8/21/14, "Natural Gas Production Falls Short in China," NY Times, Keith Bradsher, Shouyang, China
Nat. gas prod. 2000-2013 |
"Faced
with severe air pollution from coal and a rising dependence on energy
imports, China has been eager to follow the United States by rapidly
increasing natural gas output. Replacing coal with natural gas has also
been central to Beijing’s hopes to limit emissions of global warming
gases in China, the world’s largest producer of carbon dioxide by a wide
margin.
But
China’s ability to extract sufficient natural gas is in serious doubt.
Despite heavy investment and strong government support, China’s natural
gas production is growing at a slower pace than its decelerating
economy. China’s production of natural gas increased just 6 percent last
year and 4.4 percent in 2012.
China’s
main problem is that shale gas production has fallen far short of
expectations. That has left the country relying on alternative methods
considered also-rans by American standards, like pumping natural gas
from coal fields.
Now,
the Chinese government appears to be acknowledging the shortfall. Wu
Xinxiong, the director of the National Energy Administration of China,
unexpectedly said in a speech this summer that China’s target for
domestic natural gas production in 2020 was only 30 billion cubic meters
for shale gas and another 30 billion cubic meters for coal seam gas.
Just two years ago, the National Energy Administration estimated that
China would produce 60 billion to 100 billion cubic meters of shale gas
alone by 2020.
If
Mr. Wu’s forecast comes true, shale gas and coal field gas would each
supply only 1 percent of China’s electricity generation needs in 2020.
“If
the population and economy keep growing, and extensive energy use
continues, sustaining China’s energy supply will be hard,” Mr. Wu
warned.
Gas
production has been slow to rise despite energetic efforts by Beijing
to make it financially attractive for energy companies, including direct
subsidies for shale gas production. The Chinese government also
announced on Aug. 13 that it would raise urban wholesale prices for
natural gas at the end of the month by roughly 18 percent for industrial
users.
With
domestic supplies increasing slowly, China has been looking elsewhere.
It agreed in May to buy gas from Russia under a 30-year, $400 billion
deal. And it has begun importing liquefied natural gas from Qatar,
Australia and Yemen.
The
natural gas is sorely needed. Beijing plans to retire four coal-fired
power plants by the end of this year and replace them with gas-fired
plants in an effort to reduce air pollution.
But
China does not have enough gas for a larger-scale conversion of power
plants to gas. So the national government has already told smaller, less
influential cities to stick with coal for now, and has discouraged
businesses from investing heavily in gas-fired equipment.
Gas
had looked like one of the few remaining ways for China to reduce its
addiction to coal. China’s nuclear power program slowed after Japan’s
triple meltdown in Fukushima. Efforts to expand hydroelectric power have
run into environmental concerns as well as the huge cost of resettling
people from areas flooded when dams are built to make artificial lakes.
Solar power and wind power are growing rapidly, but from small bases.
The
revised figures from Mr. Wu represented China’s first official
acknowledgment of what Western experts have been saying for many months:
The country will not approach the success of the United States in shale
gas anytime soon.
Shale
gas deposits lie much deeper in China than in the United States, which
greatly increases drilling costs. Chinese shale also tends to be laden
with clay and is much wetter than American shale, making it harder to
crack the shale and release the gas through pumping liquids and sand
underground, the process known as hydraulic fracturing, or fracking.
After
40 million years of powerful earthquakes as the Indian subcontinent
plowed into southern Asia, the main shale gas seams in western China are
jumbled underground, instead of lying flat like a stack of pancakes, as
in the United States, said Jeff Layman, a partner in the Beijing office
of Baker Botts, the big Houston energy law firm.
In
March, Sinopec, a Chinese oil giant, announced the country’s first
commercially viable shale gas deposit, located outside Chongqing, and
predicted annual production would reach a hefty 10 billion cubic meters
by 2017. But the company has released few details, prompting foreign
energy experts to begin asking whether all of the seams are truly shale,
although Sinopec insists they are.
Neither
Sinopec nor its rival, PetroChina, has announced any other large fields
despite extensive drilling. Both of these state-controlled companies
said in March that they were still drilling actively for shale gas in
China even as they cut their worldwide exploration budgets for oil and
gas after weak results.
Sinopec
and PetroChina, which will hold earnings conferences on Monday and
Thursday, respectively, are targets of broad government inquiries into
possible corruption, including in their contracts with outside vendors.
This has made their executives reluctant to approve further shale
drilling contracts, said a Chinese oil industry executive who insisted
on anonymity because of the legal issues involved.
China
needs to develop better technology before tackling many of its shale
deposits, said another executive, Yin Shenping, the chairman and chief
executive of Recon Technology, a shale gas services company based in
Beijing. “It’s obvious that the country has now decided to slow down the drilling process,” he said.
Lower
expectations for shale gas have resulted in greater interest in another
category of unconventional gas, so-called coal bed methane. In this
process, natural gas is gathered by drilling into underground coal
seams.
The
United States, Australia and other countries have used this method for
several decades. But they often tap the natural gas before coal
extraction begins, to reduce the risk that gas will explode in coal
mines.
China’s
problem is that many of its coal fields already have working mines.
China has 13 percent of the world’s coal reserves but 47 percent of the
world’s production. Many Chinese coal mine operators have opposed nearby
coal bed methane production, fearing that pumping sand and chemicals
into wells to liberate gas might have the unintended effect of driving
gas into their mines.
The
Chinese government has negotiated with mine operators and villages here
in Shouyang, 220 miles southwest of Beijing, to authorize a large coal
bed methane project, led by Far East Energy Corporation, based in
Houston. Michael R. McElwrath, chief executive of Far East Energy, said
he believed the project would improve coal field safety by removing
explosive gas from subterranean seams.
But
the Shouyang coal field is unusual within China because the coal is
fairly permeable, allowing gas to flow underground. If there are no more
discoveries of permeable coal, Mr. McElwrath said, “we will have a nice
little project but the industry will not take off.”
Far
East Energy faces its own issues. In June, the company announced that
it had shut a quarter of its 160 wells for various reasons, such as
gummy gels or a lack of gas-gathering pipelines; it plans to restart
most of those wells later. “We are considering a variety of strategic
transactions to fund the coming year’s drilling activities,” Mr.
McElwrath said, declining to elaborate.
Crews
have been working here over the last several years, laboring in a
countryside of yellow dirt so soft that even small streams cut
steep-flanked gorges 50 feet deep or more. Some of the locally rented
equipment uses designs seldom seen in the United States since World War
II, an indication that China still lags in drilling rig technology. At
each location, workers struggle with the many idiosyncrasies.
“In
the United States, it comes to the surface easier,” said Robert
Hockert, a longtime Wyoming shale gas and coal bed methane drilling
manager who is now the China country manager for Far East Energy. “Here,
you’ve got to work at it.”"
Image: "Lagging the Need"
"Despite heavy investment and government backing, natural gas production in China has grown more slowly than the economy for the last three years, leaving the country still heavily dependent on imports and coal." "Source: National Bureau of Statistics, via CEIC Data."
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