Shale narrative fizzles in China as clean energy and imports lead the way.

Bloomberg: “China has sharply cut its output target for shale, signaling the country’s drilling boom is fizzling out before it even gets going.”
“The nation has reduced its goal for the end of the decade to a third of an earlier estimate, as difficult geology, lack of infrastructure and limited exploration rights conspire against shale-gas ambitions. Big gas import deals, a lower oil price and China’s commitment to clean energy are also weighing on shale’s promise.”
….China, which has the world’s largest shale gas reserves, awarded 18 companies exploration rights in two auctions in 2011 and 2012, in an attempt to replicate the U.S. shale boom and cut its reliance on imports. Only one of these, state-owned energy giant China Petroleum & Chemical Corp. (386), has started to commercially produce the fuel. It’s bigger rival, PetroChina Co. (857), is also producing shale gas from its own reserves.
Earlier this week, China’s State Council, its top decision-making body, cut its 2020 output goal to “over 30 billion cubic meters” from as much as 100 billion cubic meters, confirming earlier reports that China had scaled-back its target.
A third round of auctions, originally expected this year, has yet to be announced. The Ministry of Land and Resources may be delaying the auction as it figures out how to attract the kind of bidders who can deliver on shale, according to Lin Boqiang, director of the Energy Economics Research Center at Xiamen University.
….Other factors may be contributing to the waning of China’s shale hopes. Lower crude prices since the summer leaves its production more costly by comparison — Brent, the global benchmark, has fallen 28 percent this year to below $80 a barrel — while China’s pledge last week to cap carbon emissions by 2030 and turn to renewable sources for 20 percent of its energy lessens shale development as a priority.
Two import deals with Russia this year, which would supply almost a fifth of the gas supplies China needs by the end of the decade, have also reduced the urgency to drill for the fuel, UOB’s Shi said.
….Drilling costs in the U.S. are as low as $3 million a well, according to Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co. The cost for PetroChina and Sinopec are as much as four times that, according to company data.
In one case, it took 89 days to drill a well in Sinopec’s Fuling blocks, versus an 18-day average in the Bakken region of North Dakota, according to Bloomberg Intelligence Energy Analyst Grace Lee. Fuling is considered China’s best shale gas discovery.
While China’s 1,115 trillion cubic feet of reserves are almost double that of the U.S., it plans to produce just 6.5 billion cubic meters of shale gas next year. That compares with the 266 billion cubic meters produced by the U.S. in 2012, according to latest government data. The U.S. drilled over 30,000 shale gas wells last year; China has drilled fewer than 200 since 2012.
China’s shale basins lie beneath mountainous terrain and are much harder to tap than those in the U.S. “

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