WoodMac: Chinese shale gas production to reach 17 billion cu m in 2020

Chinese shale gas production is expected to reach 17 billion cu m (bcm) in 2020. While almost double last year’s production of 9 bcm, China will still miss its 2020 30-bcm production target by a considerable margin, according to Wood Mackenzie.

Chinese shale gas production has seen marked progress over the last decade, rising to nearly 600 wells last year, with nearly 700 new wells expected to come onstream in 2018-20 from Sinopec’s Fuling, PetroChina’s Changning-Weiyuan, and Zhaotong projects in Sichuan basin.

Capital investment in the three projects combined totals $5.5 billion, but double the amount is needed in the base-case drilling plan if the 2020 production target is to be reached.

“In order to meet the government’s 30-bcm target, up to 725 additional wells are needed by 2020 on top of the nearly 700 new wells. This will double the amount of investment needed in the base-case drilling plan. The required well number could be larger if well productivity degrades. This is a mammoth task for the Chinese [national oil companies,]” said Tingyun Yang, WoodMac consultant.

“The speed of shale development will impact global gas markets. Considering the impact of shale gas production on domestic demand, the 2020 13-bcm ‘gap’ will have to be filled by imports, in particular LNG,” added Lynn-Yuqian Lin, another WoodMac consultant.

“The good news for Chinese shale gas is well costs have gone down considerably—40% for exploration wells compared to 2010 levels, and 25% for commercial wells compared to 2014,” Tingyun said.

It took the US over 30 years to realize its shale boom, WoodMac said, noting a combination of underlying factors not applicable to China, including competitive and open markets, active small players, developed infrastructure, and easily available expertise.

The plays and rocks are also different. China’s shale formations tend to be deeper, more tectonically fractured and often less-pressured than US plays. Above ground, most of China’s shale gas plays are in mountainous terrain. Operators must remove mountainous land to host well sites, build infrastructure, and transport drilling crews and equipment across vast distances. High population density also makes drilling and hydraulic fracturing harder.

Major oil and gas companies “took a run at China’s vast shale resources,” but exited after “lackluster results,” WoodMac said. Only BP PLC remains with two undeveloped shale production-sharing contracts.

Chinese NOCs, however, are developing their understanding of the unique geology, adopting a pad-based drilling, fracturing and production process, and combining it with more indigenous technology and drilling and completion techniques—fracturing trucks, drillable bridge plugs, and drilling trajectory control know-how, WoodMac said.

Chinese shale well costs are still much higher compared with the US, but a recent turnkey contract for drilling, cementing, and completion of four Sichuan wells at an all-in cost of $7-7.5 million/well, won by Honghua Group, is a 20% drop in well cost vs. 2017, once pad construction, infrastructure, and facilities costs are included.

“While we do not expect a Chinese shale gas boom anytime soon, the NOCs will no doubt continue to push on and innovate, driven by the need to secure and develop energy resources for strategic reasons," Tingyun said.