China's Shale Gas Costs At Least Double Those in US

China will be able to meet its 2015 shale gas production targets, but at prices more than double those of the US’ biggest projects, according to analysis of one of the country's first shale gas plays. 

Research company Bloomberg New Energy Finance has examined data from the Fuling block of the Sichuan Basin, being drilled by state-owned firm Sinopec.

Xiaolei Cao, analyst for China power, gas and carbon markets at Bloomberg New Energy Finance, said: “Reforms along the gas value chain, from upstream market entry to third-party access and to the city-gate pricing mechanism, are required to improve the economics of shale gas development but reform takes immense time and effort.”

"However although China’s shale gas production will not be a significant new source of supply by the end of next year, its price signal and potential volume could be significant in the global market as China could use it in negotiations for pipeline and liquefied natural gas (LNG) supply."

Nevertheless, Fuling block wellhead gas will still range as high as $21.10/MMBtu for wells producing only 2,000mcfd, and $11.20/MMBtu for wells producing 4,000mcfd. Sinopec plans to increase shale production from the Fuling block to 5Bcmpa (480MMcfd) and 10Bcmpa (970MMcfd) by 2015 and 2017, respectively. Bloomberg New Energy Finance also suggests introducing a multiple-tier subsidy based on the different levels of city-gate prices and transmission tariffs of destination markets.

Charles Blanchard, head of gas for Bloomberg New Energy Finance, said: “We now expect China to hit its 2015 shale gas production target of 6.5Bcmpa (630MMcfd), which would account for around 3% of the country’s total gas consumption in that year. However, its 2020 target of 60-100Bcmpa still looks quite ambitious. Costs must continue to fall and greater competition, at least in the upstream, will be required.”

(  Edited by Topco)