china’s unconventional gas resources china’s energy policies international energy &...

China’s Unconventional Gas Resources

China’s Energy PoliciesInternational Energy & Transactions

Committee Brown Bag

China’s Unconventional Gas Resources

China’s Energy PoliciesInternational Energy & Transactions

Committee Brown Bag

Harry VidasVice President, [email protected]

(703) 218-2745

May 13, 2013

mailto:[email protected]

mailto:[email protected]

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© 2013 ICF International. All rights reserved.

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ContentsContents

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OverviewOverview

Shale Gas DevelopmentShale Gas Development

Gas Pipeline InfrastructureGas Pipeline Infrastructure

Shale Gas Development ImpedimentsShale Gas Development Impediments

LNG Imports and Shale Development ImpactLNG Imports and Shale Development Impact

ConclusionConclusion

Overview – China’s Shale EstimateOverview – China’s Shale Estimate

According to the U.S. EIA, global technically recoverable shale gas resources (based on assessment in 32 countries) total 6,622 Tcf, the equivalent of 60 years of 2008 worldwide natural gas consumption. More accurate number would be 12,000 Tcf for whole world.

The EIA estimates that China holds 1,275 Tcf in recoverable shale gas

48 Major Shale Gas Basins in 32 Countries

Overview – Shale Gas Production TechnologiesOverview – Shale Gas Production Technologies

Horizontal drilling and hydraulic fracturing have unlocked previously inaccessible shale gas resources

Shale gas production has steadily risen over the past decade through use of these upstream technologies (U.S. shale gas production now makes up 33% of total U.S. gas production)

Shale gas wells are drilled 8,000-12,000 feet down and then laterally 3,000-10,000 feet

Conventional and Shale Gas Resources Hydraulic Fracturing Process

ContentsContents

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OverviewOverview






Shale Gas Development – Shale/ CBM BasinsShale Gas Development – Shale/ CBM Basins

China has seven major onshore shale basins thought to contain shale gas, just two (Sichuan in the southeast and Tarim to the northwest) are suited for near-term commercial development.

China’s shale and CBM basins are widely distributed, China’s shale gas production remains limited to experimental well drilling in the Sichuan basin, with aggressive plans for future development.

Current activity in Sichuan Basin (60 shale gas wells completed).

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Shale Gas Development – Current EstimatesShale Gas Development – Current Estimates

Shale, tight, and coalbed methane

Some areas also have tight oil potential (including Ordos Basin)

Most of the resource is in Sichuan Basin region; similar geologic age to Marcellus Shale

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Region Basins Basin Type AgeArea (sq

km)

Mean Recoverabl

e (Tcf)Yangtze Region Sichuan, Yunnan, Jiangnan Cratonic S, D 900,000 447Northern China Ordos, Bohai Cratonic C, P 600,000 191Northwestern China Junggar, Turpan Foreland P, J 700,000 206Western China Tarim Depression K, N 500,000 212Total 1,056

Shale Gas Development – Current StatusShale Gas Development – Current Status

Most current/near term activity in Sichuan Basin

60+ shale gas completions to date; no commercial production, but commercial scale well rates (up to 5 MMcfd for horizontals and 1.5 MMcfd verticals) achieved.

Government forecasts of up to 2.8 Tcf shale production by 2020; “large scale” commercial prod. forecast by EOY 2015

SINOPEC plans 38 MMcfd of shale gas by 2014

Government gas price subsidies for shale of $1.83 per Mcf; current wellhead price of about $5.30 per MMBtu; drilling costs of $5 - $12 million per well

Active Companies: Shell/CNCP

― $2B shale gas capex expected through 2013; had completed 24 wells by Nov. 2012; major decision mid-decade

― production sharing contract recently approved; the first in China for shale gas

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DateInternational Companies

NOCs Activity Location/Basin Status

Oct-07 Newfield CNPCShale gas joint study

Weiyuan Block, Sichuan

Completed in 2008

Nov-09 Shell CNPCShale gas joint assessment

Fushun-Yuangchuan Bock, Sichuan

Ongoing

Jan-10 BP SinopecShale gas joint assessment

Kaili Block, Guizhou; Huangqiao Block, Jiangsu

Ongoing

May-09 Statoil CNPCShale gas joint study

Sichuan Negotiation

3Q 2010Conoco Phillips

CNPC Shale gas Sichuan Pening

4Q 2010 Chevron SinopecShale gas exploration

Longli Counti, Guizhou

Ongoing

Jul-05 Shell CNPCTight/shale gas exploration

Jinqiu Block, Sichuan

Ongoing

Jul-11 ExxonMobil SinopecShale gas joint study

Wuzhishan-Meigu Block, Sichuan

Ongoing

Jul-11 ENI SinopecMOU covering shale gas

N/A N/A

Source: Gao, 2012)

Shale Gas Development – Production ForecastsShale Gas Development – Production Forecasts

China’s natural gas use made up 4 percent of the energy mix in 2011, though the most recent 12th five-year plan has a goal to increase the share of natural gas to 10 percent by 2020.

Demand currently exceeding production

Government forecast of 8 Tcf/y demand by 2015 (5 year plan)

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China’s National Energy Administration has a goal of annual shale gas production of 228 bcf (6.5 bcm) by 2015 and 2.1 Tcf (60 bcm) by 2020, an ambitious goal, given the experimental stage of Chinese shale gas drilling and the technological/geological issues

Production of China’s unconventionals could alter the recent dynamic of increasing LNG imports

ContentsContents

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OverviewOverview







Environmental Issues

Water: fracking fluid content, chemical use/reporting, groundwater contamination, excessive water use, wastewater treatment/disposal

Air emissions and climate: methane leakage, other VOCs, drilling equipment emissions,

Lifecycle emissions: methane emissions limit environmental gains from natural gas use

Potential challenges to shale gas production include limited pipeline access, water access, limited technical knowhow, lack of sufficient regulatory enforcement, and geological issues (e.g., deeper formations than those in the U.S.)

Topography

Depth

Non-marine in NE areas

Water availability

Population density

Infrastructure

Wellhead prices

ContentsContents

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OverviewOverview






Gas Pipeline Infrastructure – Total PipelinesGas Pipeline Infrastructure – Total Pipelines

As of 2010, China’s total gas pipeline mileage totaled 24,000 miles, which includes a gas pipeline network from Kazakhstan that connects to the West-East pipeline from Kazakhstan to Shanghai, a substantial source of gas for China. China has plans to develop other West-East pipelines, as well.

Gas pipelines are owned by the state

Shale gas likely to require new lines/expanded capacity

CNCP controls pipelines; may not allow third party access

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Gas Pipeline Systems

Source: EIA, 2012

ContentsContents

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OverviewOverview






LNG Imports – TerminalsLNG Imports – Terminals

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LNG Import Terminals in China

Source: Poten & Partners, 2010

2012 Imports 1.9

bcfd

Existing terminal

capacity 2.9 bcfd

2.1 bcfd now under

construction.

Adding in planned terminals

would bring total capacity [E+UC+P] to

11.2 bcfd.

LNG Imports – Global LNG Trade ForecastsLNG Imports – Global LNG Trade Forecasts

LNG import demand exceeded 30 Bcfd in 2011, and is expected to grow another 39 to 57 Bcfd by 2035. Wide range of estimates on China’s LNG demand.

Historical World LNG Imports by Region (2004-2011)World LNG Demand Forecasts

LNG Imports – Global LNG Trade ForecastsLNG Imports – Global LNG Trade Forecasts

Globally, roughly 63 non-U.S. LNG export projects are underway or in the planning phase, with an estimated total capacity of 50.5 Bcfd; other projects are expected, as well

Just as U.S. unconventional production is expected to make a significant impact on global LNG markets, China’s successful unconventionals development could fundamentally alter global LNG trends.

Supply Curve of LNG Supply Projects under Construction or Proposed

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OverviewOverview







China’s current estimates for unconventional gas resources are significant, with current development seen in selected basins

Successful development of China’s unconventional natural gas resources could alter the country’s energy mix and international LNG trade trends, similar to trends seen in U.S. gas development

However, China’s energy growth needs and low starting base for natural gas consumption could mean limited effects on international natural gas trends, as domestic demand could still significantly outpace domestic production

Impediments, including water usage and geological uncertainties mean that China’s successful unconventional gas development remains unclear

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