Major Challenges Remain For Shale Exploration in China

by Trefis Team
Schlumberger Limited
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According to EIA estimates, China sits on the world’s largest deposits of shale gas. However, despite the government’s plans to develop the sector by inviting private participants, significant technical and regulatory problems exist in the development of shale resources in the country. The state’s heavily regulated energy sector presents many hurdles to private investors looking to invest in prospects within the country. With state run oil and gas giant PetroChina placing its priority on tight gas and coal seam gas over shale to target lower costs, [1] large scale shale gas exploration in the country could be delayed. Exploration of shale reserves in markets such as China could result in a significant upside for oilfield services firms such as Schlumberger (NYSE:SLB) and Halliburton (NYSE:HAL).

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Delayed exploration

The Chinese government has targeted 6.5 Billion Cubic Meters per day (BCM / day) of natural gas production from shale by 2015. [1] The country plans to then ramp up production to 10 times the level by 2020. Analysts have said that the government’s plans are unrealistic in face of the technical and regulatory challenges facing shale gas development. Most of China’s shale gas reserves are located far from existing markets and the pipeline infrastructure in the country is still underdeveloped. Even state producer PetroChina is presently targeting less costly unconventional sources of gas such as coal seam gas and tight gas. The company has said that it looks at shale gas as a long term prospect and would limit its forays in the field for the next few years.

Presently, many private players have shown interest in developing the country’s shale reserves, which are estimated to be 36.1 Trillion cubic meters (technically recoverable shale reserves). However, with a lack of infrastructure to store and transport gas and other technical challenges inhibiting growth, observers are calling for government incentives to catalyze activity in shale exploration.

According to some analysts, without government support, private players could show reluctance to participate in exploration. [1] A possible shale gas boom in China could boost the Asian rig count, which could result in higher revenues for oilfield services players like Schlumberger, which benefit from higher exploration activity.

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  1. China’s energy investment push only for the brave, Reuters [] [] []
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