Out-Law News 1 min. read

China’s shale gas production expected to continue rising into 2015

China’s shale gas output is expected to reach 6.5 billion cubic metres (m3) in 2015, according to new estimates from the country’s National Energy Administration (NEA).

NEA vice-director Zhang Yuqing said the rise would represent an increase of up to 1.5bn m3 compared to this year, the state-run Xinhua News Agency reported.

According to Xinhua, Zhang told a workshop in Beijing that shale gas production, in which gas is extracted from shale rock using a process called hydraulic fracturing, or 'fracking', has seen “leapfrog developments” since the NEA began exploratory surveys in 2009.

Zhang said shale gas was “an important unconventional source of natural gas” and that investment to date is being directed into exploratory activities for an estimated 130bn m3 of shale gas reserves.

Xinhua said the surge in shale gas output was in line with the increasing use of natural gas in China. Government figures indicate that domestic natural gas output reached 117.1bn m3 in 2013, an increase of 9.5% year on year, Xinhua said. “However, the production was short of demand. Total natural gas consumption stood at 167.5bn m3, up 10% year on year.”

Xinhua said China still relies on imported natural gas to make up for the shortfall in domestic supply. “Currently, 30% of the natural gas China consumes is imported,” Xinhua said.

In a recent briefing note on Chinese shale gas prospects, energy law expert John Yeap ((LINK)) of Pinsent Masons, the law firm behind Out-Law.com, said that although domestic policies would play an important part in the move towards the commercialisation of shale, the lack of a "single set of detailed rules to regulate shale gas activity" was a significant problem for investors.

Last February, Xinhua said that the China Petroleum & Chemical Corporation, Sinopec, had discovered a shale gas well in south west China, located at a depth of 4,417 metres and with maximum daily output of 105,000 m3.

In 2013, the Chinese government announced a number of policies and incentives designed to "accelerate" the development of the country's shale gas industry. Proposals included a range of subsidies and tax incentives, based on the amount of shale gas produced by a development and how the gas produced is used. Local governments will also be able to set their own levels of subsidy.

According to the US Energy Information Administration, China could potentially have the largest shale gas reserves in the world, but has struggled to commercialise the fuel due to the cost of drilling and complexity of accessing the supplies.

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