Global

Details

  • Type: Business and industry issue
  • Date: 7/4/2013

China 

China Energy
Although the market is yet to commercialize, the government has ambitious targets.

Opportunities

With over a billion US dollars (US$) invested to December 2012, Chinese shale gas output has been negligible, despite an official target of 6.5 billion cubic meters (bcm) per year by the end of 20151. Energy giants Sinopec and PetroChina are expected to produce 2 bcm and 1.5 bcm respectively by 2015, 2 supported by joint ventures with foreign partners. Thanks to government development subsidies, analysts forecast commercially significant supplies by 20153.


Issues

The Chinese market has yet to break through to the commercialization phase despite the government having ambitious targets for shale output by 2015.


China faces significant obstacles in recovering and commercializing shale gas and oil, including water shortages, insufficient pipeline infrastructure and lack of fracking technology.


M&A trends

Two blocks were awarded in 2011 to to Sinopec (in Nanchuan) and Henan CBM (in Xuishan). Second round bids opened up to Chinese independents and foreign companies in joint ventures, with 16 firms awarded exploration rights in January 20134. Six of the successful firms are state-run and the winners pledged to spend US$2 billion on developing the sites over 3 years5.


Sinopec has agreements with BP and ExxonMobil for technical evaluation, although no wells have yet been drilled6. Chevron has drilled one well in Guizhou7. In partnership with PetroChina, Shell is to spend US$1 billion on developing shale natural gas reserves in the Sichuan basin8. Shell also has an agreement with the China National Offshore Oil Corporation (CNOOC), to provide technical assistance for shale gas exploration9.


Outlook

By the end of 2012, around 80 shale gas wells had already been drilled, primarily by PetroChina, Sinopec, Yanchang Petroleum and Shell10. In a bid to access fracking technology, Chinese companies have entered into at least US$7.3 billion worth of shale gas deals in the US, a trend likely to continue. China’s impressive reserves, combined with soaring domestic demand, gives the Chinese shale market considerable potential assuming it can overcome the burden of high extraction costs, gain access to sufficient supplies of water, and catch up with vital technologies.


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1China’s fledgling shale gas sector, Reuters, UK Focus, 29 March 2013

2Sinopec targets 2 bcm/y of shale gas output by 2015, Natural Gas Daily, 21 March 2012.

3China’s Shale Gas Dream, The Diplomat, 25 Jan 2013

4China awards 19 blocks to 16 domestic companies in second shale gas bid round, Platts, McGraw Hill Financial, 21 Jan 2013.

5Ibid.

6Sinopec Group Unit, Exxon Sign Agreement on Shale-Gas Area, Bloomberg, 18 July 2011.

7Chevron joins hunt for shale gas in China, Energy Interfax China, 24 Feb 2012.

8Shell plans to spend US$1B on China shale gas development, Financial Post, Energy, 13 March 2013.

9Shell, CNOOC to Explore for Oil Off China, Gabon, Wall Street Journal, 25 July 2012.

10Reuters

 

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