OREANDA-NEWS. February 21, 2012. China’s ambitions to unlock the natural gas trapped in shale rocks are likely to take longer than planned, boosting the nation’s reliance on overseas suppliers like ExxonMobil and Chevron, according to a report.

China’s shale gas output will rise to 23 billion cubic metres in 2020, or 29% of the government’s 80 billion Bcf target, under the average estimate of seven analysts surveyed by Bloomberg.

The shortfall, stemming in part from tougher geology, should boost LNG imports from about USD 5.8 billion in 2011, while curbing speculation that the nation can duplicate the US shale boom.

Drillers in China, the world’s biggest holder of shale reserves, have yet to produce shale gas commercially, with Shell helping China National Petroleum Corporation to sink the nation’s first horizontal well.

Explorers such as Cnooc Ltd and Sinopec, which have invested more than USD 5.7 billion in unconventional oil and gas assets overseas, have found their technology lacking at home.

“There are resources in China but the geology is different and more challenging than in the US,” Liu Zhenwu, a vice president at state-run CNPC’s advisory centre, told Bloomberg last week. “Technical issues need to be solved first. It may take a few years, maybe a decade, maybe more, before large quantities of shale gas are produced in China.”

Until then, China will need to boost purchases of LNG from providers such as ExxonMobil, Chevron and Woodside Petroleum to meet demand.

The nation imported 12.2 million metric tonnes of LNG in 2011, worth USD 5.8 billion at last year’s average price, customs data show. Paris-based GDF Suez estimated shipments may almost quadruple to 44 million tons in 2020.

“China may well emerge as a new shale-gas frontier, but production isn’t likely to be in very significant volumes compared with conventional gas supply for a decade at least,” said Thomas Grieder, a Geneva-based Asia Pacific energy analyst at industry consultant IHS Energy. “The country will continue to rely on LNG imports.”

The global LNG market last year was valued at about USD 123 billion, based on an average price of USD 10 for a million British thermal units and 336 billion cubic metres of shipments.

Grieder forecasts China will produce 20 Bcm of shale gas in 2020.

“The government’s target is ambitious,” he said. “It reflects their confidence about the resource base and about strong domestic and foreign investor interest in the sector.”

The US produced 96 Bcm in 2009, overtaking Russia as the world’s biggest natural gas provider. Output surged to 142 Bcm in 2010, causing prices to slump. Cheniere Energy and Freeport LNG Development are among companies that plan to liquefy and export US gas.

Chinese shale may hold 1275 trillion cubic feet of technically recoverable gas – 12 times the country’s conventional gas deposits, an April report by the US Energy Information Administration said.

That’s almost triple the 482 Tcf in the US, according to an estimate last month by the EIA.

“The US shale gas industry is booming, and we’ve not gotten started yet,” said Zhang Jinchuan, a professor of geology at the China University of Geosciences in Beijing and an adviser in shale gas to China’s Ministry of Land and Resources. “If the industry develops quickly, then China could possibly catch up with the US in 15 or 20 years.”

A survey by the Chinese government last year showed 25 trillion cubic meters of reserves could be explored in the country, Zhang Dawei, deputy head strategic research at the land ministry, said in a 9 January newsletter.

China aims to produce 80 billion cubic meters annually by 2020, Zhang said in October, citing the draft of a national plan.

“On average the shale deposits in China are deeper than in the US and more difficult to get to,” Neil Beveridge, an energy analyst at Sanford C. Bernstein in Hong Kong, said earlier this month. “The minerology of the shale rocks in China is also primarily what is called non-marine, which means their productivity could be lower.

“The US has marine shales which have much lower clay content and are more easily fractured.”

Hydraulic fracturing teams in the US found success mostly from 2 kilometres to 4 km deep, while in China some key deposits are found 6 km down, according to Beveridge.

Chinese shales are also structurally more complex and pose greater challenges to design wells. Overcoming these issues adds to costs, he said.

Delays in auctioning shale acreage and framing rules and incentives to encourage exploration may also slow development.

China first auctioned exploration blocks in June and has delayed a second sale twice because the land ministry plans to double the number of areas to be offered and is drafting a national plan to develop the resource. The government plans to hold the tender by the end of this month or in early March, the land ministry’s Zhang told Bloomberg.

Foreign explorers are barred from participating directly in the auctions and must partner with Chinese companies.

“A key difference between China and the US is the way people do business,” Zhang, the geology professor, told the news wire.