PetroChina, Sinopec 2015 Shale Output Said Below China Goalby
PetroChina may produce about 1.6 bcm of shale gas in 2015
Sinopec may produce 3.5 bcm of gas, despite 5 bcm capacity
China is on track to miss its shale gas production target for this year as its biggest producers throttle back output amid weakening demand growth and a collapse in energy prices.
PetroChina Co., the country’s largest oil and gas company, may produce about 1.6 billion cubic meters of the unconventional gas this year, lagging behind its stated target of 2.6 billion cubic meters, according to people with direct knowledge of the matter.
China Petroleum & Chemical Corp., the nation’s second-biggest oil and gas producer, may pump around 3.5 billion cubic meters of the fuel, according to the people, who asked not to be identified because the information isn’t public. The explorer plans to complete an expansion project this month that will boost capacity to 5 billion cubic meters a year.
China’s efforts to copy the success of the U.S. in shale production has foundered as an economy growing at the slowest pace in 25 years curbs demand. The combined production of the two companies of 5.1 billion cubic meters in 2015 accounts for almost all of China’s commercial shale gas output. The country in 2012 announced an annual production target of 6.5 billion cubic meters for this year.
“We’ve seen very limited growth in the domestic market and an oversupply in terms of imports, that’s led to lower-than-expected production this year,” Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co., said by phone. “Shale gas is going to get cut when we’ve got an oversupplied market and companies focus on the lower end of the cost curve.”
PetroChina is holding back shale gas expansion at Sichuan in southwest China partly because they’re already struggling to sell conventional gas, which is cheaper to produce, according to the people. Sinopec, as China Petroleum is known, will keep some of its newly added capacity at its Fuling field idle because of a lack of buyers, according to the people.
Sinopec announced on Oct. 15 that proved shale gas reserves at Fuling increased by 273.9 billion cubic meters to 380.6 billion cubic meters, making it the world’s second-largest shale gas field outside North America. The country’s total proven shale gas reserves are estimated at 500 billion cubic meters, according to the Chinese Academy of Engineering.
In November 2014, China reduced its goal for shale gas production to 30 billion cubic meters by the end of the decade, or about a third of an earlier estimate, citing difficult geology, lack of infrastructure and limited exploration rights. ConocoPhillips ended talks with PetroChina on a shale gas development in Sichuan after a two-year study. Royal Dutch Shell Plc gave similar indications when it said in July it’s evaluating drilling results in Sichuan, which have shown “mixed results.”
The economic imperative to reduce output conflicts with China’s goal to limit fossil-fuel consumption and clean its environment. The country is seeking to limit coal consumption to about 4.2 billion metric tons by 2020, reducing the fuel’s share of its energy generation to less than 62 percent. Natural gas use, which accounts for about 6 percent now, is targeted to climb to more than 10 percent of total energy consumption by 2020.
China’s manufacturing index slipped to the weakest level in more than three years in November as six interest-rate cuts in the past year failed to spur a recovery. The country’s economic expansion this year is struggling to reach the government’s target of about 7 percent, with Bloomberg’s monthly gross domestic product tracker at 6.57 percent in October.
“They will definitely miss this year’s target and possibly next year target as well” for shale gas, said Gordon Kwan, a Hong Kong-based analyst at Nomura Holdings Inc. “This is because of the very weak industrial and manufacturing activity and the fact that the overall economy is slowing down. There’s no point in producing the gas when there’s no demand.”