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By John Kemp
LONDON, Jan 17 (Reuters) - China will almost certainly failto meet its target of producing 6.5 billion cubic metres ofshale gas per year by 2015. Even so, there can be no doubt it isset to become one of the world's largest shale gas producersover the next decade.
In its latest annual outlook, published on Wednesday, BPpredicts China will be the most successful country outside NorthAmerica in developing shale gas by 2030. Given the country'senormous shale resources and large prospective market, coupledwith its ready availability of capital and proven engineeringexpertise, it is hard to argue with that assessment.
SICHUAN BASIN
Estimates vary but most analysts put China's technicallyrecoverable shale resources at around 1,000 trillion cubic feet(tcf) (28 trillion cubic metres), which would make them thelargest in the world, and about 20 percent higher than in theUnited States (862 tcf).
China's Ministry of Land and Resources (MLR) conservativelyputs recoverable shale resources at 886 tcf but the U.S. EnergyInformation Administration (EIA) estimates they could be as highas 1,275 tcf.
Shale formations are also likely to contain crude andcondensates but estimates of the resource have been published.
Deposits are found in six giant sedimentary basins runningfrom east to west across the country: Songliao in the farnorth-east; Bohai and Ordos in the central north; Sichuan to thesouth; and Tarim and Junggar in the far northwest (Xinjiang).All these basins have already produced either coal or oil andgas from conventional deposits.
The Sichuan and Tarim basins are considered the mostpromising for exploration because their thick marine sedimentswere laid down on the bottom of ancient seas and have a highorganic content.
Early development has concentrated on Sichuan because it iscloser to the main populated areas and already has gas pipelinesand other infrastructure from the development of conventionalgas fields in the area.
Most of the basin is located under the provincial-levelmegacity of Chongqing and neighbouring province of Sichuan. TheMinistry of Land and Resources has granted PetroChina (inassociation with Shell) and Sinopec (in association with Conocoand Chevron) exploration rights for various blocks in theregion.
Sinopec's first exploratory well, Qianye-1, in the Qianjiangdistrict of Chongqing, was completed in early 2012 and flowed asignificant amount of gas. Conoco has agreed to drill two moreexploratory wells in Sichuan. Shell and PetroChina are drillingin their own blocks in Sichuan.
In theory, Chongqing plans to drill between 150 and 200wells over the next three years, with more across the boundaryin Sichuan. For the moment, however, progress has been veryslow, which will put the target of 6.5 billion cubic metres by2015, set out in the twelfth five-year plan (2011-2015), out ofreach.
The world's second largest economy has made developing shalea top priority to cut future dependence on imported energy.
Premier Wen Jiabao tacitly admitted the programme had fallenbehind when he promised the annual meeting of the NationalPeople's Congress in March 2012 that the government would"tackle key problems more quickly in the exploration anddevelopment of shale gas."
TOUGH CHALLENGES
China's shale programme faces a number of above and belowground challenges.
China's basins are nowhere near as well explored as those inthe United States. Deposits are buried deeply below ground. Andsome observers claim the gas-bearing formations may have ahigher clay content, making them harder to fracture and keeppropped open ("China Drills Into Shale Gas. Targeting HugeReserves Amid Challenges," National Geographic, August 2012).
The Tarim basin in the northwest is thousands of miles awayfrom the main centres of energy consumption and in one of thedriest region's on earth, with little water for fracking.
Sichuan has more rainfall but the region is denselypopulated, much of it is heavily urbanised, and there is alreadypressure on local water resources for agriculture. In contrastto the wide open plains of North Dakota and Texas, Sichuan ismountainous, making the local topography challenging for surfacefracking operations.
Unlike the United States, China does not have an extensivenetwork of gas-gathering and transmission pipelines nor a largeeco-system of independent and innovative exploration, drillingand development companies.
INNOVATIVE SOLUTIONS
The slow pace of progress and multiple challenges facingfracking firms have led some analysts to conclude China's shaleindustry will fail to live up to expectations. But it would be amistake to write it off at this point. None of the challengeslooks insurmountable, and China has plenty of capital andengineers to find solutions.
China has been drilling for and using gas in Sichuan formore than 2,000 years. The basin is home to the country'snatural gas industry, according to China National PetroleumCorporation ("Status and Practices of Shale Gas Exploration andDevelopment in Sichuan Basin" Sep 2011).
The basin already contains 113 conventional gas fields andhas more than 18,000 kilometres of gas pipelines. Production hit15 billion cubic metres (530 billion cubic feet) in 2009.Natural gas provides 16 percent of primary energy consumption inSichuan and Chongqing compared with just 4 percent for thecountry as a whole.
Depth will not prevent development. The basin's mostprospective layers, the Qiongzhusi and Longmaxi formations,actually lie on top of many of the conventional fields -- atdepths similar to the Barnett, Marcellus, Eagle Ford andHaynesville shales in the United States.
Longmaxi and Qiongzhusi cover 56,000 and 80,000 square milesrespectively, compared with about 15,000 square miles for thecore of the Bakken and 9,000 for Argentina's Vaca Muerta. Thenet organically rich layers are about 200-300 metres thick, onlya little less than Vaca Muerta's 325 metres.
Total organic content is around 3 percent compared with 4percent in Vaca Muerta. But more of the organic matter has beenconverted into oil and gas, according to estimates published bythe U.S. Energy Information Administration ("World Shale GasResources: An Initial Assessment of 14 Regions Outside theUnited States" Apr 2011).
Longmaxi and Qiongzhusi could each produce 340-350 trillioncubic feet of gas, according to EIA, compared with 240 trillioncubic feet from Vaca Muerta. The two formations combined containmore technically recoverable shale gas than any other countryexcept the United States, Argentina and Russia.
Successful development of the Barnett shale directly beneaththe city of Forth Worth in Texas, shows it is possible toextract large volumes of natural gas even in heavily urbanisedareas by using horizontal drilling and boring multiple wellsfrom a single drilling pad.
EARLY EXPLORATION
PetroChina drilled and fractured its first vertical shalegas well (Wei-201) into the Longmaxi formation in April 2010,which produced a rather limited 300,000 cubic metres over 270days (). Faster flow rates wereachieved from the subsequent Ning-201 well.
In March 2011, PetroChina completed its first horizontalwell (Wei-201-H1) with a total depth of more than 2,800 metresand a horizontal section of more than 1,000 metres, with 11fracture stages ().
The company drilled another seven wells in 2011, and threemore in conjunction with Shell, including the Yang-201 well inFushun-Yongchuan block, which flowed up to 430,000 cubic metresper day in testing.
Still, the drilling programmes remain very limited and haveyet to define the play's core area. In comparison, thousands ofhorizontal wells have been drilled into the Barnett and Bakkenshales in the United States and the best areas for drilling arewell known.
Large-scale production of shale gas from the Sichuan basinwill not be easy. Each shale formation poses its own uniquechallenges, and the problems in China are formidable. But theproblems do not appear worse than in other parts of the world,and the prize is enormous.
