beyondbrics

By Leslie Hook in Hong Kong

A push by China to exploit its domestic energy resources, especially gas shale reserves, could lead to the country importing less gas from abroad in coming decades.

But the strategy will be anything but self-sufficient. It will depend crucially on engaging foreign companies to share costs, risks and technology.

A report from Wood Mackenzie this week predicted that unconventional gas, including shale gas, coal seam gas, and coal bed methane, could be a quarter of China’s gas supply by 2030.

Chinese majors will lead the way. Sinopec aims to produce 2.5bn cubic meters of unconventional gas annually in 2015. Officials at CNPC, China’s largest oil and gas producer, have said they hope to produce 500m cubic meters of shale gas by 2015 – up from no shale production today.

But experts say they will need foreign support and know-how to develop unconventional gas assets, including coal bed methane as well as shale gas.

Last month CNPC signed a memorandum with Encana, a Canadian firm known for its shale assets, that could lead to a shale gas joint venture. And PetroChina’s and Shell’s joint takeover of Arrow energy will give the Chinese company access to Arrow’s coal seam gas expertise.

There’s also an opening for foreign firms to engage in exploration for unconventionals in China. Several foreign companies are already active in the sector, though major commercial successes have so far been few.

Shell has a coal-bed methane project under exploration in Ordos, as well as a joint venture with PetroChina to develop shale gas in Sichuan province. BP is working with PetroChina to assess coal bed methane potential in western Xinjiang province. And Far East Energy, a Houston-based firm, has just signed a gas sales contract for a coal bed methane project in Shanxi province.

Foreign expertise is not surplus to China’s requirements just yet.

Related reading:
China’s gas growth to hit western groups, FT
If China is open, why is it rejecting business travellers?, beyondbrics