Hurdles slow China's shale power ambition

BEIJING -- China's fast-track plans to replicate a US success in exploring shale gas seem to suffer temporary setbacks that need far more years to overcome: technologies and costs.

"It will take at least 10 more years for us to realize the commercial production of our shale gas exploration, because we have some hurdles in our shale gas drilling technologies and deep-well equipment," Fu Chengyu, chairman of Sinopec, China's second-biggest oil producer, told Xinhua on Thursday.

"The shale gas sector will remain in its infancy in China in the coming decade," Fu said on the sidelines of the annual session of the National Committee of the Chinese People's Political Consultative Conference (CPPCC), the country's top political advisory body.

In recent year years, China has awakened to a technology revolution that has unlocked massive reserves of gas trapped within shale rock formations in the United States. Some experts estimated that technically, China has the world's biggest recoverable shale gas resources.

The State Council, or China's cabinet, listed shale gas as an independent mineral for mining in 2011. The Ministry of Land and Resources, which is in charge of resource registrations and management of mining rights, has so far auctioned the rights of prospects and exploration and development for about 20 shale gas blocks in Sichuan, Guizhou provinces and Chongqing Municipality in southwest China, as well as in Jiangxi, Zhejiang, Anhui, Hubei, Hunan and Henan provinces.

Although deemed too costly to extract, shale gas has been viewed as an important supplement for China owing to the country's soaring demand for energy amid rapid economic growth.

The world's second-largest economy relied on imports for about 58 percent of its crude oil consumption last year, data from the National Development and Reform Commission showed. Its crude oil imports in 2012 stood at 280 million tons.

"China has broad prospects for shale gas mining but it takes time to commercialize because we need to bring down the cost first and then raise the output," Fu said.

The market widely expects China to follow a path similar to the United States, but the Sinopec chairman insists that huge risks are stalling the shale gas industry at the moment.

He said the US, home to mostly shallow and broad basins, has much better shale gas exploration conditions than China, where a more complicated geological mix of mountainous structures results in a much higher exploration costs.

According to Fu, it will take more time for Chinese explorers to perfect their shale gas technology, because US companies need only to drill wells 3 km at their deepest level, while Chinese explorers have to drill over 4 km to 6 km deep.

To cover about 70 million-yuan (about $11 million) cost for drilling each shale gas well in China's mountainous blocks, Chinese companies need to extract about 40,000 cubic meters of shale gas in daily output, Fu said.

"But our daily output for a well now stands at about 20,000 cubic meters," he said.

Moreover, China faces huge costs to pump the shale gas to the market, which requires sharp increase in gas pipeline grids to bring gas suppliers online.

Sinopec aims to have combined production capacity of 2.5 billion cubic meters of shale gas and coalbed methane gas by the end of 2015.