China May Start Shale-Gas Production by 2015 to Meet Cleaner Fuel Demand

China, the world’s biggest polluter, may start producing shale gas within five years to meet rising demand for cleaner-burning fuels.

Production of gas in shale rock may begin before the end of 2015, Che Changbo, deputy director of the Ministry of Land and Resources’s oil and gas strategy center, said in an interview after a conference in Beijing. The country has drilled more than 10 wells and signed several cooperation agreements with foreign companies to develop the resource, according to Che.

China wants to triple the use of natural gas to about 10 percent of its energy consumption by 2020 as it cuts reliance on more polluting coal. China has brought in foreign partners including Royal Dutch Shell Plc (RDSA) and Chevron Corp. (CVX) to assess its shale potential and acquired overseas shale-gas assets to gain expertise in producing the hard-to-extract resource.

“We need to accelerate the verification of reserves, improve technology and enhance the ability of manufacturing equipment” needed to extract shale gas, Che said. “We should expand cooperation with foreign companies to achieve all that.”

China’s state-owned energy companies have spent more than $6 billion on North American shale-gas assets in the last three months, six times as much as the whole of 2010. China National Petroleum Corp., China Petrochemical Corp. and China National Offshore Oil Corp. are currently leading the country’s shale-gas projects, Che said.

Vast Reserves

China may have 26 trillion cubic meters, or about 920 trillion cubic feet, of potential shale-gas resources, according to Che.

Deposits of shale gas in China are 12 times more than conventional gas reserves in the nation, the U.S. Energy Department said in a report on April 5.

Chinese shale-gas reserves that are “technically recoverable” stood at 1,275 trillion cubic feet compared with 107 trillion in proven gas deposits in 2009, according to the report. That’s more than 862 trillion cubic feet of reserves in the U.S. and 19 percent of the world’s 6,622 trillion cubic feet.

“Once we start large-scale production, shale gas won’t be an unconventional fuel for China anymore and it will play an important role to supply China’s energy needs,” Che said.

China completed its first horizontal shale gas well after 11 months of drilling, according to a CNPC report in March. Chuanqing Drilling Engineering Co., a unit of CNPC, conducted the operation and no foreign venture partner was mentioned, according to the report.

The country produced 800,000 metric tons of shale oil last year, with Fushun in northeast China currently the nation’s biggest shale-oil production base, Che said. Companies are assessing shale-oil potential in provinces including Inner Mongolia, Xinjiang, Gansu and Shaanxi, he said.

Shale-oil production may rise to 1 million tons this year, spurred by higher global crude prices, Che said.

--Wang Ying and Chua Baizhen in Beijing. Editors: Ryan Woo, Jane Lee.

To contact the reporter on this story: Ying Wang in Beijing at ywang30@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net.

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