Never mind the environmental benefits or the reduction in import costs or the economic opportunity to be had from shale gas development in China, of more interest to us is the specialist metals demand.
Hydraulic fracturing is a technically sophisticated process requiring special steels with high proportions of minor metals, both in the drilling and in the fracking and extraction stages. China is blessed with 1,115 trillion cubic feet (31.2 trillion cubic meters) of technically recoverable shale gas reserve the US Energy Information Administration estimated last year, compared to the US which has about 665 trillion cubic feet (18.6 trillion cubic meters), according to a report by Bloomberg.
Abundant Underground Supply
China’s own Ministry of Land and Resources estimates the figures at some 30% less but even so the total recoverable reserves in China are potentially huge. The problem is the country is facing many challenges in realizing this potential, making it unlikely it will mirror the US meteoric rise in production.
The first challenge is a more complex geological environment. Shale beds in China are, on average, deeper than in the US, more heavily faulted by underground movements and the rock types are harder. Reserves are also in more mountainous areas making transportation and operation of rigs more challenging and construction and extraction by gas pipelines more expensive. As a result it is believed more wells are likely to be required for the same production volumes and they will be at higher cost, although early wells in Sichuan have shown good flow rates.
Bullish Extraction Targets
The Chinese have, as always, set targets. The nation aims to achieve output of 6.5 billion cubic meters by 2015 and as much as 100 billion cubic meters by 2020. Compare that to the US which reached about 290 billion cubic meters in 2012 and is operating some 40,000 wells, China would, at the same level, require some 13,800 wells. With only a little over 100 wells currently operating, China clearly has huge potential to suck up equipment and create infrastructure to meet its targets.
Just a few years ago, it was taken as gospel that China would continue to build coal-fired power stations to meet its burgeoning power demands but the focus on pollution, driven by the risk of civil unrest if solutions were not quickly found, has already created the world’s largest wind and solar power industries and slashed the cost of solar cells and wind turbines as a result. Tight natural gas supply is an equally attractive proposition for Beijing and resources, tax breaks, loans and pressure will be applied to make sure both state and private enterprises are given every incentive to exploit the resources.
The opportunity for western firms and the change in dynamics this will bring to equipment manufacturers’ markets should not be underestimated. Chinese firms already supply rigs to the US but lack capability in many of the more sophisticated technologies around fracking, extraction and processing. That will change over the next few years and represents both an opportunity and a threat to western firms in this sector.