Shale gas faces a bumpy road en route to boom

Yangbajing geothermal field in Tibet is famous for its rich geothermal resources. Tao Xiyi / Xinhua

China's shale gas industry could soon be entering its boom years.

Thanks to the top two oil and gas giants - China National Petroleum Corp and Sinopec Group - the nation's shale gas output soared from 25 million cubic meters in 2012 to more than 200 million last year.

Late last month, the National Energy Administration announced that Chinese shale gas production will reach 1.5 billion cubic meters this year.

Peng Qiming, director of the geological exploration department at the Ministry of Land and Resources, said at a January news conference that China has made many breakthroughs in the unconventional oil and gas exploration sector in the past 12 months.

At the Chongqing Fuling shale gas block last year, Sinopec averaged single well output of 150,000 cubic meters a day. The company is expected to achieve annual production of 1 billion cubic meters by the end of 2014.

China's biggest oil and gas developer CNPC boasts a total commercialized shale gas output of 70 million cubic meters, primarily from three blocks: Changning-Weiyuan block in Sichuan province, Zhaotong block in Yunnan and the Fushun-Yongchuan block that was jointly developed with Royal Dutch Shell Plc in Sichuan.

And an expert from the ministry, who declined to be named, said domestic shale gas capacity will increase rapidly based on the current development level Chinese companies have achieved.

But other analysts are not as optimistic about its future.

"It is not a tough goal to accomplish," said Wang Xiaokun, a natural gas analyst at domestic commodities consultancy Sublime China Information Group Co Ltd.

She predicted that China will consume 170 billion cubic meters of natural gas this year.

"In addition, even if the country achieves the target, it doesn't mean all the production can be utilized for society because it requires mature pipeline infrastructure and other supporting facilities," said Wang.

Besides a low utilization rate, there are also problems in upstream exploration.

Wang said Sinopec's technology for the Chongqing Fuling block cannot be easily employed in other blocks.

"The biggest obstacle is we have not found a method that fits most shale gas blocks in China yet," she said.