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China's soaring natural gas output unable to meet demand set loose in pollution fight

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Reuters are reporting that China’s natural gas production is rising at the fastest pace in four years but that will not be enough to meet the demand for the fuel that has been unleashed through a government program to raise gas usage in order to clean the country’s polluted air.

Gas output in China rose to a record 147.4 billion m3 last year, up 8.5% from 2016. Gas production is forecast to climb by between 6% to 8% per year through 2020.

But China’s war against smog has spawned voracious demand for the fuel that will keep it reliant on growing imports of LNG or piped gas. The consumption surge is a result of a government drive that started last year to switch factories and millions of homes from coal to gas in order to cut harmful emissions.

China, the world’s largest energy consumer, was the world’s sixth-largest gas producer in 2016 after rising investments over the past 20 years. However, consumption is surging even faster, climbing 15% in 2017 to 237 billion m3.

SIA expects China’s 2018 gas output to rise by around 8%, or roughly 12 billion m, at the same time that gas demand will rise by 30 billion m, or 12.5%, to 270 billion m.

That means that China in 2018 will need to import as much as 114 billion m of gas through pipelines and LNG combined. China’s gas imports last year surged by 28%.

The trend of rising imports will continue, with SIA forecasting imports of 132 billion m will be required to meet 317 billion m of demand by 2020.

China should be able to produce more than enough natural gas to meet its own needs.

China holds the world’s largest reserves of shale natural gas, according the US Energy Information Administration. However, much of that gas is considered recoverable only if cost were not a constraint.

Furthermore, the country is among the top ten holders of proven natural gas reserves, gas that could be produced at current prices, at 5.4 trillion m3.

Together, China’s three biggest gas basins, the Ordos in northern China, the Tarim in the Xinjiang region in the west, and Sichuan in the southwest, make up 90% of the country’s output. But each of them are beset with geological or technological difficulties.

State-owned PetroChina boosted production at the Ordos’ Changqing field to 36.9 billion m3 last year but only after drilling over 2000 new wells. Output there peaked at 37 billion m3 in 2013.

Problems at the Tarim basin, which is the biggest of the three, stem from the depth of the wells and a lack of water for drilling operations and crews.

Tarim’s deepest field is 8 km below the surface. Considered too dry for permanent habitation, fresh water is trucked to the wells in the region.

In Sichuan, the gas produced from wells in the area, including Sinopec’s Puguang field and the Luojiazhai block where Chevron has invested, contains high amounts of sulphur that must be stripped out before being sold.

The shale resources are also considered costly and are hamstrung by mountainous geology, water scarcity and high land costs.

One promising shale field is at Fuling southwest of the city of Chongqing. Sinopec plans to raise output there to 10 billion m3 by 2020, up from 6 billion m3 last year. But the company struggles to break even there.

These problems will limit shale’s contributions in the short term.

SIA Energy forecasts shale output will be just 15 billion m3 by 2020, less than one-tenth of China’s total production.

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