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Uphill struggle predicted for shale developments in China By Ed Reed North America’s shale gas revolution has triggered excitement around the world from countries hoping to emulate this success story, with China tipped as having even greater amounts of the resource. However, the “perfect storm” of factors that drove development in the US and Canada have not been seen anywhere else in the world and it is unlikely that China will be able to make as rapid progress. Beijing is going to have “some big challenges” replicating the success seen in the US, Breitling Oil and Gas’ president and CEO, Chris Faulkner, told ChinaOil by telephone last week. The company is interested in working on projects in the country, from where Faulkner was speaking. “Do I think that [China’s] technically recoverable reserves are bigger than the US’? Probably. Do I think [China is] going to have anywhere near the success in the amount of time that [the US has] had? Absolutely not,” he said, going on to point out a number of obstacles that Beijing faces. One of the challenges is that “most of the country’s key deposits lie roughly 6,000 metres below the surface. That’s probably on average two and a half to three times deeper than the deposits in the US.” Assuming the need to drill another 2,500-3,000 metres horizontally, the total measured depth for a well may be around 29,500 feet (9,000 metres). “The problem with that [depth] is that there are not very many land-based rigs that can drill that deep.” The cost of drilling a well this depth would be around US$30 million, or three times the price of such work in the US. Assuming a rig would take four months to drill a 29,500-foot (8,992-metre) well, it would only be capable of drilling three wells per year. “Money’s no object for China but the problem is that the scale is so big and [the Chinese are] trying to get where the US is in a very short time.” In addition to being at greater depths than in the US, the Chinese shales are “not marine and so are very high in clay. This means they’re not as brittle as the shales that we have in the US and so will be as easy to fracture. How is the fracture going to take to the rock, how does the rock respond – is it even going to respond?” The logs that Faulkner has seen, he said, suggest the “geology isn’t going to respond like it did in North America. There’s going to be a big learning curve [in China].” Although the US is leading the world in terms of shale developments, the industry is still at a very early stage. For instance, Breitling is still adjusting each well drilled in Texas’ Eagle Ford shale as it gathers more information.
The US approach to shale gas was possible because of the country’s unique combination of factors. “We drill lots of holes in the ground and there are lots of rigs running in the US,” the official said. In order to sustain output in the face of high decline rates, as has been seen in the US, firms must keep up a high pace of drilling. “In the US, right now, to maintain output – not to increase it, not to allow it to decrease – it takes about 900 rigs running continually to keep the production flat.” China “doesn’t have the technology, the horsepower or the key personnel.” Service companies will move to wherever the business is, Faulkner said, but this will be driven by commercial reasoning. The rig builders “don’t just put out unlimited horsepower, they don’t have the time to do so, they’re building these rigs as fast as they can and they’re going to put those rigs wherever the business is. Right now, that’s in the US.” The scale of competition in North America, both in terms of operators and service companies, has been a key driver, Faulkner continued. The region’s small independent companies are willing to take risks and “go out there and discover these new basins and these new technologies and this new way of doing things.” On the other hand, firms working in China are required to form joint ventures with local players, which serves as another limiting factor on development. “[The joint venture requirement is] going to slow things down tremendously.” Another limit is the lack of midstream infrastructure. The US has an extensive pipeline network – stemming from the country’s long history of energy production. Thus early production can be easily fed into nearby links, allowing companies to save money rather than having to invest in the construction of new lines.
The Breitling official was sceptical about the country’s ability to meet its hoped-for shale gas output targets, much as its coal-bed methane (CBM) targets have been missed. China set CBM goals but could not meet them, Faulkner said, “and I think there are far more challenges to shale than there were for CBM,” with the former resource lying much deeper than the latter. In 2011, the country drilled only 50 shale wells, while there were “50 shale wells drilled last month in the US.” Beijing, in its 11th Five-Year Plan, set a production target of 177 billion cubic feet (5.01 billion cubic metres) from subsurface wells for 2010. That target was missed, however, with subsurface output standing at around 53 bcf (1.5 bcm). Now China has set a goal of reaching 60-100 billion cubic metres per year of shale gas production by 2020 but Faulkner predicted the country was “at least a decade away” from significant production. “I think by 2025, China may achieve 30% of that number.” In order to reach the desired production of 60 bcm per year, Faulkner said – using the US as a model – China would need to drill “5,000-10,000 wells – or maybe even more than 10,000. I don’t see that happening in the next eight years.” “Because of the decline curve of these wells, the initial production figures will … come off a heavy slope, like a rollercoaster, so about 70% of the production is lost in the first three years and then it levels out,” a problem common to shale wells. Therefore, more wells must be drilled to compensate for the high decline curves. China – and India – also faces the problem of water scarcity, Faulkner said. “How are we going to use 4 million gallons [15 million litres] of water to fracture a single well when [some people] don’t even have access to clean water to drink? That’s a huge challenge.” The Breitling official went on to note the Sichuan Basin had substantial shale deposits, but that its population is large and water was scarce. Propane can be used in fracking, instead of water, but this is still in its early days of development.
Faulkner picked out three countries, outside North America, as the most appealing for new investments: Poland, the UK and China, in that order. Poland “has the most to gain” from a new source of gas, while the UK has “big promise.” China “definitely has the domestic market for [shale gas development] but I think there are huge challenges.” Overall, Faulkner took a cautious stance on the chances of replicating the successes of the US in the rest of the world. “We’re going to have to get better at [shale gas development] before it’s really going to impact energy markets around the world.”
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Previously...
Turkey, Israel rapprochement could redefine region's energy map Turkmen oil sector aims high Putin defends Russia's unconventional gas stance Alaska seeks increased oil production through tax break Australia suffers for now Overcoming hurdles: Iraq’s oil renaissance Challenges abound for methane hydrate development Chinese upstream efforts in Afghanistan ready to bear fruit Deciphering the global ethanol market PDVSA and the post-Chavez era Europe pins hopes on opening Southern Gas Corridor Bulgarian power politics bring down government Israel ahoy: first gas starts flowing through the pipes Europe's evolving gas markets and the Russia-Ukraine dispute Brazil prepares to join the shale revolution Shell review fuels debate over Arctic drilling LNG momentum steps up in Mozambique EU gaining interest in the Eastern Med, says commissioner Japanese refineries look overseas for investment opportunities Water shortage could drown China's shale gas hopes Off the human footprint Debt mountain casts shadow over PDVSA production plan Uganda: Deadlock, delays and dishonesty Mixed messages for Australian coal LNG supply landscape fogged by US uncertainties, says BG EU sanctions on Iranian gas exports will have limited impact Gazprom-EU standoff turns political Brazilian shale potential struggles to emerge Saskatchewan pushes to drive up output Libyan insecurity spills into terrorism Australia's LNG sector set for a slow-down post 2020 Trans-Pacific Partnership meets to focus on rules for SOEs The future for Polish renewables Argentina's unconventional conundrum BP's Mediterranean assets hold out hope Asian market gloom Poland's bittersweet victory in the battle for CO2 permits UK report gives 'green light' for shale gas development Saskatchewan pipeline safety in the spotlight Alberta aims for GHG reduction despite oil sands boom Middle East petchem industry faces North American competition An uncertain road ahead for Nabucco PTTEP pips Shell in Cove Energy bid Uphill struggle predicted for shale developments in China Support sought to prevent UK offshore wind blowing off course Brazil shelves shale plans to focus on subsalt Insecurity in the Sahel Uncertain signals from Indonesia South Korean shipyards buoyed by LNG vessel orders Russia loses out to Chinese influence in Mongolia Qatar, Kuwait worst-placed for Strait of Hormuz closure Capstone Turbines helping to boost associated gas utilisation in Russia Canada maintains unconventional exploration push Warrego sees shale promise in Western Australia Sluggish EUA market now wants to see details of setting aside Harvesting Ghana's hydrocarbon wealth presents opportunities Falklands oil push exposes Argentine energy misfortunes India faces Farsi ultimatum China's North American investment spree continues with BC deal Renewables deal flow to grow Colombia's 2012 growth prospects belie trouble Goodnight, and Goodluck: Nigeria's fuel price struggle The Sino-US trade conundrum Saudi awaits accurate estimate of unconventional gas resources Venezuelan opposition sets out intentions 20WPC - showcasing Qatar, GTL Russia facing challenges in gas talks with China |
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