Water shortage may cast doubt on shale extraction

The report said that companies operating in areas where water supply is an issue must compete with other users for scarce resources. High levels of competition among agricultural, domestic and industrial water users could drive up costs and increase regulatory uncertainty for operators that need water for fracking and drilling operations.

The Tarim and Junngar plays in Xinjiang are dominated by arid and low water use conditions, and very high surface and groundwater stress. Those conditions mean that oil and natural gas operators could face significant financial risks as they access and transport water, according to the report.

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Developers in densely populated areas where water supplies show medium to high seasonal variability, such as the Sichuan and most other Chinese plays, may face significant regulatory and reputational risks if water-intensive work is conducted "irresponsibly" during drier periods, the report said.

"We want to make sure that we're not competing with fresh water resources," said Cal Cooper, director of special projects and emerging technologies at United States-based Apache Corp, an oil and gas exploration and production company.

Cooper, who worked in China years ago, said that Chinese scientists are very aware of the different types of water that are available in the western parts of the nation.

China has the world's largest technically recoverable shale gas resources and the third-largest technically recoverable tight oil resources. In its 12th Five-Year Plan (2011-15), China set a goal of producing 6.5 billion cubic meters of shale gas by the final year of the plan.

Sarah Forbes, a senior associate at the WRI, said earlier that fracking that volume of shale gas would require 13.8 bcm of water. By comparison, the entire Chinese industrial sector uses about 35 bcm of water a year.

China produced 200 million cubic meters of shale gas in 2013, nearly eight times the 2012 output.

Xu Xinxiong, director of the National Energy Administration, told reporters last month that China's shale gas target for 2020 would be 30 bcm, about half of the 60 bcm to 80 bcm target for that year set in 2012.