China Shale Gas Boom Takes Time to Spark

From China Daily

BEIJING – While the US shale gas industry struggles with oversupply, China has decided to dig the unconventional natural gas harder, as the world’s No 1 carbon emitter hopes to use the alternative fuel to reduce reliance on coal and improve energy efficiency.

The Ministry of Finance in China said Monday it will offer a subsidy of 0.4 yuan ($6.3 cents) for every cubic meter of shale gas produced from 2012 to 2015. Additional subsidies can also be launched by local governments to meet their regional needs, according to the ministry.

On Tuesday, the announcement boosted stocks of companies unveiling shale gas plans, with Huayin Electric Power rising about 10 percent.

“The shale gas subsidy exceeded expectations,” according to a note from investment bank China International Capital Corporation. The CICC report said the subsidy program demonstrated that the government wants shale gas to be commercially produced as soon as possible.

China is estimated to hold the world’s biggest reserve of shale gas, which Moody’s said in March is enough to support the country’s current gas consumption for nearly 200 years and will make it more independent in energy supply.

The country plans to pump 6.5 billion cubic meters of the fuel annually by 2015 and commercialize the production by the end of the decade. However, analysts said the goal is too high to achieve. China has only conducted two rounds of auctions for shale gas exploitation blocks, with the latest held in October.

Investment research published by UBS on Tuesday estimated that China’s shale gas business will be only lucrative enough for mass exploitation if the costs of extraction in the country’s primary reserves can decline below 2.3 yuan per cubic meter. The process would take at least 5 to 10 years, according to the report.

The country needs to drill 20,000 shale gas wells by 2020, but so far it has only completed 63 wells, said Jiang Xinmin, a researcher with energy research institute at National Development and Reform Commission, China’s primary economic regulator.

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