China: Next in Line to Develop Its Shale Gas and Oil

Published September 27, 2016

In 2010, the Strategic Research Center of Oil and Gas, China’s Ministry of Land and Resources, and China University of Geosciences announced China’s estimated shale gas resources to be approximately 1,050 trillion cubic feet (Tcf).

More recently, the U.S. Energy Information Administration estimated China’s recoverable shale gas reserve to be even higher, at about 1,115 Tcf, which is comparable to the United States’ potential reserves. China is the only country outside of North America reporting commercially viable shale gas production, which is now being conducted in the country’s Sichuan Basin by Sinopec and PetroChina, China’s largest energy production companies. The Chinese government expects its country’s estimated reserves to draw interest from international oil and gas companies.

The Chinese government and various Chinese companies have been conducting investigations into the country’s shale gas potential for eight years. They have performed two-dimensional seismic investigations of over 20,000 kilometers of land and three-dimensional seismic studies of over 2,000 square kilometers. Over 800 shale gas wells have been drilled across three different geologic environments.

Thus far, almost half of all the drilled shale wells have shown good volumes of gas and oil. Among 30 representative horizontal exploration wells in Sichuan Basin, which is located in Southwest China, several reported producing over 100,000 cubic meters of gas per day, and one well has reportedly produced 547,000 cubic meters per day.

Sinopec and PetroChina believe they can double production over the next two years as experience and technology improve.

Geological Challenges

Most U.S. shale formations were deposited in relatively simple former marine environments, which means access is relatively uncomplicated. China’s formations were deposited in diverse and complex environments: oceans (marine), lakes (lacustrine), and swamps (transitional environment). This makes access far more complicated, meaning variable technologies will be needed to develop these sites, reducing the likelihood of rapid technological advances.

China’s marine shales show considerable similarity to U.S. marine shales in organic content, mineralogy, and brittleness. Their lake shales, however, have a high clay content, which could make hydraulic fracturing less productive. These lacustrine basin areas of China are the source of 90 percent of the nation’s oil production. It has been reported preliminary shale gas production has successfully occurred in lacustrine shales in Ordos Basin in North China and Sichuan Basin in Southwest China, so it is expected a great deal more effort will be put into producing shale gas regardless of the difficulties.

Fracking to the Rescue

What has made shale gas and oil a productive endeavor in many parts of the world is hydraulic fracturing and horizontal drilling. The drilling technology allows drillers to bend steel pipes three degrees for every 100 feet using a GPS-controlled drill bit. After 3,000 vertical feet of drilling, the drill pipe and the drilling can become horizontal. But every shale in the world is different and requires variable fracturing techniques.

While hydraulic fracturing in vertical wells dates back to 1947, drillers learn more every day using the technique in horizontal wells, which can sometimes extend for as long as two miles.

Shale gas and shale oil are produced from marine shales, fine-grained chalks, and dolomites interbedded in source rock intervals in U.S. basins, which have relatively simple tectonic (crustal movement) settings compared to China. While China’s marine shales compare to some of the United States’ marine shales, such as the Barnett shale in North Texas, harsh surface and complex subsurface conditions make developing shale gas in many Chinese basins more challenging than in the United States.

Much of China’s shale resources are located beneath the country’s rugged mountains or deserts. China’s land surface through geologic history was subject to far greater crustal stresses than the land surface in the United States, a disadvantage for petroleum development.

In the process of hydraulic fracturing, it is important to understand the directions the rocks are stressed. For instance,  vertical stress and horizontal stress  require differing approaches to maximize the fractures that will occur as hydraulic pressure builds up. Maximizing the fracture patterns optimizes the flow of gas and oil from a shale gas reservoir to the wellbore via fractures.

Investigating Shale Opportunities

The Chinese government, its state owned companies, and international oil and gas companies are jointly investigating the challenges that need to be overcome to unlock China’s natural gas resources.

Shell Oil Company is planning to spend $1 billion investigating 3,500 square kilometers of the Sichuan Basin in Southwest China, while PetroChina is hoping to drill over 100 development wells in this area. Sinopec plans to drill even more.

In an effort to attract more international interest in developing its country’s shale resources, the China National Energy Administration issued a Shale Gas Industrial Policy in late 2013 that grants new subsidies and tax incentives to shale gas production companies. This could draw even more interest from energy companies looking to take advantage of China’s vast energy reserves.

China has a great deal of potential for shale gas and shale oil development, even though the geological setting and resulting geomechanics are more complex than in the United States, which means there is a steeper learning curve and higher development costs.

Shu Jiang, Ph.D. ([email protected]) is senior research scientist and coordinator for the China Program-Energy and Geoscience Institute at the University of Utah. Jay Lehr, Ph.D. ([email protected]) is science director for The Heartland Institute. This article is an adapted version of an article authored by Shu Jiang in the Alternative Energy and Shale Gas Encyclopedia.