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Measures by Government to boost shale gas development in China to 6.5 billion cubic mts by 2015

Measures by Government to boost shale gas development in China to 6.5 billion cubic mts by 2015

As per official figures, China�s onshore shale gas resources are 134.42 trillion cubic metres, and exploitable shale gas reserves are 25.08 trillion cubic metres (excluding Qingzang Plateau area). This is lower than the figure of 31 trillion cubic metres predicted by the U. S. Energy Information Administration. However, it fortifies that China still has one of the largest shale gas reserves in the world. Interestingly, China currently has no commercial production of shale gas. China�s 12th Five-Year Plan in 2011, lays out an overall target and four milestones to be achieved by China from 2011 to 2015, including completion of a nationwide shale gas survey and appraisal; production output to reach 6.5 billion cubic metres by 2015; development of suitable methods, technologies and equipment for China�s shale gas survey, appraisal, exploration and production; and establishment of technical standards, rules and policies regulating activities in relation to China�s shale gas development and environmental measurements. As per, the Government will adopt five steps to achieve the target and milestones set out in the Plan:
• Increase Government investment in shale gas survey and appraisal
• Develop shale gas technology
• Develop new shale gas exploration and production systems
• Introduce incentive policies
• Improve shale gas infrastructure

Solutions for improving shale gas infrastructure will depend on the location of the reserves. For reserves in proximity of the existing natural gas pipeline network, the Government will encourage construction of transportation pipelines at the shale gas production field and connect these pipelines to the existing natural gas pipeline network. For reserves far from existing natural gas pipeline networks, or new wells, (production output of which is ramping up), the Government will encourage the construction of small-scale LNG or CNG facilities to capture the gas produced to avoid flaring the gas. The construction of transmission pipelines will take into account the production phase of the relevant shale gas wells. Subsidies could include incentives such as :
• Reduction/Waiver of relevant licence fees for legitimate holders of shale gas exploration and development licenses
• Exemption of customs duty for any imported shale gas equipment (including the associated technologies) that are not available or cannot be produced in China
• Priority to the shale gas developer when applying for a land use permit
• Companies will be also highly encouraged to work with foreign partners

Getting shale out of the ground has proved challenging as China�s shale deposits also have more clay than the brittle marine shale of the US, making fracking more time consuming and less productive. This is compounded by lack of infrastructure that makes the shale revolution possible in the US, including an extensive gas pipeline network and oil workers trained in fracking techniques. Issues that might limit this potential include a lack of water resources around China�s western shale reserves and the deep nature of some basins, coupled with hilly terrain. These factors combined with Chinese companies� relative inexperience are likely to make such projects more costly than their US counterparts and for this reason, Booz & Co expects that Chinese shale gas projects will not result in a substantial increase in production until 2020. China's main motive for exploiting shale-gas reserves would be for power generation, and perhaps even for gassifying its transportation system. But the resulting natural-gas liquids could also feed big new petrochemical capacities.

China�s recently announced development plans for shale gas production may be overly optimistic, considering the geological complexities of China�s shale formations, according to natural resources expert GlobalData. The report suggests that the geology of China�s shale gas reserves, as well as the country�s water shortages, insufficient pipeline infrastructure, government control over natural gas prices, and environmental issues will all challenge China�s ambitions, despite the country�s extensive plans to support and encourage industry growth. China�s five-year shale gas development plan for 2011-2015, released on March 16, 2012, boasts the target of 6.5 billion cubic meters (bcm) of annual shale gas production by 2015. The plan states that a two-year appraisal of China�s shale gas reserves, an increase in China�s expertise on shale gas technologies, and the development of a regulatory framework will also be accomplished. However, the industry remains cynical of the ambitious production targets. The Chinese government promises to support the research and development (R&D) of shale gas technology, and will also accelerate the process permitting investors to develop shale gas reserves. A contract management system will also be put into place to control and monitor industry activity. China will also consider the introduction of subsidies for shale gas projects, which will assist companies with obtaining a waiver or reduction of their license fees, priority for land use permits, and exemption of custom duties for the import of shale gas equipment and related technologies which is unavailable in China. Essentially, the government aims to provide an adequate policy environment for huge shale gas development. The construction of natural gas pipelines will be encouraged at shale gas reserves that are close to existing gas pipeline networks, and the construction of small-scale Liquefied Natural Gas (LNG) or Compressed Natural Gas (CNG) facilities will be encouraged at shale gas reserves remote from existing pipelines. However, the development of the domestic pipeline network will take time and money, and this is expected to slow the pace of shale gas development. China aims to achieve a commercial level of shale gas production which has so far only been achieved in North America. However, Chinese shale gas companies cannot currently use the high performing drilling technologies used to extract shale gas in the US, as further research is needed to adapt the US�s drilling methods to China�s very different geology. Shale gas development also requires Chinese authorities to address the environmental issues associated with this industry. Water shortages are a major issue in China, yet hydraulic fracturing technology requires vast quantities of water, and is claimed to contaminate waterways with corrosive and toxic pollutant hydrogen sulfide, which Chinese shale gas contains in abundance. Sophisticated drilling and gas purifying technologies, and strict emission standards would be needed to save China from the corrosion of drilling equipment and air pollution. Lastly, the Chinese government is expected to encourage international exchanges and co-operation, yet state control over natural gas prices will keep natural gas prices artificially low, not reflecting the realities of the natural gas market. Shale gas development companies will therefore have little incentive for development, as profitability will be minimal. With the development of shale gas requiring huge capital investment, the industry remains uninspired as government policies, especially on pricing, threaten to remove any financial attraction from the industry.

If China�s plans are successfully implemented, shale gas will change the pattern China�s energy consumption
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