China's unconventional natural gas industry has enormous potential—some of the best in the world—but the challenges are also great. Moving closer to development of the resource base will require more study and possibly government reforms, according to Zhou Zhibin, vice chairman of Sichuan Enterprise Association and vice president, professional senior accountant, for PetroChina Southwest Oil & Gasfield Co.

Zhou gave the closing address at Hart Energy's inaugural DUG Australia Conference & Exhibition, held in Brisbane in late August.

Technically recoverable reserves of Chinese tight gas, coalbed methane (CBM) and shale gas could be up to 34 trillion cubic meters (TCM), or double the amount of conventional gas reserves, he said.

In 2011, the U.S. Energy Information Administration estimated that seven countries had potential reserves of more than 10 TCM. The EIA estimates China has 1,257 trillion cubic feet (Tcf) of recoverable shale-gas reserves, or about 50% more than the US But harvesting the bounty will take a lot of work.

China has already drilled 13,580 CBM wells and has proved reserves of 290 billion cubic meters (BCM). Annual CBM production is about 12.5 billion cubic meters. There are 45 coal basins.

In 2012, only 5.5% of China's vast energy consumption was natural gas, far lower than the world average of 24%. The Chinese government wants to change that metric to help reduce harmful emissions, Zhou said.

Seven major basins in China have shale-gas or shale-oil potential: Sichuan, Tarim, Junggar, Songliao, Yangtze Platform, Jianghan and Subei.

The U.S. and China signed a memorandum of understanding in 2009 for shale-gas cooperation and research. It states that the Fushun-Yongchuan shale-gas block will be jointly operated by Shell Oil and China National Petroleum Co. (CNPC). This agreement is the first formally approved shale-gas production-sharing agreement in China, and was approved in March 2013 by Beijing. Hess Corp. has an agreement with CNPC for shale oil exploration, signed in July.

Natural gas operations would occur in shale basins either in isolated desert areas in western China's Tarim Basin, where infrastructure is lacking, or in densely populated areas of south China, where drilling challenges would be similar to those found in the populated areas of the Barnett shale in metropolitan Fort Worth, Texas. Activity could also take place in the Southwest Sichuan Basin, Southwest Chongquing, north Yunnan and Guizhou provinces.

To better develop China's shale resources, the country needs a comprehensive system of regulations to support shale-gas development, Zhou said. In addition, the country needs policies to further technology and research and to enable foreign cooperation projects.

While China has done a systematic appraisal of its CBM reserves, it doesn't have equally sound data on shale resources, he said. It needs a better description of formation distribution and reservoir characteristics through 3-D seismic.

The country is attempting to solve some of the technical challenges of shale drilling. The Chinese have drilled with an openhole-casing packer and have used sliding sleeves within 10 frac stages, but they would like to use more environmentally friendly fracturing methods, more frac stages per well, and pad drilling.

Zhou also called for more regional-demand centers and gas-trading hubs to be developed, and for the establishment of a spot market for gas after spot markets mature.

—Leslie Haines

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