A senior researcher at China National Offshore Oil Corporation (CNOOC) has made the startling estimate that it would cost China more than US$320 billion to achieve the government target for shale gas production by 2020.
The estimate is based on the number of wells that would have to be drilled at a cost ranging between US$13 million and $16.3 million each, said Chen Weidong, head researcher at CNOOC's Energy Economics Institute.
Billions of cubic metres of gas prised out of shale rock have transformed the energy market in the United States, making it less dependent on oil from the Middle East.
China is estimated to hold similar reserves of gas locked in shale but the process of extracting is complex and costly.
Chen, who was interviewed by the independent Beijing business magazine Caixin, said the enormous cost of unlocking the unconventional energy resource explained why progress in shale gas development has been so slow despite hailing it as being China's future fuel solution.
Conventional gas, such as that now being drawn from two blocks of Myanmar's Shwe offshore field in the Bay of Bengal and piped to China's Yunnan Province, sits in underground reservoirs and simply has to be sucked to the surface. But shale gas requires new technology involving a process known as hydraulic fracturing or fracking – blasting a mix of water, sand and chemicals into rock to force the gas out of shale layers.
"At present, it costs us about 80 million to 100 million yuan (US$13.1 million to ($16.3 million) to develop a single well," Chen told Caixin. "To achieve the shale gas production goal of 60 to 100 billion cubic metres by 2020, we would need to dig at least 20,000 wells. That's 2 trillion yuan (US$326 billion)."
Not surprisingly, Chen queried: "Is this possible?" A number of outside analysts believe many other issues have dulled the appetite of China's national oil companies (NOCs) in particular to pursue this energy resource, even though the country's conventional gas reserves are in decline.
"We think that shale [gas] in China will take a very long time for a whole series of reasons," Simon Powell, head of Asian oil and gas research at CLSA Asia Pacific Markets in Hong Kong told Mizzima Business Weekly.
China's shale gas deposits are deeply embedded in complex geological terrain and the country lacks the technology and large volumes of water needed for fracking, said Powell.
"We have heard of wells costing much more than US$19 million," he said.
Chen's gloomy predictions seem to back up comments made by Zhang Dawei, director of the Mineral Resources and Reserves Evaluation Centre at the Ministry of Land Resources (MLR).
"As we are facing enormous cost pressures and other problems, the speed of exploration has been slower than anticipated," Zhang told a conference in June.
In the first half of this year, 56 shale gas wells were in the exploratory phase but only 24 were producing gas, according to Caixin.
Only six wells, all dug by either Sinopec Group or China National Petroleum Corporation (CNPC), had daily output capacity of 10,000 cubic metres or more," Caixin reported. All the shale gas blocks awarded in the most recent round of auctioning were still only in the early phases of prospecting.
"I think infrastructure and industry structure are greater issues than individual well costs," Neil Beveridge at Bernstein Research in Hong Kong told Mizzima Business Weekly.
This is a view shared by Chi-Jen Yang, a research scientist specialising in China's energy resources with the Center on Global Change at Duke University in the United States.
"I think the high cost [cited by Chen] is more a symptom than the disease. There are many institutional barriers that inhibit the exploration of conventional and unconventional natural gas in China," Chi-Jen told Mizzima Business Weekly.
Some Chinese industry experts think China should focus in the short-medium term on increasing reserves and production of conventional natural gas.
"[The government] shouldn't have established overly high goals for shale gas production in the Twelfth Five-Year Plan, but should have set high goals for exploration of shale gas reserves," Caixin magazine quoted the vice chairman of the advisory committee of Sinopec Exploration Development Company's Research Institute, Zhang Kang, as saying.
The MLR has claimed that China holds about 25 trillion cubic metres of "developable" shale gas deposits. But this figure is being queried by some Chinese experts.
"The scientific nature of the data behind developable shale gas reserves is doubtful," the head geologist with state-owned chemical producer China Sinochem Corp., Li Pilong, told Caixin.
The real figure may be less than half the MLR estimate, he said, although that is still very substantial.
"The US has a highly competitive gas exploration industry with numerous small independent developers, who tend to be more flexible, quick to adopt new technology. These small developers have pioneered shale gas development and over time lowered the costs of shale gas exploration in the United States," Chi-Jen said.
"China lacks such a competitive environment and dynamic exploration industry, so the costs are high and will likely remain high.
[Its] gas exploration services are monopolised by national corporations, which are slow in innovation and have little pressure to lower costs."
A competitive shale gas development environment in China is stymied by the fact that all mineral rights are state owned and the pace of any development is always going to be set by the Ministry of Lands and Resources
(MLR), Chi-Jen said.
"In the U.S., shale gas developers can explore almost anywhere as long as they acquire mineral rights from landowners. In China, except for the MLR's selected tracts, everywhere else is off limits," he said.
The Caixin appraisal spotlights two obstacles to rapid exploration and production: monopoly of the best known shale gas deposits by the three NOCs, and the wrong technology in China.
It said 77 percent of shale gas deposits believed to be recoverable are already in the hands of the NOCs.
"China depends on vertical drilling technology, which matured during the exploration and development of conventional natural gas deposits. In the United States, horizontal wells and multistage fracturing technology [fracking] are used in 85 percent of shale gas deposits," Caixin said.
Another outside observer of China's energy market, who did not want to be named, said there was a view in some quarters that talk in Beijing of large-scale shale gas production as a solution to the country's rocketing gas demand was political hype rather than a true energy revolution and "the lack of progress is expected".
"The U.S. shale gas story is particularly appealing to China, whose rapidly growing energy demands outstrip its supplies," said Caixin.
But lack of the right technology, the prohibitive cost of extraction and the burden on scarce water supplies might force China's energy planners to focus back on sources of gas more easily accessible – in neighboring countries including Myanmar.
This Article first appeared in the October 3 edition of Mizzima Business Weekly.
Mizzima Business Weekly is available in print in Yangon through Innwa Bookstore and through online subscription at www.mzineplus.com
Source: http://www.news.myanmaronlinecentre.com/2013/10/07/eyeing-myanmar/
No comments:
Post a Comment