SPECIAL REPORT • ENERGY Anschutz recently sold 500,000 acres
for a rumored price of US$3 billion to Chesapeake Energy, recipient of the aforementioned CNOOC investment. Anschutz’s plot has access to both the Marcellus shale deposit and a larger shale that lies below it, the Utica – often called America’s next big shale play. Chinese companies will need to study
the widest possible variety of shale depos- its abroad to tackle the resources available at home. “With unconventional gas, there’s no
silver bullet, no one technology that re- ally works for everything. Te trick is in understanding the interplay between the technology and the resources to under- stand what works,” said Neil Beveridge, an analyst at sell-side research firm San- ford C. Bernstein & Co. in Hong Kong.
Shale on the auction block
Even as China’s energy companies amass shale gas experience, there is another roadblock: Companies are still waiting on the government’s go-ahead to begin commercial production at home. Te Ministry of Land and Resources (MLR) continues to delay distribution of the country’s first official shale gas blocks. Te MLR originally planned to auc-
tion six shale gas blocks last November to four state-owned companies – Petro- China, Sinopec, CNOOC and Shaanxi Yanchang Petroleum Group. November came and went. In January,
the deputy director of the MLR’s oil and gas strategy research, Zhang Dawei, gave an update: Eight shale gas blocks would be auctioned in the first quarter, with three new private companies entering the bidding – Sinochem, Xinjiang Guanghui and China Zhen- Hua Oil. Successive delays may have been related to a debate
about whether private capital should enter the bidding. “In our opinion,
there is interest from the government in increasing the level of competition in the sector. What we don’t know is, what does this ul- timately mean?”
said Tompson of consultancy Wood Mackenzie. Even if
IN STONE: A statue of model oil worker ‘Iron Man Wang’ in Daqing
36 China Economic Review • May 2011
private operators win some bids, analysts say China’s national oil companies are likely to continue to drive development. Once the auction is complete, Chinese companies will begin seeking out foreign partners to help them develop the blocks. A likely candidate is Royal Dutch
Shell, which has cooperated with Petro- China on projects in Australia and Qatar. Shell said earlier this year that it plans to spend US$1 billion a year on shale gas in China if its current exploration in Shaanxi and Sichuan provinces is successful. Statoil, Europe’s largest oil company,
has also said that it is looking to tap Chi- nese shale reserves and is in conversations with Sinopec. Foreign companies could be confined
to the role of a temporary technology partner instead of acting as an equity par- ticipant for the duration of exploitation. “Te question is, would the foreign
participants want to do it anyway? I think the answer is yes, because you see all of the foreign participants building yet stronger relationships with the SOEs [state-owned enterprises],” said Hewitt. For example, Chevron’s recent sale of a stake in an Indonesian deepwater gas project to Sinopec was clearly designed to curry favor with the Chinese company. As China Economic Review
went to press, no further news on the MLR’s auction had emerged, save for an announcement in mid-April by Che Changbo, deputy director of the MLR’s Oil and Gas Strategy Center, that China may begin producing shale gas before the end of 2015. Even if the MLR allots its first shale blocks soon, China’s ramp up to uncon-
TAPPING AWAY: Exploiting shale property will take more research
ventional gas production is likely to re- main gradual. Tough the country’s shale resources are even more extensive than those of the US, the time and investment needed to acquire technology, run pilot projects and build infrastructure will pre- vent China from replicating a US-style shale gas revolution any time soon. “Tere’s a lot of excitement at the
moment, but the industry is really in its infancy still. So we’re not going to see an incredibly dramatic near-term buildup,” said Tompson of Wood Mackenzie.
Insatiable appetite
Over the next several decades, however, the development of difficult-to-extract gas will alter China’s energy strategy both domestically and abroad. And develop- ment will begin picking up pace soon enough: Experts say production will like- ly grow rapidly after 2020, when cheaper conventional gas supplies are projected to begin to dwindle. Tere’s a small risk that environmen-
tal concerns could sideline the develop- ment of unconventional gas. Critics say shale gas is not nearly green enough – it just delays the day of reckoning for renewable energy. But in a coal-based economy where energy needs are sky- rocketing, China cannot afford to be too choosy. Te EIA projects that China’s de- mand for coal, gas and clean energy will all grow in the coming decade. Environmental effects are a lesser
consideration than this urgent need for energy, said Zhang Jinchuang, a professor at China University of Geosciences. “In China, the priority for energy exploita- tion is whether there is energy or not.”
Imaginechina
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