China's contribution in the global economic growth has been unparalleled, with its economic rise mirroring an exponential demand growth for oil and gas resources. This increased demand growth has spurred considerable activity in the domestic exploration and production (E&P) industry, but with conventional resources now mature, the focus needs to shift to other resource categories. Nick Sharma and Kunfeng Zhu join Upstream in Perspective to assess the current and future state of China shale and tight gas. Here's an excerpt of the conversation:

Kiran Sanghera:

We know that unconventional oil and gas development revolutionized North America's upstream sector, with US tight-oil production growing fast enough by 2015 to influence the decisions of OPEC. China is often flagged as one of the countries with most unconventional opportunity, with large resource potentials. How would you describe the status of unconventional oil and gas development in China today?

Kunfeng Zhu:

I believe the best way to set the context of progress is via numbers. China's shale gas production in 2018 was 10.2 BCM, mainly from Sichuan basin. The production has increased from a baseline of 0.2 bcm in 2013 but will be considerably smaller than the 60 - 100 bcm number set in the 12^th Five-Year-Plan in 2011 for 202. Our expectations are that both Sinopec and CNPC who have drilled hundreds of shale gas wells, will achieve a number close to low 20s bcm by 2020.

Overall, I think it's fair to say that on the shale front, the key companies in CNPC and Sinopec have moved past the day experimentation stage, and now need to move to a more refined and well-driven execution plan.

Kiran Sanghera:

Is population density a challenge to China unconventional development, or what other unique challenges does China face?

Nick Sharma:

Yes, population density is a challenge for shale gas development in China, and there are several unique challenges that US doesn't have. Sichuan basin is hilly and highly populated. Drilling on top of the hills requires extra investment in road construction, materials transportation, etc., and managing the impact to the community is a challenge not only to IOCs like Shell, but also the Chinese NOCs. Operations can easily be suspended due to road blockages by the villagers: reasons can be noise, unsatisfied compensations, or damages done to the public roads by heavy-duty trucks.

Learn more about the potential of tight and shale gas in China by listening to the full podcast.

Posted 8 July 2019

This excerpt has been professionally transcribed as accurately as possible. Please note, some words and phrases may have been unintentionally excluded.

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.