Summary
China is becoming a big natural gas consumer. Much dwarfed domestic gas production has driven a common expectation that China has to increasingly rely on international resources for its gas supply for the next decade or so just like the situation of oil. Will the emergency of unconventional shale gas overturn the conventional view, placing substantial influences on China's energy strategy?
Analysis
China is emerging as a big natural gas consumer. As domestic natural gas production growth is far more dwarfed, China has planned to import large volumes of gas through LNG terminals or cross-border pipelines for the coming decade, which could lift the country’s gas import dependence to as high as 40 percent by 2020. However, substantial development of huge potential shale gas and other non-conventional gas resources such as coal-bed methane would likely change the commonly stated gas supply pattern, bringing China back to more self-dependent in gas supply.
Will this proposition realistic or just theoretic?
- Resources: A preliminary study shows that China owns around 100 trillion cubic meters of shale gas, more than the currently known natural gas and coal-bed methane resources combined, and comparable to those in the US.
- Demand: China is still in a very early stage of gas market development. Even with aggressive plans, natural gas will only account for less than 10 percent of the total primary energy consumption by 2020.
- Technology: China is not strange to horizontal drilling and high-pressure fracturing technologies, though shale gas exploitation requires more advanced and specialized ones. Technologies developed in North America are, however, well available.
- Gas infrastructure: An essential national natural gas transmission network has been built in China after decade long intensive gas investment. Gas infrastructure is even more established in shale gas resource concentrated regions.
- Investment: Major Chinese oil companies are regarded financially strong, and hold ambitious investment plans. Investment distribution will depend on their strategic movements toward oil and gas, domestic and global resources.
- Policy: Necessary incentives and preferential fiscal and taxation policies would the most critical elements to shale gas development in China. Some good practice and experience in the US could be well referenced and borrowed.
Shale gas development is regarded as one of the most innovative achievements in the global energy industry over the recent decade or so. Shale gas has experienced rapid development in the US, growing from just accounting for 1 percent of total natural gas production to over 8 percent within just one and half decades. A similar large-scale shale gas development in China would not only reduce its reliance on outside resources and strengthen its negotiating position, but also produce significant influences on the global gas market and gas prices, and world geopolitics as well.
However, how to balance the already planned gas import projects and potential domestic shale gas development would pose great challenges to Chinese government’s long-term energy plan, and major Chinese state-run oil companies’ investment and operation strategies.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
