China shale gas progressing, but work remains

Consultant group Wood Mackenzie expects Chinese shale natural gas production will nearly double by 2020 to around 2 billion cubic feet per day. Separate analysis from the U.S. Energy Information Administration estimates U.S. gas production, meanwhile, swells 59 percent from last year's level to 118 billion cubic feet per day, but that level of growth will take another 30 years.

Growth in Chinese basins has been impressive, but short of its target. Costs have declined by about 40 percent for exploration and production, though China's tough geology makes work more challenging than in U.S. shale.

Tingyun Yang, a sector consultant for Wood Mackenzie, said in an emailed report that China will need a lot more drilling to meet national guidelines by a wide margin. Nearly 600 wells were tapped last year, but another 700 or so may be necessary.

"This is a mammoth task for the Chinese national oil companies," she said.

China's Sichuan basin in the country's southwest is the most likely region that will experience early shale gas success. But while U.S. shale gas deposits typically are located 6,600 feet to 13,000 feet below the surface, China's shale gas deposits are deeper in the ground, at around 13,000 feet.

The first horizontal shale well drilled by PetroChina, the Chinese oil and gas company among the most active in shale, needed 11 months to complete, compared with the usual two weeks for North American shale.

Among the major players, British energy company BP is among the few remaining with an active contract in Chinese shale. Wood Mackenzie added, however, that Chinese state-owned companies have seen success by working solo.

"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," Yang said.