Major Shale Gas Potential in China, Market to Emerge Quickly
Analysts suggest that a shale gas market will emerge quickly in China as the players ramp up activities in the unconventional gas sector, which is likely to experience double-digit growth year-on-year.
China is at the preliminary stage of developing unconventional gases such as shale gas and coal-bed methane gas (CBM); however, shale gas production has not yet started, while CBM gas output is relatively minor.
Chinese oil companies have entered partnerships with foreign gas explorers, including Royal Dutch Shell Plc and Chevron Corp. to tap unconventional gas resources to help reduce reliance on oil and coal.
Earlier this month, Statoil ASA, Norway's biggest company by market capitalization, said it is also close to a deal to explore shale gas reserves in China.
The formation of a shale gas market is linked to the ability to access resources and exploration, pipelines that link assets with the market, and a downstream pricing mechanism.
China may have 26 trillion cubic metres of shale gas reserves, more than 10 times its proven holdings of conventional natural gas, and production may reach the equivalent of as much as 12 percent of conventional gas output.
China will offer six shale gas exploration blocks to the country's largest oil producers PetroChina, Sinopec, CNOOC and Shaanxi Yanchang Petroleum Group Co in an auction to take place by the end of this month.
The shale gas blocks, each as large as 7,000 square kilometres, are in the provinces of Anhui, Guizhou, Shanxi, and Zhejiang, and the municipality of Chongqing.
Shell's Chief Financial Officer Simon Henry indicated that the company may invest $1 billion each year in China if PetroChina's two wells in Sichuan province prove they have the potential for commercial gas production. PetroChina expects to produce 500 million cubic meters of shale gas by 2015.
"China has an enormous gas market to be filled, both in the short term and long term, where natural gas will account for as much as 12 percent of the primary energy needs over the next decade from the current 3.8 percent," said Arthur Hanna, global managing director of energy at consulting firm Accenture.