5 Things to Know: China’s Elusive Shale Gas Boom

shale gas cover photo Web 2China is home to the largest technically recoverable shale gas reserves in the world. But bringing that gas to market will not be easy, according to a new Paulson Institute publication by Zhongmin Wang, a Fellow at Resources for the Future. A quick take:

  1. China’s natural gas market is expecting huge growth over the next decade. A push for cleaner fuels and an emphasis on urbanization means natural gas is positioned for a boom as China gradually reduces its coal dependence.
  2. Shale gas development has been labeled a sector of national strategic importance, though initially high production targets have since been revised. China has implemented several policies designed to encourage the shale gas industry, including research and development funding, fiscal subsidies for shale production and government-set prices below market prices.
  3. China’s shale gas industry still faces huge barriers to getting off the ground. Despite market prices nearly triple those in the US, high production costs mean it is simply not yet profitable to drill for shale gas in China.
  4. The shale gas sector is essentially closed to new entrants, making the sector less competitive than in the US. Despite auctions intended to draw smaller players into the arena, only China’s large national oil companies (NOCs) can feasibly approach the initial investment required to drill for shale gas.
  5. Therefore, China’s shale boom will be determined by the actions of its NOCs. With financial resources, access to advanced technology, previous experience, and control of most of China’s existing shale blocks, NOCs will likely dictate the future of shale gas in China.