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Bloomberg
China May Emulate U.S. ‘Quiet Revolution’ in Shale Gas Output
March 11, 2010, 6:54 PM EST
By Ben Farey
March 12 (Bloomberg) -- China may produce a quarter of its natural gas from shale deposits within 20 years to meet growing demand for the cleaner-burning fuel, reduce imports and emulate a boom in U.S. output from the gas-bearing rock.
“If the Chinese can bring their shale resources on in line with shale gas in the U.S. it will make a tremendous difference to their energy supply,” Morten Frisch, senior partner at Morten Frisch Consulting in East Horsley near London, said in a March 10 telephone interview.
China, the biggest emitter of greenhouse gases, imports energy to fuel the world’s fastest-growing major economy. It’s building liquefied natural gas terminals and started pipeline imports from Turkmenistan as it aims to cut coal use. The U.S. and China last year signed a shale gas development accord as companies including BP Plc and Royal Dutch Shell Plc agreed to look for the resource in the country.
PetroChina Co., the nation’s biggest energy producer, estimates China may have as much as 45 trillion cubic meters in shale gas resources. That’s more than Russia’s proved gas reserves last year, according to BP’s Statistical Review of World Energy. The U.S. last year passed Russia as the world’s largest producer of gas as shale output rose to 10 percent of total supplies from 2 percent in 1990 in what BP’s Chief Executive Officer Tony Hayward called a “quiet revolution.”
“We do think there are considerable shale gas resources in China,” Richard Newell, an administrator at the Energy Information Administration, a branch of the U.S. Department of Energy, said at a conference in Amsterdam last week. Shale will be an “important source” of gas for China, he said, rising to 25 percent of the country’s output by 2030.
‘Very Early Days’
“For shale gas in China it’s still very early days,” Frisch said.
China produced 76 billion cubic meters of gas and used 81 billion cubic meters in 2008, according to BP’s Statistical Review. Annual imports, including LNG via ocean-going tankers, will exceed 135 billion cubic meters by 2020, according to Center for Energy Strategy Studies in Beijing. The country aims to cut the share of coal in its energy mix to 60 percent by 2020 from 70 percent.
China signed an agreement with the U.S. on Nov. 17 to cooperate in shale gas development. “The picture of natural gas in the U.S. has been transformed in a very short period of time,” Hayward said Oct. 8 in Buenos Aires, according to a transcript on BP’s Web site. It reversed declining U.S. gas output and triggered a slump in prices.
Gas Prices
Gas futures at Henry Hub in Louisiana, the U.S. benchmark, fell 67 percent from their peak in July 2007 to $4.535 a million British thermal units in New York trading today.
The U.S.-China initiative plans to accelerate shale developments in China through joint technical studies and promote investment in China’s shale resources, U.S. President Barack Obama’s administration said in a statement at the time.
The shale agreement may “ease the path” for U.S. companies such as Exxon Mobil Corp. and Chesapeake Energy Corp. to break into China, Frisch said.
PetroChina and Shell agreed in November to develop shale gas in the country’s Sichuan province. China Petroleum & Chemical Corp., known as Sinopec, is cooperating with BP to search for shale.
In the U.S. new techniques to fracture and force gas- bearing rocks to release more fuel increased shale gas reserves 51 percent last year, according to the EIA. Large volumes of water along with chemicals are pumped under high pressure into the wells to fracture the rocks and allow the fuel to escape.
Rising U.S. Output
Shale gas will account for nearly a quarter of all U.S. dry gas production by 2035, according to EIA forecasts. In Canada shale will make up almost 20 percent of gas output in 2030, offsetting declines in conventional fields, Newell said.
How far shale changes gas markets in China, the U.S. and Europe will depend on the properties of each “play”, market competitiveness relative to other sources of the fuel and how government policies enable shale developments, Newell said. The agency may be underestimating the potential for shale production in China, Europe and around the world, he said.
“On the technological side we are still at the very early stages of development,” Newell said in an interview last week. Breakeven costs for shale range from about $3 a million British thermal units to $7 a million Btus in the U.S., he said.
Shale exploration is less risky than conventional gas, Newell said. It’s more akin to “a manufacturing process” as deposits are well mapped, he said. “We don’t see any significant risk of shale production will drop off anytime soon.”
--Editors: Rob Verdonck, Jonas Bergman.
To contact the reporter on this story: Ben Farey in London at bfarey@bloomberg.net
To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net
