Energywire – Shale gas development targets seen as overly ambitious

A shale gas boom similar to the one in the United States is unlikely to grip China, despite optimistic government benchmarks.

China, the world’s fastest-growing energy consumer among major economies, plans on generating 23 percent of its demand from shale sources by 2020, a figure that amounts to 80 billion cubic meters of natural gas. But an average of seven analysts’ outlooks predicts China may produce about 18 billion cubic meters by the start of the next decade.

“China’s production targets are not realistic,” Chris Faulkner, CEO of Breitling Oil and Gas Corp., which is in talks in China, said in an email. “The only way China is going to be able to meet its output goals is for the government to pour money into exploration and development and ease up on the price controls.”

The government-controlled economy is causing investors to keep their distance from shale gas projects in the country, as drillers could lose money under centrally dictated prices. Currently China has no commercial shale gas extraction projects online.

Analysts’ pessimistic assessments of Chinese shale oil’s future may be good news for gas suppliers such as Exxon Mobil Corp. and Woodside Petroleum Ltd. China already imports $17 billion of natural gas, about half of that in the form of liquefied natural gas. The country is continuing to build LNG receiving terminals with five facilities coming online this year. Slow domestic production growth in China could bring more business for gas producers from Australia to the United States as the Asian powerhouse is forced to bring in more LNG.

China’s dismal shale gas outlook was clear at an auction in December, when several coal companies and provincial government investment firms won bids to develop gas-rich blocks of land despite having no experience in gas extraction. China’s biggest gas producers, China National Petroleum Corp. and China Petrochemical Corp., failed to come up with any winning bids.

“If you want to kick-start this industry quickly from zero now, you need to either introduce a massive subsidy or allow free market forces to prevail,” said James Hubbard, an analyst at Macquarie Group. “You’ve got 20 blocks that have just been awarded to companies no one has ever heard of”

(Haas/Katakey, Bloomberg, Feb. 19). — BS

Article Author: Haas/Katakey, Bloomberg

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