TPT July 2014

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76 July 2014
Global Marketplace
Oil and gas
China’s potential in shale gas
promises cleaner air and greater
energy independence, but
development has a long way to go
Seeking to curb its reliance on coal and wean itself from
dependence on energy imports, China has set goals of
producing 6.5 billion cubic metres (m3) of shale gas next year
and 60 billion to 100 billion m3 a year by 2020.
Recently, Eric Yep of the Wall Street Journal reported that,
in the view of energy executives, much remains to be done
if these ambitious production targets are to be met. Here,
condensed and lightly edited, are some highlights of Mr
Yep’s “quick rundown” on the status of Chinese shale gas
development. (“China’s Long Road to a Shale Gas Boom,”
26 March).
› Only two players have made progress on the ground
so far. Leading the pack is state-run China Petroleum
& Chemical Corp, or Sinopec, which in late March said that
its first commercial shale gas field – in the Fuling district of
Chongqing – is running “ahead of schedule.”
In second place is Royal Dutch Shell PLC, which has
partnered with China National Petroleum Corporation. Shell is
producing some tight gas in Changbei, Shaanxi province, and
is implementing a drilling programme in the Sichuan basin,
but trails Sinopec in drilling and production.
› Fewer than 100 shale gas wells have been drilled in
China, compared with around 40,000 wells in the US,
whose shale gas boom China hopes to replicate. Sinopec is
the only national Chinese oil company mandated to fast-track
shale gas production. PetroChina remains focused elsewhere,
with less than 1 per cent of its total budget devoted to shale
gas drilling, according to energy consultants Wood Mackenzie
(Edinburgh).
› The availability of water is key to the hydraulic fracturing
(“fracking”) drilling technique used to access natural gas
trapped in shale rock formations. Newer fracking techniques
have been able to reduce water consumption, but in several
parts of China obtaining water for shale gas drilling will remain
a challenge.
› China’s recent decisions to boost private-sector
participation and implement reforms are expected to help
the shale gas industry, although much more needs to be done.
According to a recent report from Eurasia Group, additional
moves by the national oil companies to open the upstream and
downstream to private capital will also expedite the timeline for
shale production “even if the government remains unlikely to
meet its highly ambitious 2015 and 2020 targets.”
Despite the challenges, Mr Yep emphasised that – given the
sheer size of the estimated reserves of shale gas in China –
development remains a huge prospect for energy companies.
He quoted New York-based Bernstein Research: “Relative to
US shale gas plays, the [reserves] of the Sichuan and Tarim
basins are potentially enormous and, if successful, could rival
the Marcellus in terms of absolute scale.”
› The reference is, of course, to the Marcellus shale gas
formation that stretches across West Virginia, Ohio,
Maryland, Pennsylvania, New York, and into Canada. Probably
the second-largest natural gas find in the world, the formation
has a total area of around 95,000 square miles and ranges
in depth from 4,000 to 8,000 feet. It is estimated to contain
more than 410 trillion cubic feet of natural gas – enough to
supply the energy needs of US consumers for hundreds of
years.
Ambitious Australian LNG
producers ratchet up pressure
for labour reforms that would
enhance their competitiveness
The government of Prime Minister Tony Abbott of Australia
has a two-year window to reform the nation’s industrial
relations system or risk forfeit of A$180 billion in projects
and 150,000 new jobs by 2030, the Australian Petroleum
Production and Exploration Association (APPEA) says. The
non-profit industry group represents companies which explore
and produce oil and gas in Australia.
As reported by James Massola – a political correspondent
in the Canberra bureau of the Sydney Morning Herald, who
travelled to Western Australia as guest of the APPEA – there
are seven major liquefied natural gas (LNG) projects worth
about A$200 billion under construction in Australia. But
the APPEA says the future of the next A$180 billion wave
of projects hinges on cutting project costs, reducing union
power, and promoting flexibility.
APPEA chief executive David Byers told the Herald that
Australia was on track to overtake Qatar as the largest LNG
exporter in the world in the next decade, but that its ability to
capture that second wave of LNG investment was at serious
risk from rising competition in the LNG marketplace. He said,
“If we are able to remain globally competitive . . . we have to
reduce the cost of doing business in this country.” (“Oil and
Gas Industry Pushes Tony Abbott’s Government,” 6 April)
Mr Byers said that the former Labour government’s Fair Work
Act was a brake on productivity and had encouraged high
costs and labour strikes in Australia. Among other demands,
the APPEA wants the Abbott government to end testing for
foreigners holding 457 visas (a sponsorship programme
under which employers bring in skilled overseas workers for
temporary jobs in Australia); to bar unions that are not party to
a labour agreement from entering work sites; and to impose
bigger fines for unlawful strikes.
As noted by the Herald’s Mr Massola, despite growing calls
for more ambitious workplace reforms the Abbott government
has taken a cautious approach, showing no inclination to go
beyond its pre-election promises. These included a review
of the Fair Work Act and the restoration of the Australian
Building and Construction Commission – an independent