7.2 percent on an annual basis in March.

The growth was largely driven by increased government spending on infrastructure projects, and although coal consumption also rose in the first three months of the year, initiatives to replace coal with gas have been instrumental in driving gas demand.

China has significant shale gas reserves, but they are located in geologically challenging areas, there is no developed production and transportation infrastructure, and exploration rights are limited, as Bloomberg wrote last year. As of the end of 2015, recoverable shale gas reserves stood at 130 billion cu m, compared with 5.19 trillion cu m of conventional gas.

Related: Could An OPEC Extension Normalize Inventories?

This year, however, Beijing announced plans to increase the proved reserves of shale gas in the country to more than 1.5 trillion cu m by 2020. This would involve some major investment in recovery technology as well as infrastructure. The March jump in output suggests the government and state energy companies are already moving in this direction.

The Sichuan play was first explored by Conoco, but the U.S. major gave up and left, leaving it to CNPC and its partner, BP.

By Irina Slav for Oilprice.com

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