China to miss 2015 shale gas targets oninfrastructure, water woes: Breitling

Singapore — China will likely not meet its 2015 shale gas production targets due to the size of investments needed in infrastructure and production, as well as the problem of water shortages in the areas where shale gas drilling is planned, said CEO Chris Faulkner of US independent Breitling Oil and Gas. Another problem is that foreign direct investment is not allowed, and that limits the participation of international oil companies who would like to invest as China works to exploit its shale gas resources, he said. “I think the water acquisition and the water disposal [problems] on top of the limited infrastructure and the fact that the government sets the natural gas prices…that’s going to be a huge impediment to their ability to get that off the ground,” Faulkner said, speaking at the Shale Gas World conference in Singapore. Beijing is targeting annual output of shale gas of 6.5 billion cubic meters (628,600 Mcf/d) by end-2015, although state oil companies PetroChina and Sinopec have only outlined output targets of less than half that. Sinopec’s 2 Bcm share of the 3 Bcm the two say they ill produce by that year includes all unconventional gas — shale, coalbed methane and tight gas. So although China has what are said to the be the largest shale gas reserves in the world, at 35.7 Tcm according to the US’ Energy Information Administration, its production isn’t likely to develop at great speed. Faulkner also pointed out that China had coalbed methane, coal and other energy options they prioritized over shale gas. China would need to invest $20 billion-30 billion to drill the more than 1,000 wells he says they would need over the next three years to meet their production target for shale gas. “There’s a massive gap between the activity in the country and fullscale development,” he said. “That’s why I really don’t think China is going to get anywhere by 2015 or 2020, for that matter. It’s going to be a 2022, 2025 play for them,” he said. “[The US] drilled 1,500 wells in shale last month, and China drilled less than 50 total in the last year. The pace at which China is moving is not going to allow it to create the amount of production it needs by 2015.” That still hasn’t put Breitling off the idea of investing in China when it is allowed. “We are interested and eager to get more involved in China,” Faulkner said, adding that Breitling has been working as a consultant in China over the past couple of years looking at assets in the Sichuan basin, helping to evaluate the geology and offering knowledge transfer. He said that as 2015 comes and goes without China’s shale gas output targets met, that the government would feel pressure to open up the sector to direct foreign investment. “They’re going to loosen up a little on their negative foreign company mentality…and then we’ll be able to do more than just knowledge transfer,” he said. Breitling Oil and Gas is a Texas-based independent founded in 2004 and currently focused mainly on shale gas production operations in Texas, Oklahoma and Louisiana. Faulkner said that besides China, Breitling is also looking at possible investments in Liechtenstein, Poland and the UK.