China shale gas Comparing China and the US JGCRI Institute Dialogue (Spring 2013) April 2013 CNPC s 201-H1 Wei well, China s first horizontal shale gas well with multistage fracturing, Sichuan province Photo taken on 21 st Jan 2013
Unconventional gas, liquids and oil China / US: superficial similarities, but deep differences China s gas resources and infrastructure China United States China s best shales China United States 9 596 961 km 2 Land area 9 826 675 km 2 2 prospective, 5 less prospective Shale basins >20 basins 144 Tcm RGIP / 36 Tcm RRG US EIA 24 Tcm technically recoverable 134 Tcm Resource / 25 Tcm P50 TRR MLOR n/a
3 Sichuan basin plays are China s most promising Sichuan basin current shale gas licensing and activities Key Points: Sichuan basin is a known province of both conventional and unconventional gas located in Southwest China Sichuan basin has estimated shale gas resource of 40.02Tcm, accounting for around 30% of the national total (134Tcm) The estimated technical recoverable resource is around 6.4Tcm Sichuan shales mostly marine based, belong to Siluran Longmaxi and Cambrian Qingzusi Strata Compared to other Chinese shale gas plays, Sichuan s shale resource is relatively shallower and shales are thicker and distributed in larger areas. It also has higher percentage TOC and better porosity Out of the 19 prospective shale gas plays in China, Sichuan has 5 of them, including Fushun Yongchuan, Changning Weiyuan, NE Sichuan, etc. Most of the wells drilled in Sichuan are experimental wells, now feeding 0.2bcm to pipeline for local distribution household use: no scaled commercial production yet Sichuan is the most important to achieve the government plan: according to Sichuan NDRC, it should contribute 40% of the national target (i.e. in 2015 case, 2.7 bcm out of 6.5 bcm and 24-40Bcm in 2020). Local NDRC recognizes the challenges to achieve this target Source: Interviews, Sichuan NDRC, WoodMac, MOLAR
Basin architecture and other key factors suggest China s shale gas development is likely to be Slower and lower than the US 4? 6 key shale gas enablers POLICY Pipeline access? Services? Fiscal? Land access / people? Water? GEOLOGY
5 To date China has drilled ~71 shale gas wells less than half with reported shale gas flows # of Shale Gas Wells Drilled to Date 71 71 16 Horizontal Wells 33 with reported gas flow 37 Completed drilling 3 8 23 55 38 14 under drilling 2009 2010 2011 2012 Total Total 2013 Sichuan Chongqing Shaanxi Hubei Hunan Guizhou 71 wells (1) 25 10 6 2 1 2 16 H wells 7 7 1 1 - - Initial flow rate (2) m 3 /d 7,000-430,000 1,948 100,000 1,779 2,413 3,200 1,000 0 176 H-well Initial flow rate m 3 /d 7,500 430,000 4,200 100,000 2,000 3,200 - - Drilling depth, m 2800 4500 2888 3654 1778 Companies CNPC (4) & Sinopec (3) Sinopec (7) Yanchang (6) Sinopec (1) Sinopec (1) Sinopec (1) Note: 1) The data captures all the wells to date with industrial flows, but is incomplete for wells without flow. 2) some initial production flow rate is reported as stabilised rate during testing period.. Source: research using public sources, confirmed with multiple experts on a China visit
6 Energy security and reducing import dependence is the key for the policy push into shale gas China potential gas imports with/without shale gas Chinese government has issued a number of regulations, incentive policies to boost the shale gas development industry in China. 2011: Market based pricing mechanism (netbacks instead of regulated pricing) 2012: Government has separated shale gas as an independent mineral resource and allows private capital investment. 1) w/o shale gas, China could be over 60% gas import dependent by 2030 (or have a smaller gas sector) 2) Import dependence could reduce to 40-50% if shale gas succeeds* 2011-2012: two rounds of shale gas exploration blocks through open auction process and private/foreign investors (JV with Chinese companies) are allowed to participate 2012: Ministry of Finance has announced 0.4rmb/m3 subsidies to shale gas production for the developers in November in a bid to boost the industry development. While supporting the growth of the industry, it is thought that the Chinese government would also prefer a gradual depletion of China s own resource base rather than rapidexploitation with depletion sooner Foreign resource acquisition, securing imports and sustainable development of domestic resources are the key of China s resource strategy Note: WM forecast of shale gas production by 2030 is ~160Bcm, CERA s best case estimate is 200Bcm by 2030 Source: Woodmac, MOLAR, RTE Analysis
7 35 30 25 20 15 10 China has been trying to stimulate CBM production for over 15 years: production failed to meet plan targets despite high expectations 5 0 CBM surface well production and utilization (Bcm) Utilized underground gas drainage Surface well production Utilization Volume Target of utilization of 8Bcm Target utilization of 24Bcm 2012: 5.2Bcm 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2015 Key CBM producers production and target (Bcm) 6,0 2012 Production 2015 Target 5,5 3,5 1,5 0,5 0,6 0,6 0,0 0,3 0,0 China CBM Source: NEA, RTE Analysis CNPC Sinopec Jinmei Henan CSG