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China Looks To Emulate US Shale Success

Jaime Kammerzell|, Rigzone

China is hoping to have as much success as the United States to try to meet the growing natural gas demand. Beijing has set a shale gas production goal of 6.5 billion cubic meters per year by the end of 2015 and aims to reach an annual output of 60 to 100 billion cubic meters by the end of 2020.

In the last couple of years, shale exploration and production has sparked a petrochemical renaissance in the United States which has not gone unnoticed. With over 50 new petrochemical projects planned in the United States, the country is on track to become the world’s top gas producer in 2014. According to the U.S. Energy Department, the United States will produce 11.4 million barrels a day of oil and liquid hydrocarbons next year, almost as much as Saudi Arabia.

Countries worldwide are looking to the United States and evaluating their potential for shale exploration success. However shale drilling relies on hydraulic fracturing, which is an environmentally controversial way of creating channels in the rock to increase recovery of oil or gas trapped in these formations.

China decided to take the risk in June 2011 when it held its first shale gas auction to help slow its growing reliance on imported energy. China invited six U.S. and European companies to bid on four blocks to gain technical know-how as horizontal drilling and fracturing technology is not well developed in China. However, only two blocks were awarded. The other two blocks failed to attract the minimum number of bidders. The bidders included PetroChina, China Petroleum & Chemical, CNOOC, Shaanxi Yanchang Petroleum Group, China United Coal Bed Methane and Henan Provincial Coal Seam Gas Development and Utilization.

China’s latest bidding round, held in October 2012, attracted 83 companies from around the world for exploration rights on 20 shale gas blocks.

Unlike the first invitation-only round, China loosened its control and allowed foreign energy firms to jointly bid with Chinese investors in the second round. The Chinese government restricted local bidders to those with a registered capital of $47 million (300 million yuan) and to those who already hold oil and gas exploration licenses. Under the terms, winners must start drilling within six months of the award and have license rights for a maximum of three years.

According to the Ministry of Land and Resources, China received 152 bids in total with one block receiving a maximum of 13 bids and another block – in China’s Anhui province – falling short one bid from the minimum requirement of three.

The ministry said winning bids will be announced after experts evaluate the bidders’ exploration plans, capital budgets and support measures.

About two weeks after the bidding round, Chinese Ministry of Finance announced it was encouraging shale development by offering $2.10 per cubic feet of production through 2015; however, as Platts news service reported the ministry also said “that subsidies will be adjusted according to the development of the shale gas sector.”

According to the U.S. Energy Information Administration, China holds 1,275 trillion cubic feet of recoverable shale gas reserves, which would make it the largest reserve in the world.

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