An abundance of shale natural gas reserves in China could one day cause the country to turn away from pipeline imports and liquefied natural gas (LNG), suggested analysts at Barclays Capital. But China must unlock the secrets of its shales and develop infrastructure to move the gas produced, both of which will delay any shale revolution in the People's Republic.
China's shale gas reserves are estimated to be 917 Tcf by the country's Ministry of Land and Resources (MLR), according to Barclays. In the United States shale reserves are estimated by the Potential Gas Committee to be 616 Tcf as of 2008. U.S. proved shale reserves are pegged at 33 Tcf, while in China the MLR has targeted 35 Tcf of recoverable shale reserves as its goal by 2020, according to Barclays.
"...[T]he reserves of shale gas in China are yet to be assessed, the qualities of the various shale formations are unknown, and the technology that has worked so well in the U.S. may need significant modification to be successful in China," the Barclays analysts said in a note published Tuesday.
China's government wants to produce 0.3-0.5 Bcf/d of shale gas by 2015 and 1.5-3 Bcf/d by 2020, according to Barclays. "This history of shale gas production growth in the U.S. suggests that these plans are not unrealistic," the analysts said. "Yet meeting these goals will not come without challenges, and risks are for the targeted timeline to slip back rather than be accelerated."
The analysts pointed out China's flagging efforts to develop coalbed methane (CBM) gas reserves. While the country was hoping to reach CBM production of 1 Bcf/d by this year, the goal was reset to 0.5 Bcf/d. "Not even this target has been achieved: at the end of last year, CBM production was just 0.1 Bcf/d and would likely reach 0.2 to 0.3 Bcf/d this year at most," they said.
The analysts enumerated other obstacles to China becoming a shale gas powerhouse:
But the potential shale bounty in China has not escaped the notice of international companies, and some of these will be sharing their expertise with the Chinese (see Shale Daily, Nov. 3). Chinese companies are also taking stakes in North American plays and are bound to take knowledge home as well. Last month, for instance, China's CNOOC Ltd. (China National Offshore Oil Corp.) struck a deal valued at more than $2 billion for a stake in the Eagle Ford play in South Texas (see Shale Daily, Oct. 12).
"If shale gas development in China follows the pace of U.S. shale production, it could indeed greatly reduce the need for imports -- both pipeline and LNG," the Barclays analysts said. "However, we see this scenario as highly unlikely in the next 10 years...We believe the effect of shale gas on Chinese LNG imports would be limited to about 1 Bcf/d over the next decade."
The slower the Chinese are to develop their shale resources, the better the odds of LNG exports from the U.S. finding a home in China. It was just last week that Cheniere Energy Partners LP said it was in talks with China's ENN Energy Trading Co. Ltd. for capacity on its proposed natural gas liquefaction facilities in Louisiana (see Daily GPI, Nov. 12).