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Chinese shale gas falling short

LNG Industry,

Wood Mackenzie have released a report at the World Gas Conference (WGC) which underlines China’s continued energy vulnerability and lack of domestic production.

Although the industry has been focused on China’s shale gas developments, this is a long-term story and while substantial, will not satisfy China’s demand. Instead the focus will also need to be on China’s import options to meet rapidly increasing demand which is expected to quadruple by 2030. This presents opportunities for pipe suppliers in Central Asia and Russia in addition to LNG suppliers, including, potentially from North America. Meanwhile, Coal-to-gas (CTG) will play the dominant role in near-term domestic supply.

China’s domestic shale gas will be a major boost to supply growth, producing approximately 150 billion m3/yr by 2030, largely accounted for by the Sichuan and Tarim basin production. However, shale gas growth will only accelerate after 2020, staying under 30 billion m3 before then. Meanwhile, China’s gas demand will increase from just over 150 billion m3 to more than 600 billion m3 from now to 2030. China will make up almost 30% of global incremental gas demand growth within the timeframe.

Coal-to-Gas projects and coalbed methane (CBM) will each deliver more output into the Chinese gas market than shale right up to 2024. By 2020, we see CTG and CBM producing 27 billion m3 and 17 billion m3 respectively against only approximately 11 billion m3 of shale production. These sectors are therefore far more significant through the medium-term but are not receiving the appropriate level of attention outside of China.

Wood Mackenzie believes that shale production will be delayed due to a range of challenges. The key challenges are: a need for deeper geological understanding of China’s shale potential and know-how to exploit this; uncertainty of the NOC dominated landscape for efficient allocation of capital where a dramatic increase in capital spend is required; lack of supply chain services and infrastructure; complicated issues around land access; and environmental plus regulation challenges.

Wood Mackenzie says that China will therefore require new imported LNG and pipe supply in addition to growth in domestic conventional and unconventional gas supply. This creates opportunities for suppliers looking for a Pacific markets, such as Turkmenistan and Russia.

Long-term LNG demand in China will accelerate, requiring an additional 33 billion m3 by 2020 and 50 billion m3 by 2030. As a result, Chinese buyers are likely to show interest in multiple LNG projects.

Adapted from press release by Peter Farrell.

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