China’s upstream industry is turning to natural gas as a way to reduce air pollution created by the consumption of coal. China holds 27 trillion cubic feet (tcf) of proven shale gas reserves and has become the world’s largest shale gas producer outside of the US and Canada.
Significant shale potential and surging gas demand in China encourages the Chinese national oil companies to speed up the development of the shale gas plays, mostly in Sichuan Basin.
In accordance with a government directive, Sinopec accelerated its Phase II development in the Fuling shale gas project in Chongqing, which has become the largest shale gas field outside North America with an annual production capacity of 350 billion cubic feet (bcf) (approximately 960mmcfd).
Production of China’s main shale gas projects 2014-2020
| Source: Upstream Analytics & Economics, GlobalData Oil and Gas; CNPC and Sinopec reports © GlobalData |
Despite the progress made in the shale gas industry since 2011, China has been facing challenges to develop efficient shale gas extraction. Exploration of shale gas remains difficult in China because the available area is relatively fragmented and highly mountainous. The complex geological structures also challenge the commercialisation of shale gas plays. After the recent research and development, China has achieved technological improvement with horizontal drilling and hydraulic fracturing, however more advanced technology is required to develop shale gas due to deposit depths and ultra-low permeability of shales.
The latest estimate shows China’s shale output is growing rapidly and will reach approximately 1,500mmcfd by 2020, a 72% increase compare to 2017. The National Energy Administration (NEA) has revised its production target of shale gas, reducing it to 30 billion cubic meters (bcm) (approximately 2,900mmcfd) by 2020 from the initial goal of 60bcm (approximately 5,800mmcfd), however it is still too ambitious.
Chinese government is highly supportive of the shale gas development and has decided to boost incentives in the hope of reducing the gas supply gap. In March 2018, the Ministry of Finance announced a 30% reduction of resource tax on shale gas, down from 6% to 4.2%, effective from 1 April 2018 to 31 March 2021. While the tax cuts are expected to stimulate shale investment and drive the growth of the shale gas market, the production will fall short of the government targets.
