China Considers Policy Shift to Boost Shale Gas

China has concluded its first contract for prospecting for and extraction of shale gas. The China National Petroleum Corporation (CNPC) has signed a production-sharing agreement with the British-Dutch oil giant Royal Dutch Shell. As part of this agreement, the two companies will get involved in the extraction of shale gas from the deposits in Sichuan Province. 

Today, China practically does not extract shale gas. However, by the year 2015, the People's Republic of China plans to pump 6.5 billion cubic metres of shale gas annually. As it has become visible in recent times, Chinese companies are actively buying shares in the North American projects and companies which extract shale gas. Thus, the Chinese are adopting their experience and technologies. For the same reason, Beijing attracts highly-qualified foreign firms, including Shell, for the development of its own deposits. The interest of the Chinese in shale gas is logical, taking into account that the country needs it very much, Head of the Chair of World Economy at the Higher School of Economics Leonid Grigoryev says.

"The demand for gas in China is unlimited. Today China extracts a large amount of coal – about 3 billion tons of coal. The transportation of coal is a difficult process – that is why China should make a shift to gas economy. And as regards liquefied gas, it is imported, which is very expensive. Of course, it is necessary to start developing shale gas deposits." 

It is very doubtful though that China will be able to satisfy its growing needs in shale gas in the near future at the expense of its own gas extraction. An analyst in the field of oil and gas with the “Troika Dialog” Company, Viktoriya Nesterova, says that at its initial stage the pumping of shale gas in China will be problematic.

"Numerous questions arise on that score, including first of all, the geography of shale gas reserves and also problems dealing with the deficit of water. That is why in the coming 10 years its role in China's energy balance will be insignificant." 

Besides China and the USA (the latter has achieved much in this energy segment), many countries, including Ukraine and Kazakhstan, are showing a great deal of interest in shale gas now. Last week Kazakhstan started geological prospecting for shale gas on its own territory. As it appears, Kazakhstan, like China, will pump it for domestic purposes.

Since shale gas extraction is very expensive, it is not very popular today. Searching for cheaper sources of energy, many countries are resorting to various tricks. For example, the companies BP, ExxonMobil and ConocoPhilips are currently discussing the project for the export of Liquefied Natural Gas (LNG) from Alaska to Asia. Several American media outlets reported that with a reference to their own sources. True, the economic efficiency of this project causes doubts: the point is that investments in this project may reach 40 billion dollars.