The U.S. shale gas boom and the technology that helped drive it are establishing the foundation for building a similar shale transformation in China, the world's fastest growing energy consumer, according to a new global natural gas market assessment by Boulder, CO-based Navigant Research. Although still wrapped in uncertainty, China is destined to be the major market for natural gas in the Asia-Pacific region.
China's government has set extremely ambitious goals for shale gas production through 2020, according to Brandon Bass, a senior consultant with Navigant, writing in a natural gas market assessment released on Monday. "In the near term, increasing demand in the Asia-Pacific region will likely overshadow most increases in Chinese shale gas production, while domestic production from conventional and offshore resources could reduce the need for imported gas," Bass said.
In the short and medium term, liquefied natural gas (LNG) exports to China are likely from both the United States and Canada, said Bass, while adding that in the medium and longer term, China can be expected to successfully develop its shale gas potential as well as increase its LNG production and import capacity.
China produced about 4.13 Tcf of natural gas in 2013, and its development of unconventional resources includes coal bed methane (CBM), coal-to-gas (CTG), offshore and shale gas, Bass said. China's Ministry of Finance has instituted a 6 cents/Mcf subsidy to shale gas producers, although the government also reduced its target project goal to 1 Tcf of shale gas by 2020, which would account for about 20% of China's projected gas production output at that time.
China's energy consumption doubled between 1984 and 2000, and re-doubled between 2000 and 2008. It has become a net importer of oil (1993), natural gas (2007) and coal (2009) as a result. Natural gas made up only 5% of the energy consumption in 2012, compared with other industrialized nations, such as the United States, UK and Japan where gas is 24%, 33% and 24% of the energy mix, respectively.
"The amount of shale-specific development remains low compared to its better established conventional gas basins," Bass said. He noted that China has held two rounds of competitive bidding on shale gas plays to stimulate more production interest. The bidding is restricted to state-owned enterprises.
"The oligopoly structure of the Chinese oil/gas market is seen by many as one of the major factors inhibiting shale gas development in China," Bass said. While the emphasis in China remains on shale, tight gas and CBM are expected to play significant roles in the nation's future domestic production, he noted.
With these developments and the major recent gas pipeline deal with Russia, China is bolstering its gas infrastructure into a more comprehensive national gas grid, Bass said.
"Whether China can fully develop its unconventional resources, particularly shale gas, depends on variables both below and above ground," Bass said. North American shale gas development has enjoyed several key advantages over the Chinese development, he noted, citing private ownership of subsurface rights, availability of experienced operators and rigs, existing pipeline infrastructure, and the availability of water resources.
Bass said that Chinese sources note that well completion times and costs run about four times higher in China than the United States. "Thus, the likely impact of the Chinese shale gas on world markets remains unclear."
Meanwhile, in the United States, Navigant is forecasting the unconventional gas production will exceed production from conventional sources by 2020, and the U.S. will be a next exporter of gas by 2018.