China to miss 2020 shale gas production targets amid tough upstream conditions

[IsailedawayfromFR]

China is likely to miss its 2020 shale gas production target as technical and commercial challenges dog efforts to tap into what are considered the largest shale gas resources outside the US, according to production estimates compiled by market participants.

China is expected to produce between 13 to 17 billion cu m of shale gas in 2020, which falls short of the targeted 30 billion cu m volume in the 13th Five Year Plan, despite a strong ramp-up in upstream activity, according to analysts.
This is a setback for Beijing's long-term energy security goals, and will increase reliance on imports including piped natural gas from Russia and expensive seaborne LNG.

In the longer term, shale performance could determine foreign investment flows into the sector.

"We think the 30 billion cu m by 2020 target is unreachable unless there is a major breakthrough in technology and infrastructure," Jeffrey Moore, Asia LNG manager with S&P Global Platts Analytics, said.

He expects China's total shale gas output to cross the 13 billion cu m mark by 2020.

China's shale gas output will be around 12.5 billion cu m and 15 billion cu m, in 2019 and 2020 respectively, with some downside risk to the numbers due to slow progress in southwestern China's shale projects, Wood Mackenzie analyst Zhang Xianhu said.

The 2020 target was already a reduction from the 60-100 billion cu m target set in the 12th Five Year Plan.

UNTAPPED RICHES
China has the world's second-largest technically recoverable shale gas resources at an estimated 1,115 trillion cu f [Tcf], after the US with 1,161 trillion cu f [Tcf] of resources, according to a 2013 study by the US Energy Information Administration.

Shale drilling in China faces hurdles as shale formations are located in mountainous terrains, where upstream infrastructure is non-existent, well drilling costs are higher, regulatory support is limited and water supplies are scarce.

The commercialization of Chinese shale is both a technological and a policy problem. Many initial contracts were awarded to coal and power companies with no shale or fracking experience whatsoever, and since the drilling began around 2010, many oil majors have quit due to poor prospects.

In early April, local media Caixin reported that oil major BP had exited two shale gas production sharing contracts with CNPC in Sichuan province due to poor drilling results, making it the latest oil major to exit the sector.

BP and CNPC declined to comment.
https://www.spglobal.com/platts/en/market-insights/latest-news/oil/043019-analysis-china-to-miss-2020-shale-gas-production-targets-amid-tough-upstream-conditions

Seems some companies are coming to America to drill rather than the dismal prospects of drilling in China.

[IsailedawayfromFR]

Seems China will be trying its own hand to develop shale in spite of several majors bowing out as the technical challenges make it subeconomic.

This is called winning in the trade war as China is forcing itself to spend a lot more money than it wished to.  A lot more, as its expertise in this endeavor is very suspect.

China aims to rev up shale gas drive, wean itself off imports amid U.S. trade row
China aims to slash its growing dependence on gas imports by boosting domestic projects like shale fields as the security of its energy supply comes under the spotlight amid a festering trade war with the United States.

The row with Washington has overshadowed China's economy, likely slowing gas demand growth considerably this year, a new government research report shows. But Beijing is funding new efforts to boost domestic production, particularly from so-called unconventional sources like shale gas, as weaning China off its import reliance takes on new importance.

The report, released on Saturday by the oil and gas department at the National Energy Administration (NEA) and a State Council research arm, calls for boosting natural gas production in key resource basins in the southwestern province of Sichuan, the Erdos basin in the north and offshore China.

According to the report, China's gas consumption will rise by about 10% this year to 310 billion cubic meters (bcm), and to continue growing until 2050. Though slowing from last year's 17.5%, 2019's growth still represents an annual addition of 28 bcm, faster than the annual average growth of 19 bcm during 2007-2018, the report said.

While China imposed tariffs on imports of liquefied natural gas (LNG) from the United States starting last year, it remains the world's second-largest buyer of the super-chilled fuel.

"China's reliance oil and gas imports is growing too rapidly, with oil topping 70% and gas moving toward 50%," said Lin Boqiang, Director of the Energy Economics Institute at Xiamen University.

The NEA report calls for building the Sichuan basin into the country's top gas hub due to its rich resource base in both conventional gas fields and unconventional resources, such as shale gas and 'tight gas', a low-permeability gas derived from reservoir rocks and costly to develop.
https://finance.yahoo.com/news/china-aims-rev-shale-gas-095251292.html

[thackney]

When you put tariffs on top of the LNG premium, domestic production can be more economical, even if the same cost would not be economical in the US.

[IsailedawayfromFR]

When you put tariffs on top of the LNG premium, domestic production can be more economical, even if the same cost would not be economical in the US.

Maybe.  But China will have to prove it can actually succeed technically where the likes of BP and others tried and failed.

Here's an excerpt from a prior posting on this:

"We understand that both poor well performance and challenging above-ground conditions contributed to BP's decision," Wood Mackenzie's Zhang said, adding that challenges include complex and deep reservoir geology, low well productivity, marginal economics and infrastructure constraints.

In addition, there is a scarcity of water in the region to frac wells.  This paper highlights https://sites.nicholas.duke.edu/avnervengosh/files/2011/08/EST_Sichuan-Basin.pdf

Excerpt: Overall, while China’s demand for energy is growing, water availability and quality will constrain China’s ability to enhance its energy security through shale gas production...

In summary, this might not be an economic issue as much as a technical issue. 

In any case, many billions of funds will need to be diverted from other Chinese projects toward the energy sector to achieve its goals.  This in itself weakens China's growth/

As a fundamental issue, all we need to do is look north to Russia to see how a government on its own so inefficiently wastes money for developing hydrocarbons compared to the private sector.