China’s state-owned oil firm, CNOOC, is giving up on a high-profile shale gas project in Anhui province, conceding that the play “is not suitable for development on a large scale.” The FT reports:
China National Offshore Oil Corp (Cnooc) has decided to shelve its shale gas project in Anhui province in the latest sign that the shale gas revolution that transformed the US energy industry is unlikely to replicate itself in China. […]
Cnooc joins larger Chinese firm PetroChina, which has already sharply scaled back on shale project in Sichuan province that it was developing with Royal Dutch Shell. Neither PetroChina nor Shell will publicly define the extent to which that project is on hold.
There are two factors at work here. First, the dramatic drop in the price of oil over the past nine months has oil companies taking a much closer look at their capital expenditures. High-cost projects—a set that shale plays certainly belong to—are being binned as these firms work to adjust their balance sheets.
But that only tells half the story, because even before the oil price crash Beijing was struggling mightily to catch up to the U.S. shale boom. Much of China’s shale gas is locked away in remote regions that lack the necessary infrastructure (roads, for example) to support large drilling operations. China also has a very real water shortage problem, which compounded with the relatively complex stratigraphy has stunted its push to tap its shale.
Beijing lays claim to the world’s largest shale gas reserves and third-largest shale oil reserves. Yet, as countries like Poland, Lithuania, Romania, South Africa, and the UK are all learning, simply possessing the resource isn’t enough. The American energy renaissance has not come gift-wrapped; rather it has been a product of a great number of favorable factors and innovative efforts.