On 6 December, Reuters and several other media sources announced that China was on the cusp of a shale gas revolution that was potentially even bigger than the shale gas boom currently transforming the energy balance in the United States.
Petro China, the publicly owned subsidiary of China’s largest energy group, the state-owned CNPC, said that drilling results from two Royal Dutch Shell shale gas wells had proved positive. While Shell is still being relatively unforthcoming about its China shale gas production, saying only that the project is in its early stages, Fu Chengyu, chairman of China Petroleum & Chemical Group, known as Sinopec, the second largest energy producer in China, went on record at the recent World Petroleum Conference saying that within five to ten years, China’s output would exceed that of the US.
The US Energy Information Administration (EIA) said in a report on global shale gas reserves in April 2011 that China has the world’s largest technically recoverable reserves of shale gas. The country has some 1,275 trillion cubic feet in several basins on land and under the South China sea. By way of comparison the US has the second largest reserves, at 862 trillion cubic feet and Argentina holds third place with 774 trillion feet
China faces huge challenges exploiting the reserves in some areas, not least because of water shortages. The “fracking” process which is used to extract the gas from the shale uses large volumes of water pumped down the well and along horizontal drillings under pressure. It follows that shale gas basins in dry areas pose particular problems for operators. However, the positive results from the Shell wells have opened up the doors to a game changer for China, which is already the second largest consumer of energy on the planet, behind the USA.
As recently as 2008 coal was supplying 71% of China’s total energy consumption of 85 quadrillion British Thermal Units (Btu). With the Chinese government’s latest five year economic plan calling for great advances to be made in reducing CO2 emissions, switching from coal to shale gas would be a huge boost to the country. Before the announcement of the shale gas production successes, the EIA was predicting that China’s coal consumption would double to 112 quadrillion Btu by 2020. That could change if the country’s dash for shale gas proceeds at anything like the pace that is currently driving shale gas production in the US.
China’s net oil imports are currently huge and growing. The country produced around four million barrels of oil per day in 2009, but it also imported 4.3 million barrels of oil per day. Production is expected to go up after years of decline, as China ramps up its offshore oil production, but although the figures for 2011 are not yet in, the EIA estimates China’s oil demand for 2011 will come in at around 9.6 billion barrels per day. In fact China’s growth in demand for energy means that it now single handedly accounts for about 37% of projected world demand growth for oil/energy. With that background the ready availability of shale gas in huge quantities will be a massive boost over the next five years to the Chinese economy. The world has been rather short of good news lately, but anything that drives growth in China has to have a very positive spin off for advanced markets generally.
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