China is believed to hold the world's richest reserves of shale gas

China improves shale gas forecast

Chinese energy corporations Sinopec and PetroChina have released a new and more optimistic outlook for the country’s shale gas industry.

Citing steadily declining energy costs, top executives of the two companies said they expected China to fully develop its shale gas resources in a considerably shorter time than the USA.

"It took the US nearly four decades to achieve large-scale production. We are at the early stage, but we don't need to spend three decades," Sinopec Chairman Fu Chengyu said at the firm's interim results briefing in Hong Kong earlier this week.

"Cost will come down sharply. We have found that there is big room for cost reduction... Also domestic gas prices are being raised, so these two factors will lead to greater investment," he said.

China is believed to hold the world's largest technically recoverable shale resources, fuelling its hopes to replicate the shale boom that has transformed the energy landscape of the US.

However, some experts have warned that China would face its own set of challenges to monetise its shale gas reserves due to frequent water shortages, complicated geological structure and a lack of infrastructure.

The cost of shale gas drilling at Sinopec's Fuling field in southwestern China - the country's largest shale gas project - has been falling steadily to about 60 million yuan (£5.91m) per well, Fu said.

Although the figure represents a major cost reduction compared to last years’ 100 million yuan, it is still double the average shale gas drilling cost in the US.

Fu said he expected costs to decline to 50 million yuan per well within three to five years. "It is dropping fast. Because of better expertise and experience, there is a lot of room for further cost decreases," he said.

But some shale gas experts say the Fuling success is hard to repeat due to its unique geological structure.

Sinopec’s rival PetroChina has launched its shale gas development this year with a 7 billion yuan budget.

According to PetroChina’s Vice Chairman and President Wang Dongjin, the company keeps the cost of drilling at 55 million yuan per well and will strive to cut it down to under 50 million yuan. He said the average time PetroChina spends on shale gas drilling - a process known as hydraulic fracturing - had fallen to 45 days per well from over 80 days.

But Fu and Wang ruled out the possibility of a shale gas boom in the near future, saying costs must come down much more and gas prices must rise further to justify a substantial step-up in investment.

Earlier this month China halved its 2020 shale gas production target after early exploration efforts to unlock the unconventional fuel proved challenging, according to an industry website and a government source.

Citing Wu Xinxiong, the head of China's National Energy Administration, industry website reported that China aims to pump 30 billion cubic metres (bcm) of shale gas by 2020, versus an earlier goal of 60-80 bcm mapped out in 2012.

At Fuling, where Sinopec is building the first phase of the project, the company aims to put in annual production capacity of 5 bcm by end-2015, Fu said. By end-2017, Sinopec will double it to 10 bcm.

PetroChina's Wang said his company will have annual shale capacity of 2.6 bcm by end-2015 and overtake Sinopec in terms of shale gas output in the next few years.

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