A Rocky Energy Source

by+Yin+Xing

Last May， the U.S. Department of Energy vetoed drilling of 96% of the estimated gas in Californias vast Monterey Shale deposits， a move considered to quell the “shale gas revolution，” according to insiders. The so-called “shale gas revolution” refers to the huge increase in unconventional gas production， or “fracking，” in the U.S. over the last couple of years. In 2000， shale gas production accounted for only one percent of the United States total production of natural gas， and by 2010， the figure exceeded 20 percent. Consequently， the nations dependence on imported oil decreased dramatically to 34 percent in 2010 from 60 percent in 2005.

As global feelings about shale gas remain unstable， Chinas exploitation of the energy has remained tepid. According to Shale Gas Development Plan （2011-2015） issued by Chinas National Energy Administration， China is still working on researching and evaluating the countrys shale gas distribution and potential and the countrys production of shale gas is expected to reach 6.5 billion cubic meters per year by 2015.

Potential

According to statistics issued by British Petroleum Company， by 2030， 25 percent of Chinas economic growth will result from increasing demand for energy and the countrys energy supply gap will eclipse the U.S. and Europe. In 2012， 68 percent of Chinas energy consumption came from coal， 15 percent from petroleum and only 4 percent from natural gas， while in the U.S.， the proportion was 20 percent， 37 percent and 30 percent， respectively. Actually， Chinas consumption of natural gas is 20 percent lower than the global average. In 2012， 29 percent of the countrys natural gas was imported.

China is rich in coal reserves but poor in oil and conventional natural gas. However， considering estimates by the U.S. Department of Energy， Chinas recoverable shale gas could reach 36 trillion cubic meters and top the world. But last year， Chinas Ministry of Land and Resources estimated the figure at 25 trillion cubic meters. Either way， “Shale gas has great potential in China，” remarks Liu Yanhua， adviser of Chinas State Council and former vice minister of the Ministry of Science and Technology. “An important step for Chinas energy structure adjustment is to explore and expand usage of natural gas.”

“Although global shale gas fever has gradually cooled in recent years， the development of shale gas in the U.S. is still useful to study because it relieved Americas energy dependence，” opines Zhai Gangyi， deputy director of the Oil and Gas Resource Survey Center at China Geological Survey. He believes that if China can optimize shale gas extraction， the countrys shortage of natural gas will be relieved and its growing energy dependence slowed. In addition， natural gas is relatively clean and better for the environment than coal.

According to Shale Gas Development Plan （2011-2015） issued by Chinas National Energy Administration， from 2016 to 2020， China will increase investment in shale gas development by expanding the production volume of 19 existing reserves while accelerating exploration of new reserves. By 2020， the countrys annual production of shale gas is expected to reach 60 to 100 billion cubic meters. “To reach this goal， we will need some technical breakthroughs by 2015，” notes Zhang Yuqing， director of the Oil and Natural Gas Department of Chinas National Energy Administration. “I think that if our shale gas production reaches 100 billion cubic meters by 2020， it will play a key role in increasing our energy self-sufficiency and improving our energy structure.”

Challenges

China likely has even more shale gas resources than the U.S.， but the extraction process is even more difficult in the Eastern nation. Per capita land and water resources in China are far lower than the U.S.， which makes the ecology more fragile. On average， a shale gas well needs 200，000 tons of water， but Chinas shale gas reserves are found primarily in inland and basin areas which usually lack water. Consequently， some experts warn that intensive development of shale gas in Liaoning， Shaanxi and Sichuan provinces would lead to a “water fight” between industry and agriculture. Additionally， water injected into the wells needs to be mixed with heavy chemicals， which can cause pollution of local ground water.

Actually， shale gas shares the same composition as regular natural gas， but is harder to extract because its trapped within deep rock beds. To illustrate the difference another way， extracting conventional natural gas is like collecting blood from veins while shale gas is like blood from capillaries. China has yet to master techniques for extracting shale gas and needs time to introduce advanced techniques used in the U.S. Furthermore， those techniques are based on Americas unique regions with specific geographical features， so even if certain techniques are introduced， it remains uncertain whether they can be adapted to Chinas special geographical characteristics and environment.

Additionally， the American “shale gas revolution” occurred within a market model involving about 6，300 natural gas companies， while in China， only a handful of large state-owned energy enterprises dominate the market. “It is easy for small companies to innovate and achieve breakthroughs in the development of shale gas because they can make quick decisions， which is much harder for big companies with bureaucratic structure，” remarks John Mork， CEO of Energy Corporation of America （ECA）.

After two centuries of development of its energy industry， the United States features web-like oil and gas pipe networks totaling about 500，000 kilometers. Despite Chinas fast development in recent years， its pipelines stretch only 60，000 kilometers， a situation which hinders the quick commercialization of shale gas resources as well as enthusiasm of producers.

“If China cannot find a more economic， water-saving and environmentally-friendly method to develop shale gas than the U.S.， its too early to talk about a ‘shale gas revolution，” adds Zha Quanheng， former deputy director of Exploration Department of Ministry of Petroleum Industry.