By Vasili
Nicoletopoulos
China is already the world’s largest energy consumer and
that thirst for power is only going to continue to grow.
Energy consumption increased by
136% between 2001 and 2011, driven by average growth in GDP of
10.5%/year between 2007 and 2011.
This has lead to a quest for new
energy sources and a search for domestic options that would be
both cheaper than current imports and reduce the country’s
reliance on outside sources. Its energy basket is now based
predominantly on fossil fuels, with 66% of China’s gross
domestic energy consumption in 2011 provided by
‘dirty’ coal. The move now is towards developing its
shale oil and gas potential. In turn, this will rapidly
increase demand for proppants (eg silica sand, bauxite and
kaolin) required in hydraulic fracturing (fracking).
Natural gas
China became a net natural gas
importer in 2007 and imports have gradually increased since
then. China imported approximately 17bn cubic metres (bcm) of
natural gas in 2010, with around 12.7 bcm in the form of
liquefied natural gas (LNG) and 4.4 bcm through a pipeline from
Turkmenistan. This accounted for around 16% of total gas
consumption in China in that year.
Chinese gas imports in 2011 are
estimated to have increased to around 31 bcm compared with a
total demand of 130 bcm. China’s LNG imports have
increased to around 16.6 bcm, 31% higher than 2010. Almost 30%
of the total LNG imports came from Australia, with Qatar,
Indonesia and Malaysia supplying some 19%, 16% and 13% of the
total LNG imports, respectively.
In June 2012, natural gas imports
in China increased by 58% compared with 2011 to reach 7.27m
tonnes, with natural gas consumption increasing by around
15%/year since 2000.
Natural gas comprises about 4% of
China’s gross domestic consumption, but its 12th five-year
plan (see below) put a target of an 8%-share of
natural gas in the overall energy mix to be achieved 2016.
Although growth of 4 percentage points by 2016 may appear
small, an increase of just 1 percentage point in China’s
consumption equates to about 25 bcm/per year (see Figure
1).
Oil
A recent International Energy
Agency (IEA) report revealed that China, which consumed around
4.7m barrels of oil/day as recently as decade ago, would end
the year 2012 by importing about 9.7m barrels per day, a major
factor in pushing global oil prices from around $30/barrel in
2000 to 2012 prices ranging between $80 and $110. In fact in
December 2012 China overtook the US as the world’s largest
net importer of oil.
A US Energy Information
Administration report on China released in September 2012 and
based on Oil & Gas Journal estimates, provides the
following estimates on proven oil reserves: “20.4bn
barrels as of January 2012, up over 4bn barrels from three
years ago and the highest in the Asia-Pacific region.
China’s largest and oldest oil fields are located in the
northeast region of the country.”
China’s oil imports have
surged with sustained demand growth. The country has been a net
oil importer since 1993 and a net crude oil importer since
1996. According to the General Administration of Customs of
China, in 2010 imports were 4.7m barrels per day (bpd) [236mt]
of crude oil, accounting for around 53.8% of total demand.
China Oil, Gas & Petrochemicals
reported imports of more than 5m bpd in 2011, highly dependent
on the Middle East, which accounted for more than 50% of the
total crude oil imports in 2011, followed by Africa with around
24%. By country, Saudi Arabia (20% of the total) was the
biggest import source of crude oil in 2011, followed by Angola
(12), Iran (11), Oman (7), Russia (7), Sudan (5) and Iraq (5).
China’s oil imports were set to reach 500mt in 2012, a
5%-increase from 2011. Crude imports now outweigh domestic
supply, and account for more than half of total oil consumption
in 2011.
Infrastructure: today and tomorrow
China’s existing gas and oil
infrastructure in terms of fields, pipelines, terminals and
storage sites are shown in map 1 and map
2.
China is characterised by an
inadequate infrastructure. Its fragmented pipeline, pressing
and storage facilities are not currently able to handle the
volume suggested by its reserves. Typically, oil companies must
construct new roads, bridges and other infrastructure for
large-scale drilling operations.
As a comparison, the US has more
than 210 natural gas pipelines stretching across 300,000 miles
and reaching almost every major market in the country, while
China had just 22,400 miles in 2010, and this is expected to be
increased to only 62,100 miles by 2015.
Aside from the dearth of pipelines
and mid-to-downstream infrastructure, other weaknesses also
include a lack of storage capabilities and a non-market driven
pricing scheme, which discourages the high level of investment
necessary to achieve shale gas extraction.
Indeed, energy producers in China
often end up squeezed between government-capped prices on the
market and varying production costs, which, in effect,
subsidise consumers.
Furthermore, China’s relative
lack of progress in this area so far means that certain
geological factors - such as more difficult to exploit deposits
or lack of water required for extraction - remain less known.
Of course, with heavy state- owned enterprise influence in the
sector, as well as an abundance of cheap credit, not all of
these problems are necessarily insurmountable.
For example, China has constructed
the 4,200km west-to-east pipeline to carry gas from Xinjiang
Province in the west to Shanghai, opened the TransAsian
pipeline in 2009 to bring gas from Turkmenistan to China, and
brought four LNG-receiving terminals online, allowing LNG to
meet some 10% of Chinese gas demand. Other LNG-receiving
terminals are also under construction.
The main way to encouraging
expanded production and the use of natural gas is through
government-set targets and mandates, which state-run companies,
with some participation from private companies, then follow up
with investments and projects.
The future of Chinese gas: production, consumption,
imports
China’s natural gas
consumption is expected to reach 165 bcm in 2013, up 11.9%
year-on-year (y-o-y), according to a research institute
affiliated with China National Petroleum Corp. In the longer
term, Wood Mackenzie Ltd predicts that China’s natural-gas
consumption will increase fourfold by 2030 to 600 bcm per year,
accounting for 30% of the global growth in gas, but the
nation’s ‘ambitious’ target for 2020 may be
delayed by the need for better understanding of its shale
formations and insufficient technical know-how, supply-chain
services and infrastructure.
Imports of gas by China could also
be difficult. By 2025, in addition to increasing its own
production of shale gas, China is expected to be receiving gas
from Central Asia and Myanmar (Burma) and LNG from Australia,
while there is also the interesting prospect of a market for
Russian gas in China.
China’s 2020 gas production
target, issued jointly by the National Development and Reform
Commission (NDRC), Ministry of Finance, Ministry of Land
Resources and the National Energy Administration stands at
60-100 bcm (2.12-3.53 trillion cubic feet) per year and would
be equivalent to the entire volume of natural gas the country
produces today.
China’s shale gas resources
This all leaves little doubt as to
the need for development of a Chinese low-cost fuel, such as
that derived from shale, with less environmental impact than
coal. However, China’s shale reserves could be twice as
deep as those in the US and are located far below mountainous
terrain, meaning that however keen China might be to develop
its massive shale reserves, there will be challenges regarding
the technology and infrastructure to make hydraulic fracturing
a real way forward for the country.
Apart from coalbed methane, which
is estimated to be 1,306.64 trillion cubic feet, there is no
consensus on the amount of unconventional gas resources in
China, and the estimates on the amount of shale gas resources
vary considerably (see table 2)
China has two large sedimentary
basins that contain thick, organic-rich shales with excellent
potential for shale gas development. These two basins, the
Sichuan and the Tarim, contain marine-deposited shales with
potentially favourable reservoir quality, including prospective
thickness, depth, TOC, thermal maturity and brittle
mineralogical composition. In addition, China has five
sizeable, but less prospective, shale gas basins with
non-marine shales.
The Tarim basin, in the west, is
also rich in shale gas and is estimated to have about 389
trillion cubic feet. Onshore shale gas is mainly in the Bohai
Bay, Junggar, Tuha, Ordos and Quaidam basins and covers an
approximate area of 25,000km2. In northern China,
sea-land shale gas covers about 15,000km. But the biggest
reserves lie under Chinese waters, about 75,000km in southern,
northern and the Tarim basin.
Shale gas production scenario
China’s Ministry of Land and
Resources’ hydrocarbon research arm is forecasting shale
gas production in China to reach 6.5 bcm (229.55 bcf) per year
by 2015, which is equivalent to 6.4% of China’s total gas
production today.
Estimates for the future of
unconventional gas in China have also been presented by the
IEA. In what the agency calls ‘the Golden Rules’
scenario, “unconventional gas production is projected to
jump from 12 bcm in 2010 to over 110 bcm in 2020 and 390 bcm in
2035, while total gas production will rise from under 100 bcm
in 2010 to nearly 475 bcm in 2035. Unconventional gas will
account for 83% of total gas production by the end of the
projection period. Unconventional gas production in 2035 will
be predominately from shale gas (56%) and coalbed methane
(38%); tight gas (6%) will take a smaller share”.
Public
policy/legislation
Chinese legislation tends to be
comprehensive and far-reaching. In the case of shale, this is
fully justified as policy-makers should deal with a web of
issues including not only supply and demand, but also resource
management and environmental protection, import substitution,
technology and R&D, infrastructure, health and safety,
education and training, fiscal aspects and, finally,
geopolitics.
China issued its 12th Five-Year
Plan (2011-2015) in 2011 and in 2012, its shale and other
unconventional gas strategy covering the same period. The plan
established four ambitious milestones, including completion of
a nationwide shale gas survey and appraisal; a goal of 6.5 bcm
of shale gas production by 2015, equivalent to 2-3% of
projected 2015 Chinese gas production, and more than 60 bcm of
shale gas production by 2020; development of suitable methods,
technologies and equipment for China’s shale gas survey,
appraisal, exploration and production; and establishment of
technical standards, rules and policies regulating China’s
shale gas development, including reserve survey, appraisal and
certification, test and analysis, exploration and production
and environmental measurements.
The new blueprint emphasised the
need for foreign co-operation to develop shale-gas
technologies, and companies including ConocoPhillips, Chevron
Corp. and Royal Dutch Shell and BP are now involved in
shale-gas exploration joint ventures in China.
The plan also stated that
competition within the shale-gas sector would be encouraged and
market entry conditions would be clearly defined for companies
wishing to work in shale gas - these companies will also be
encouraged to work with foreign partners. The plan also
promised supportive financial policies and subsidies for shale
gas, including price subsidies, preferential tax treatment and
land subsidies, and placed an emphasis on R&D for
technology, exploration, and development of shale gas for the
13th Five-Year Plan (2016-2020). The Chinese government also
provides a subsidy of 0.4 yuan ($0.064*) per cubic meter for
shale gas, compared with 0.2 yuan ($0.032) for coal gas. This
reflects the difficulty in extracting shale gas and aims to
encourage private investment in the sector.
However, it remains to be seen
whether the new presidency of President Xi Jinping will cause
major policy changes for the shale gas industry.
In the field of education and
training, there has been an increase in the numbers of
government-sponsored Chinese graduate students who make
themselves available as research and teaching assistants on a
gratis basis to professors in US universities, especially the
top three institutions in shale gas, the University of
Oklahoma, Stanford University and Texas A&M. The aim here
is to develop a pool of Chinese scholars with academic and
technical experience in shale gas and other petroleum
engineering technologies. Chinese oil and gas companies are
also sending ‘industry interns’ to various US
companies.
Strategic policy decisions in China
are made nationally, with implementation and enforcement
responsibilities often delegated to local authorities. Many
aspects of China’s legal and regulatory framework for oil
and gas development are broadly defined, giving local
regulators the freedom to consider project-specific
circumstances in their decisions, although this can also lead
to unpredictable outcomes. Challenges arise from the
fragmentation and overlap of responsibilities among various
regulating entities, uncertainty about effective co-ordination
between them and potentially inconsistent enforcement of
regulations.
To understand which policies will
most likely impact shale gas, it is important to look at the
policies currently in place for other non-traditional
extractive industries, such as coal-based methane. If shale
were to be controlled under the same policies, companies
operating in China’s shale gas industries could
potentially take advantage of its status as an
‘independent mineral’ (approved 31 December 2011), as
it opens shale exploration to more participants. Independent
mineral status encourages the exploration of shale gas by
foreign companies and induces competition via certain tax and
administrative benefits.
The central government tightly
controls shale gas blocks by organising auctions or granting
exploration rights. Auctions held in 2011 and 2012 will be
discussed below.
Recent exploration
activities
Gas exploration has intensified in
recent years under a government-driven programme to evaluate
the resource base. Results from several pilot projects, due to
be completed in 2012, were expected to inform the selection of
high- potential areas for further exploration. As of early
2012, an estimated 20 shale gas wells had been drilled by
Chinese companies. Petro-China, producing nearly 80% of
China’s total gas output, completed drilling China’s
first horizontal shale gas well in late March 2011 in Sichuan
province. Following the December 2010 drilling of a vertical
shale gas test well in Yuanba, about 500km from Sichuan
province capital Chengdu, Sinopec drilled its first horizontal
shale gas well in mid-2011 in Fuling, not far from Yuanba and
in the same prolific geological Sichuan Basin.
The Chinese government has also
started modifying its own laws to encourage foreign shale gas
E&P companies to partner Chinese companies or even drill
independently. As a result, there have been many cooperative
projects, such as the US and China joint shale gas initiative
in 2009, PetroChina’s entering a long-term partnership
with BP in July 2010, Statoil negotiating with Shenhua
Geological Exploration to jointly develop shale gas projects,
and Chevron and ConocoPhillips engagements in Chinese shale gas
joint ventures. China Petroleum Corp., having already found
shale gas at 20 sites, has launched a joint venture with
Chevron. ExxonMobil, BP, and France-based Total are also
working to form shale gas partnerships with Chinese oil and gas
companies, while Australia-based Leyshon acquired the right to
explore for unconventional gas in the Ordos Basin in Shanxi
province, central China.
Shell is set to produce more
natural gas than crude oil worldwide in 2012 and is already the
world’s largest supplier of liquefied natural gas. It is
in the early stages of exploration and appraisal of deposits in
China, although it does not yet have an estimate of the
production potential from the fields. The company has been
developing shale projects in China for the past two years, and
describes the potential as ‘very powerful’. It has
shale gas agreements with all three main oil companies, and
signed its first production-sharing contract for shale gas with
China National Petroleum Corporation in March 2012.
Auctions for Chinese
shale
The auction barriers are still high
as entities had to be either Chinese companies or Chinese-held
joint-venture companies. Making the process more unequal, there
was also a clear absence of bids from China’s top oil and
natural gas companies from the 152 bids received as their vote
would have proven redundant as they already have rights to
exploration on certain blocks. Further complicating conditions
are the minimum value the company needs to have ($48m) and the
minimum they are required to invest in the blocks for the next
three years.
A first tender for four blocks of
shale gas exploration acreage in the Sichuan Basin was held in
June 2011, with participation limited to six eligible
state-controlled companies - PetroChina, China National
Offshore Oil Corp., Sinopec, Shaanxi Yanchang Petroleum, China
United Coal Bed Methane and Henan Provincial Coal Seam Gas
Development & Utilization, with just two blocks being
awarded. Sinopec won the Nanchuan block in Guizhou, while Henan
Provincial was awarded the Xiushan block near Chongqing
city.
A second shale gas auction was
launched in October 2012, opening the bidding to
Chinese-controlled joint ventures and private companies for 20
blocks over a total area of 20,002km2. Some 19 of
the 20 blocks received at least three bids, the minimum
required for a block’s auction to proceed. A block, which
received only two bids, was removed from the auction. To
encourage mining enterprises, winners in this bidding could
expand the scope of their exploration to adjacent areas, should
they achieve breakthroughs in their exploration.
The ministry announced the top
three bidders for each block in early December, most of which
were companies with no oil and gas experience. PetroChina was
shortlisted for the Sangzhi block in Hunan province, but lost
out to China Coal Geology Engineering Co.
The 19 blocks were eventually
awarding to 16 domestic companies, comprising six state-owned
enterprises, eight local government and two privately-owned
companies. Coal and power companies won eight blocks. The total
investment for all 19 blocks around central China in Henan,
Hubei, Hunan, Guizhou, Jiangxi and Zhejiang provinces, as well
as in the Chongqing area, was expected to be Yuan 12.8bn
($2.06bn) within the first three years of exploration.
Shenhua Energy Co Ltd, the
country’s largest coal producer, won the auction of a
shale gas block in southern China, the 1,189km2
Baojing Shale Gas Block in Hunan province and said it will
invest 874m yuan ($140.42m) in the exploration of the shale gas
block over three years, but it also cautioned against
investment risks.
Environmental and labour
issues
China’s economy runs on coal.
China produced 3.8bn tonnes of coal in 2011, almost half of the
world’s total. However, in environmental terms, 1 tonne of
coal produces up to 2.86 tonnes of carbon dioxide
(CO2), while shale gas emits around 45% less per
unit of energy and could therefore help China to reduce its
carbon footprint significantly. On balance, China’s policy
makers believe shale gas will be beneficial to the environment
and if shale gas production meets its 2015 targets, it would
result in annual (CO2) reductions of 14m tonnes, but
at the same time possibly reducing the motivation to cut energy
consumption.
Another consideration is that
China’s current over-reliance on coal means its cities are
now choked in smog. As there are no real alternatives, China
plans to double its coal power capacity by 2020.
However, the real worry for foreign
investors, and indeed local residents, is that the
country’s existing environmental legislation is not
equipped to effectively regulate the projected boom in
China’s unconventional energy sector.
On 28 March 2012, Wen Jiabao,
China’s premier, addressed the Communist party’s
annual congress to speak not on the potential of shale, but
more on the challenges the exploration and development of shale
gas presents.
For example, with 20% of the
world’s population, China only possesses 6% of global
water resources. Water scarcity is exacerbated by pollution
associated with the prolonged economic boom. As such, water
from around 20% of the seven rivers and basins and 35% of 26
main lakes monitored are essentially unusable for industrial
and agricultural purposes. Without strict and well enforced
regulation, China’s major fresh-water resources face
heightened risks of pollution due to the use of chemicals in
the fracking process. In other words, the potential for
contamination of existing water supplies - both aquifers and
above ground sources - is certainly a factor China must
consider in the context of already excessively polluted
water.
There are additional challenges
related to water usage in China, and fracking does appear to
compare well with other sources of energy generation. Some 97%
of China’s power relies on water, whether it is water for
cooling nuclear power stations, solar panel factories or
coal-washing steam turbines - and fracking is no exception.
A recent chemical spill in a river
at a Chinese fertiliser factory on 31 December 2012 affected at
least 28 villages and a small number of cities with populations
of more than 1m people, and provides another example of
environmental concerns in China.
Water scarcity is a further problem
as some of China’s largest untapped shale gas deposits are
in the arid western regions, where drillers could find
themselves competing with consumers for water.
Environmentalists are also
concerned about methane leaks during the extraction of natural
gas from shale formations. They claim this offsets at least a
portion of the climate gains made from reduced emissions of
(CO2) in the switch from coal to gas.
In terms of environmental
regulations, China’s control of land, water, and air are
varied and controlled by different ministries. The impact of
these policies will have to wait for a more firm classification
of shale gas by the government. Meanwhile, oil and gas
companies in China not only need to implement robust
environmental protection mechanisms, but are also advised to
actively engage with local communities at the earliest possible
stage in business planning to seek consensus and mitigate
risks, both financial and to their reputations.
In the area of labour, shale
development requires specialised personnel and this will be
initially supplied from abroad. Locally, and as with all
industries, any developments in shale should take into account
the increasing conflict between workers and management, which
is convincing Chinese authorities that the country’s
workers need more effective representation. The government has
pledged to increase minimum wages and force state-owned
companies to hand over more of their revenues to the public as
part of a push to tackle growing inequality.
It should be noted that Chinese
labour unions are nothing like their western peers. The
All-China Federation of Trade Unions, the country’s
official union, is run by the government and the Communist
party, and in turn controls the unions in individual companies.
Currently, the unions mostly offer workers training to raise
their technical skills. Labour experts believe the impact that
even democratically elected union representatives can have in
China is likely to remain very limited for some time. But as
progressive as the authorities appear to be in their efforts to
promote collective bargaining, labour specialists warn the
concept is not fully understood in China.
Geopolitics
Geopolitical issues regarding
energy concern exploiting disputed territories, reducing energy
dependence, strengthening military posture, mitigating trade
imbalances and acquiring foreign capital and technology on
favourable terms.
If the US shale revolution provides
energy independence from the Middle East, China will emerge as
a geopolitical loser, according to the German Federal
Intelligence Service (BND). As the IEA suggests that shale oil
could make the US the world’s top petroleum producer by
2020, this would likely prompt the US to scale back its
involvement with the Middle East. As the British Empire receded
from the Greater Middle East in the first half of the 20th
Century, so the US began to increase its involvement in the
region, and it may soon be China’s turn to do the same, as
an energy-independent US could mean trouble for the country as
it would have to absorb higher costs to secure supply routes
out of the Middle East.
This may still be turned on its
head as significant shale oil discoveries in Australia could
decrease China’s need for Middle Eastern petroleum. For
now, at least, one of the heaviest superpower burdens -
securing energy from high-risk areas - seems to be shifting
eastward.
While China and India have become
major export partners for Australian LNG, supplementing
existing demand for the Australian commodity from Japan and
South Korea, Australia’s LNG industry is beginning to
believe that a growing shale gas industry in China could
threaten the Asian countries’ appetite for LNG.
The US is using its restrictions on
exports of LNG. Tokyo Electric Power Co, the operator of
Fukushima, plans to buy gas from an LNG terminal in Louisiana,
US, raising expectations that Japan will tap into the US shale
gas boom, with the LNG price linked to the Henry Hub benchmark
- at about $3.30 per million metric BTU. Tokyo is currently
lobbying for changes in US export restrictions to mitigate
soaring energy costs after 2011’s nuclear disaster closed
reactors and, in the meantime, Japanese trading houses and
energy companies are seeking access to LNG from Canada and
elsewhere.
In the EU, shale gas coupled with
LNG has become an increasingly important source, not only
reducing the pricing power of Russia, but also providing a
supply alternative to currently monopolised markets. As
Russia’s market share of gas supplies appears to be
decreasing, Moscow had to agree to EU price reduction demands,
while continuing to haggle with China over gas prices. In this
respect, access to LNG supplies and possible reserves of shale
gas may provide Beijing with greater negotiating leeway, even
if Russia’s vast territory and significant reserves of
hydrocarbon resources ensure that it remains an important
energy supplier.
Such factors explain why the
Chinese government encourages foreign investment to engage in
the exploration and development of oil, natural gas and
unconventional oil and gas resources, such as shale gas and
coal-bed gas. It is doing this via cooperation and by inviting
foreign investment in the building of new-energy power
stations, hydroelectric power stations, clean-combustion power
stations and nuclear power stations - as long as the Chinese
partners maintain control. It is also supporting multinational
energy corporations seeking to establish R&D centres in
China.
The military posture of China could
be also affected by unconventional oil and gas supplies.
Beijing cannot hope to cover its rising energy demand with help
of unconventional sources any time soon. In any case, China is
focused on backing up its territorial claims in the South and
East China Seas with rapid expansion of military power. And,
despite talk in Beijing about the need to secure shipping
lanes, the capabilities of the People’s Liberation
Army-Navy in this regard remain underdeveloped. Thus, US
withdrawal from the region would be as worrying for Beijing as
it would be for Washington’s allies.
The US has many reasons to stay
involved in the Middle East, whereas China is focusing on
claims in its vicinity for now. Beijing may, in time, have more
of a vested interest in guaranteeing maritime security,
especially as it develops its raw materials interests in
Africa. But depending on how political relations evolve, an
agreement with the US might also be in the cards. This,
however, seems a long way off from today’s situation.
Another consideration is
China’s trade imbalances. Although China runs a very
positive overall trade balance, the opposite is true for
hydrocarbons. Beijing would therefore welcome a new and
competitive source of domestic energy that will allow it to
further improve its balance of payments and, as a result,
augment its cash pile.
Technology presents a further
hurdle as China’s complicated geology, its deep and
earthquake-prone reserves, scarce water resources and lack of
foreign participation, are barriers to the mass
commercialisation of shale gas, even though drilling an
exploration well costs only about a third when compared with,
for example, Eagle Ford, Texas, according to Leyshon Resources
Ltd.
To address these difficulties,
China has agreed to the US-China Shale Gas Resource Initiative
to promote shale gas investment in China through a US-China oil
and gas industry forum, study tours and workshops focused on
shale gas development.
Chinese shale projects abroad are
another vehicle for China to acquire much-needed knowhow. Its
oil majors had spent $6bn in acquiring shale gas projects in
North America, working with local operators such as Chesapeake
and Devon Energy, even before CNOOC’s bid for
Canada’s Nexen. China’s Lanzhou Haimo Technologies
also announced in October 2012 that it will buy a 14.29%-stake
in Houston-based Carrizo Oil & Gas’s Niobrara shale
oil and gas assets in Colorado for $27.5m, including 6,000
acres of territory located primarily in Colorado’s Weld
and Adams counties and associated infrastructure, including oil
and gas wells.
Technologies such as waterless
fracking, a new technology that enables reuse of produced
water, would also be of interest to China due to the scarcity
of and possible damage to its waters.
Chinese ceramic proppants tend to
have a much lower crush resistance due to flaws in the proppant
beads. The main issue is the amount fines generated when the
proppant is crushed by the fracture, although manufacturing
processes are improving. Conversely, US ceramic proppants can
be used in all wells, but thrive in high-pressure wells, such
as those in the relatively deeper Haynesville shale, where raw
frac sand is ineffective. A rule of thumb is that if the well
pressure is greater than 5,000 psi then ceramics are more
appropriate.
In a broader context, technology as
a tool to strengthen the country’s geopolitical situation
should encompass not only shale oil, but also oil sand and
other non-conventional oil and gas resources. The
transformation of the energy development mode and upgrading of
the energy industry will also require more support in funding,
technology and policy to launch major demonstration projects in
such fields as large pressurised-water reactors,
high-temperature gas-cooled reactors, development and
utilisation of coal-bed gas, exploration and development of
shale gas, coal exploration and processing, development and
utilisation of coal-bed gas, energy storage and smart power
grids and advanced nuclear reactors, thus promoting the
application of technological and scientific research
achievements in production.
It is certain that the Chinese
government will continue to support large enterprises, R&D
institutes, colleges and universities to set up national
innovation platforms that can conduct R&D along these
lines.
*Calculated March 2013
This article is an offshoot of ‘Hydraulic
Fracturing and the Growth of Shale Gas and Shale Oil
Internationally’, a comprehensive study in CD form,
available from Natural Resources GP
www.naturalresources.gr
Many thanks should be given to
Ms. Maria Kalaitzaki.
By the same author: Fracking in Europe: the potential
and the pitfalls, V.Nicoletopoulos, Natural Resources GP, IM
Nov ‘12, and Fracking for Shale Gas & Shale Oil
Worldwide, presented at the 2nd Tunisia Oil & Gas Summit,
Hammamet, Tunisia, September 22, 2012.