CNPC Aims to Double Shale Gas Output in 2018
China National Petroleum Corp. (CNPC), the country’s largest state-owned oil and gas giant, is aggressively expanding its shale gas capacity under the national policy of exploiting shale reserves as a cleaner energy source to replace coal.
CNPC said it intends to double last year’s production to 5.6 billion cubic meters of shale gas in the southwestern Sichuan province in 2018. In 2017, shale gas production was about 3 billion cubic meters.
The company plans to drill more than 330 new wells in the Sichuan basin, 1.5 times of the number of wells CNPC is currently operating in the area, CNPC said. By 2020, CNPC plans to have more than 820 shale gas wells in operation, with a total annual capacity of 15 billion cubic meters.
Shale gas is a major energy push by the Chinese government as the country moves to reduce its reliance on dirtier coal. Policy support and government subsidies have encouraged major state-owned oil and gas companies to step up shale gas drilling.
China aims for total shale gas production of 30 billion cubic meters a year by 2020, according a development plan issued by the National Energy Administration in 2016.
But that goal might be too high, according to a recent report by Wood Mackenzie. The energy consultancy found that a more realistic goal would be to produce 17 billion cubic meters a year by 2020, nearly doubling the 2017 output.
China’s shale reserves are mostly located in remote, mountainous regions that lack a network of pipelines and other infrastructure, making them more costly to develop and ship, Wood Mackenzie said. The report also found that high population density, land access issues and water scarcity also makes drilling harder.
Even with government subsidies, shale gas is still a low-margin business in China. Energy companies could hardly break even without government subsidies, Wood Mackenzie said.
Under policies of the Ministry of Finance and the National Energy Administration, shale gas producers get subsidies of 0.3 yuan (about 0.05 U.S. cents) per cubic meter during 2016 to 2018. The subsidies will decline to 0.2 yuan per cubic meter from 2019 to 2020. Producers also benefit from a 30% energy tax cut from 2018 to 2021.
The policy makers said future subsidies could be changed with technology developments and cost cuts.
CNPC Chairman Wang Yilin said the company’s development of shale gas is still at an early stage and there’s a big learning curve ahead in terms of drilling speeds and cost cutting.
Lured by the potential of China’s shale reserves, global oil giants such as BP and Shell have ventured into China, but some exited after lackluster results.
In 2016, BP signed a production-sharing contract for shale gas exploration, development and production with CNPC. BP’s move came after Shell’s exit in 2015 following three years of fruitless exploration in Sichuan basin.
China has opened some shale gas blocks to allow bidding from non-state-owned oil enterprises including foreign companies. But so far none of the projects have made commercial discoveries.
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