Shale gas faces a bumpy road en route to boom

Challenges ahead

China's geological conditions are far different from those in the United States, the world's biggest shale gas producer.

In China, most shale gas blocks are in mountainous regions, making it difficult to bring in the huge fracturing equipment needed to extract the gas.

Groundwater exploitation and contamination are other major concerns.

Lin Boqiang, director of the China Center for Energy Economic Research at Xiamen University, said shale gas exploration needs lots of fresh water, and current technology hasn't completely solved this problem.

Wang said fresh water can't be cleared for residential consumption after being used in shale gas extraction and that removing fluids from reservoirs also can cause surface subsidence.

"These factors are all limitations for China's shale gas development, which can explain why many companies are reluctant to take real action in blocks they won from the bidding," she said.

China held a second round of shale gas block bidding in October 2012 and announced the winners in January 2013.

Up to 16 companies, two of them private, won bids for 19 shale gas blocks, covering about 20,000 square kilometers during the second round.

To avoid tying up the land, the ministry asked the bid-winners to guarantee a total investment of about 13 billion yuan ($2.1 billion) on shale gas exploration for the 19 blocks within three years; otherwise, it can take the blocks back.

But many companies still have not made any big moves, said Wang, who declined to release specifics on the companies, saying "it's hard to determine whether they have taken action or not".

"The average cost of drilling a well is about 100 million yuan, which still cannot guarantee any shale gas will be found," she said. "The high cost and risk inherent in shale gas exploration are major reasons for Chinese companies' inaction."

Although a third round of shale gas block bidding was rumored to be taking place in either March or April of this year, the Ministry of Land and Resources, the country's land watchdog, could not confirm it.

Bidding was supposed to be held late last year. Wang said the delay was partially due to companies' reluctance.

China's shale gas boom has been bringing business opportunities to some machinery manufacturers.

Yantai Jereh Oilfield Services Group Co Ltd, a private company listed on the Shenzhen Stock Exchange, has been working on tailoring fracturing equipment to fit China's geological contours.

As the only Chinese firm to supply shale gas equipment to North American companies, Jereh has been developing machines in recent years specifically for Chinese projects, hoping for a boom in the sector.

The company said it had successfully tested the extraction equipment last October.

Cui Rizhe, director of the company's technology center, said the machines can be used in areas with poor roads and uneven land for long periods.