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Foreign Fracking
China Takes Baby Steps Towards Tapping Shale

When last we checked, China wasn’t making much headway in developing its shale. Though it sits on the world’s largest shale gas reserves, it has so far struggled to replicate America’s extraordinary success in the nascent industry. But as the EIA reports, there are now some encouraging signs for Beijing:

As Chinese companies gain experience producing from shale, the cost of shale gas drilling has declined. By mid-2015, the cost of drilling a horizontal well in shale formations in the Sichuan Basin was between $11.3 million and $12.9 million per well, according to China National Petroleum Corporation’s Economics and Technology Research Institute. This range was a 23% reduction in the cost of a shale gas well compared with the level in 2013 reports from Sinopec, one of China’s national oil companies. […]

Decreasing well costs and increasing experience in developing shale gas have been supplemented with continued government investment in the development of shale gas. In 2012, to encourage the exploration of shale gas, the Chinese government established a four-year, $1.80 per million British thermal units subsidies program for any Chinese company reaching commercial production of shale gas. In mid-2015, these subsidies were extended to 2020, but at a lower rate.

The EIA also points to Chinese investments in American shale plays as a valuable way for Beijing to develop its own industry. But while these are steps that will help China catch up to the shale bandwagon, it still has a long way to go. Water scarcity, the remote location of plays (and the lack of necessary infrastructure that goes along with that), and a still relatively inexperienced group of companies all stand in the way of an Asian shale boom.

Capital for the remote, intensive projects is drying up, too, as companies around the world revaluate their operations in the wake of low global oil and natural gas prices. In China, those investments may be especially hard to come by as the country’s economy sputters. In fact, earlier this year China’s state-owned oil firm CNOOC called it quits on a high-profile shale project, saying it wasn’t “suitable for development on a large scale.”

And finally, China’s geology is less cooperative than America’s, the former being more “crunched” by tectonic forces while the latter is more evenly latticed, making it easier to drill horizontally into shale formations. China may be making headway in its attempt to tap its more than 1,100 trillion cubic feet of shale gas—and it has every energy security and air quality reason to do so—but it has a long road ahead before it enjoys any kind of success on the scale we’ve seen here in the U.S. these past few years.

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  • Jacksonian_Libertarian

    Again with the EIA, this is a Government Monopoly Agency known for its poor predictions, and it is getting its information from a more incompetent and corrupt Chinese bureaucracy. I would treat any information or predictions coming out of this agency as little more than a shot in the dark subject to all the biases of the people involved.

    I’ve said it before and I’ll say it again the Government Monopoly like all Monopolies suffers from a serious disease, the lack of the “Feedback of Competition”. It is the “Feedback of Competition” that provides both the information and motivation which forces continuous improvements in Quality, Service, and Price in free markets. The companies mentioned in this article are all Government Monopoly owned State Oil Monopolies. This means none of the employees are going to be fired no matter how stupid, wasteful, or corrupt they are. It also means none of these companies are going to go out of business if they fail to make a profit.

    In America, it wasn’t the Big Oil Companies (limited monopolies due to capital requirements and brand name development) which developed American Shale, it was small entrepreneurial companies who would go out of business if they failed to make money. I can only think that if the American Shale wasn’t in nice layers, these companies would have just made lemonade out of the lemons and used the crunched geology to their advantage. What is clear is that horizontal drilling means the driller can drive their drill in any direction they want, and crunched isn’t really a problem as you just follow the seam of shale wherever it goes.

  • CaliforniaStark

    So how much additional actual oil/gas has China produced since enacting its incentive and subsidy program in 2012? Sounds as if the excuses are certainly flowing.

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