Shale gas sector gears up in China

Updated: 2013-10-19 08:26

By Du Juan in Yantai, Shandong (China Daily)

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Two months before the expected third round of bidding for shale gas exploration rights, a Chinese firm on Friday successfully tested extraction equipment.

The equipment will operate in complex geographic conditions, according to the manufacturer, the Shenzhen-listed Yantai Jereh Oilfield Services Group Co Ltd, which is based in Yantai, Shandong province.

"The machines can be used in areas with poor roads and uneven land for long operational periods with a heavy workload," said Cui Rizhe, the director of the manufacturer's technology center.

As the country's natural gas consumption continues to rise, unconventional energy, such as shale gas, have become popular in recent years.

The United States - the world's largest shale gas producer - is expected to become an energy exporter soon, because of its large-scale and successful shale gas development projects.

According to the US Energy Information Administration, China has the world's largest shale gas reserves, estimated at 36 trillion cubic meters.

But the difficult geographic conditions in areas with shale gas blocks - a very different situation from that seen in the US - pose many obstacles for Chinese extraction projects.

The country's shale gas exploration efforts are still at a preliminary stage, with issues in terms of water consumption and technology, in addition to the geographic problems.

According to Cui, shale gas developers could save 40 percent of labor costs, 50 percent of diesel consumption and 60 percent of their water usage if they use his firm's equipment.

"The lower costs will greatly help China at the current stage of the exploration projects," Cui said.

The whole set made available by Jereh includes 15 types of equipment, providing the technology needed for the shale gas fracturing process, he said.

A shale gas exploration firm already has shown interest in leasing the equipment, Jiang Xiaobao, Jereh's vice-president, told China Daily on Friday. He declined to disclose the name of the potential client.

Jereh - the only Chinese firm that supplies shale gas equipment to North American companies - has been developing machines in recent years tailored for Chinese projects, hoping to seize business opportunities during a boom in the sector.

The company exported shale gas fracturing equipment to the US in 2011.

Jereh's exports will account for about 40 percent of its total revenue in 2013, but its long-term goal is to expand that figure to 60 percent in the next five to six years, said Cheng Yongfeng, the company's board secretary.

"We'll expand to markets including Russia, Central Asia, the Middle East and Kazakhstan in the future to achieve that goal," he said.

The third round of bidding for China's shale gas exploration rights is expected to be held by the end of the year, and its scale will surpass the total of the previous two rounds, said an industry observer close to the Energy Research Institute of the National Development and Reform Commission.

"In the technology sector, China has made some breakthroughs which will help it cut exploration costs," said a report from Sublime China Information Co Ltd, a domestic commodities consultancy.

In the previous two rounds of bidding, the companies' level of actual exploration after winning the bids was much lower than expected, which has raised some questions.