Will China usher in the golden era for natural gas, as the International Energy Agency predicted last week? As the most important country shaping the future of energy markets, China's energy mix will naturally determine the curve of global gas demand, especially how swiftly it integrates shale gas exploration in its basket.
Between 2000 to 2009, China saw minimal growth in gas-fired power generation. But the 12th Five-Year Plan (2011-2015) has adopted a broader energy system, with gas usage expected to outpace the popularity of coal.
China's current domestic gas production is 94.5 billion cubic metres which covers about 85-90 per cent of consumption, the shortfall being met through imports from Central Asia and Australia. In the next five years, China plans to up gas usage to 260 billion cubic metres annually, which will be 8.3 per cent of its primary energy mix.
The potential for natural gas to become a significant portion of China's energy mix is substantial. Recognising this, the government is planning to increase consumption of natural gas to 10 per cent share by 2030. China's shale gas production is expected to account for 8-10 per cent of the conventional gas output by 2020.
In late April, the country's top planner, the National Development and Reform Commission, issued an ‘Industrial Restructuring Catalog (2011 edition)', which lists ‘new energy' including non-conventional resource such as shale gas as an ‘encouraged area'.
In the past, the use of natural gas in China was limited by the small size of reserves, but with investment in technology to extract natural gas from shale rock formations, natural gas has received renewed attention.
In April, state-owned company PetroChina completed the nation's first horizontal shale gas well in Sichuan. While shale gas extraction has yet to become economically competitive, it appears to hold promise in reducing China's dependence on imported fuel.
As global crude oil prices keep rising, China is in a rush to fast-track this fledgling sector. The Ministry of Land and Resources has launched a nationwide strategic investigation for this alternative energy source. It expects to complete an assessment of China's shale gas resource by 2013.
The Sichuan basin, Erdos basin, Bohai Bay are the most likely areas for further exploration, along with the upstream regions of Yangtze River valley. So far, different agencies have varying estimates about shale gas reserves in China.
The Ministry of Land and Resources estimates the size reserves at 26 trillion cubic metres, more than 10 times the known reserves of conventional natural gas. The US Energy Information Agency has estimated that China's technically recoverable shale gas reserves were almost 50 per cent higher than that of the US at 36.1 trillion cubic metres.
Energy experts in China believe that developing unconventional gas resources will help maintain a balance of power with the Middle East. It will reduce China's dependence on Mena oil, taking the country's energy security a notch higher. The shale gas arm of security, however, has a long way to go.
Currently, players in the domestic shale gas field are limited to state-owned oil giants, such as China National Petroleum Corp (CNPC) and Sinopec, but both are in the experimental phase with commercial production yet to come. In March, PetroChina completed drilling its first horizontal shale gas well, in Sichuan province, but is yet to move to the more technically challenging part of the work hydraulic fracturing to evaluate if the well has commercial gas flows.
Compared with conventional natural gas, the extraction of shale gas is difficult. Part of the problem is the high cost and the fact that China lacks the latest drilling and completion technology.