Follow-up article from Upstream; focus on unconventionals -...

Follow-up article from Upstream; focus on unconventionals - looks very promising.

Unconventionals to play a major role as ambitious targets are set

The Chinese government's interest in unlocking the country's unconventional gas resources has not abated, writes Xu Yihe.

The country needs to diversify its energy supply and unconventional gas represents significant potential.

While China is still navigating its way to the expected boom, it has set ambitious production targets for shale gas, coalbed methane and tight gas for 2020.

However, a number of challenges, including insufficient water supply, complex geology and transportation bottlenecks, still present major hurdles on route to the country's unconventional renaissance.

The independent companies with licences gained during the country's two shale auction rounds still suffer from a lack of geological data and experience, and have yet to report any commercial success.

The government's 13th five-year plan has set shale gas output at 30 billion cubic metres per annum by 2020, with output for this year expected to reach 11 Bcm.

The plan also aims to increase possible and proven reserves of shale gas by 1 trillion cubic metres to 1.5 Tcm by 2020, and CBM by 420 Bcm to 1 Tcm.

This year, China's largest shale gas producer, Sinopec, plans to increase its shale gas production capacity by 3 Bcm to 10 Bcm at its flagship Fuling gas field in southwest China's Sichuan basin.

Last year, the company added 1.73 Bcm of new shale gas production capacity to the 7 Bcm total at Fuling, but its output only hit 5 Bcm, with 44 wells drilled and 43 completed. The field is now operating 232 production wells.

Also in the Sichuan basin, the country's second-largest shale gas producer PetroChina more than doubled its shale gas output last year to 2.7 Bcm after additional facilities were brought online.

PetroChina is currently producing 8 million cubic metres per day of shale gas from 118 wells in three pilot projects in Sichuan and the neighbouring Yunnan province.

A total of 970 MMcm of new reserves were added last year at the Changning prospect in Sichuan. About 600 MMcm were added to Weiyuan and 250 MMcm to Zhaotong.

Although drilling costs have been reduced to about 60 million yuan ($9 million) per well, the cost of building ground facilities remains high when compared with shale prospects elsewhere - Sichuan is notorious for its mountainous terrain.

In the short term, China is re-emphasising CBM development as the country looks to clean up use of its vast coal reserves.

During the 13th five-year plan period, China aims to produce 10 Bcm of CBM from non-coal related exploration and development, in addition to 14 Bcm of CBM as associated coal gas from coal mining in 2020.

Of the total production, 8.3 Bcm is expected to come from two CBM basins - Qingshui and the east rim of Ordos. The plan also targets increasing geological CBM reserves by 420 Bcm by 2020.

China aims to increase its CBM-fired power installation capacity to 2.8 million kilowatts and up to 1.68 million households will be able to be connected to CBM by 2020.

Meanwhile, the government is ready to introduce incentives for national oil companies to increase activities and tap the country's massive tight gas reserves.

The subsidy programme is likely to follow a similar scheme being applied to shale gas and CBM development.

For CBM, the government is increasing the subsidy by 50% to 0.3 yuan per cubic metre, up from the previous 0.2 yuan, while the subsidy for shale gas is now at 0.3 yuan per cubic metre, though the grant will be lowered to 0.2 yuan for the 2019 to 2020 period.

The new five-year plan has also set a target for tight gas production at 37 Bcm by 2020, which compares with 120 Bcm set for conventional gas.

China's tight gas production now stands at around 35 Bcm per annum, largely from the Ordos basin in the country's north-west, where France's Total and Anglo-Dutch supermajor Shell are developing the Sulige and Changbei tight gas fields, respectively.

The plan stipulates that exploration and development of tight gas over the next five years should focus on the Sichuan basin in addition to the Ordos basin.