Wednesday, August 27, 2014

1520. Natural Gas Production Falls Short in China

By Keith Bradsher, The New York Times, August 21, 2014

SHOUYANG, China — Jin Peisheng, a drilling rig foreman, knows the challenges of trying to extract natural gas from a coal seam under the cornfields here in north-central China.
Cracks in the subterranean coal are flooded with water that needs to be pumped out before the gas will emerge. The coal seams are so cold that gels injected into the well, which are meant to help release the gas, sometimes become gummy and block the flow instead. And there is constant concern about hitting the labyrinths of active coal mines that honeycomb the area.
“The big uncertainty is what’s underground — if there’s a tunnel, that’s a big danger. It would be dangerous for the miners,” Mr. Jin said.
Faced with severe air pollution from coal and a rising dependence on energy imports, China has been eager to follow the United States by rapidly increasing natural gas output. Replacing coal with natural gas has also been central to Beijing’s hopes to limit emissions of global warming gases in China, the world’s largest producer of carbon dioxide by a wide margin.
But China’s ability to extract sufficient natural gas is in serious doubt. Despite heavy investment and strong government support, China’s natural gas production is growing at a slower pace than its decelerating economy. China’s production of natural gas increased just 6 percent last year and 4.4 percent in 2012.
China’s main problem is that shale gas production has fallen far short of expectations. That has left the country relying on alternative methods considered also-rans by American standards, like pumping natural gas from coal fields.
Now, the Chinese government appears to be acknowledging the shortfall. Wu Xinxiong, the director of the National Energy Administration of China, unexpectedly said in a speech this summer that China’s target for domestic natural gas production in 2020 was only 30 billion cubic meters for shale gas and another 30 billion cubic meters for coal seam gas. Just two years ago, the National Energy Administration estimated that China would produce 60 billion to 100 billion cubic meters of shale gas alone by 2020.
If Mr. Wu’s forecast comes true, shale gas and coal field gas would each supply only 1 percent of China’s electricity generation needs in 2020.
“If the population and economy keep growing, and extensive energy use continues, sustaining China’s energy supply will be hard,” Mr. Wu warned.
Gas production has been slow to rise despite energetic efforts by Beijing to make it financially attractive for energy companies, including direct subsidies for shale gas production. The Chinese government also announced on Aug. 13 that it would raise urban wholesale prices for natural gas at the end of the month by roughly 18 percent for industrial users.
With domestic supplies increasing slowly, China has been looking elsewhere. It agreed in May to buy gas from Russia under a 30-year, $400 billion deal. And it has begun importing liquefied natural gas from Qatar, Australia and Yemen.
The natural gas is sorely needed. Beijing plans to retire four coal-fired power plants by the end of this year and replace them with gas-fired plants in an effort to reduce air pollution.
But China does not have enough gas for a larger-scale conversion of power plants to gas. So the national government has already told smaller, less influential cities to stick with coal for now, and has discouraged businesses from investing heavily in gas-fired equipment.
Gas had looked like one of the few remaining ways for China to reduce its addiction to coal. China’s nuclear power program slowed after Japan’s triple meltdown in Fukushima. Efforts to expand hydroelectric power have run into environmental concerns as well as the huge cost of resettling people from areas flooded when dams are built to make artificial lakes. Solar power and wind power are growing rapidly, but from small bases.
The revised figures from Mr. Wu represented China’s first official acknowledgment of what Western experts have been saying for many months: The country will not approach the success of the United States in shale gas anytime soon.
Shale gas deposits lie much deeper in China than in the United States, which greatly increases drilling costs. Chinese shale also tends to be laden with clay and is much wetter than American shale, making it harder to crack the shale and release the gas through pumping liquids and sand underground, the process known as hydraulic fracturing, or fracking.
After 40 million years of powerful earthquakes as the Indian subcontinent plowed into southern Asia, the main shale gas seams in western China are jumbled underground, instead of lying flat like a stack of pancakes, as in the United States, said Jeff Layman, a partner in the Beijing office of Baker Botts, the big Houston energy law firm.
In March, Sinopec, a Chinese oil giant, announced the country’s first commercially viable shale gas deposit, located outside Chongqing, and predicted annual production would reach a hefty 10 billion cubic meters by 2017. But the company has released few details, prompting foreign energy experts to begin asking whether all of the seams are truly shale, although Sinopec insists they are.
Neither Sinopec nor its rival, PetroChina, has announced any other large fields despite extensive drilling. Both of these state-controlled companies said in March that they were still drilling actively for shale gas in China even as they cut their worldwide exploration budgets for oil and gas after weak results.
Sinopec and PetroChina, which will hold earnings conferences on Monday and Thursday, respectively, are targets of broad government inquiries into possible corruption, including in their contracts with outside vendors. This has made their executives reluctant to approve further shale drilling contracts, said a Chinese oil industry executive who insisted on anonymity because of the legal issues involved.
China needs to develop better technology before tackling many of its shale deposits, said another executive, Yin Shenping, the chairman and chief executive of Recon Technology, a shale gas services company based in Beijing. “It’s obvious that the country has now decided to slow down the drilling process,” he said.
Lower expectations for shale gas have resulted in greater interest in another category of unconventional gas, so-called coal bed methane. In this process, natural gas is gathered by drilling into underground coal seams.
The United States, Australia and other countries have used this method for several decades. But they often tap the natural gas before coal extraction begins, to reduce the risk that gas will explode in coal mines.
China’s problem is that many of its coal fields already have working mines. China has 13 percent of the world’s coal reserves but 47 percent of the world’s production. Many Chinese coal mine operators have opposed nearby coal bed methane production, fearing that pumping sand and chemicals into wells to liberate gas might have the unintended effect of driving gas into their mines.
The Chinese government has negotiated with mine operators and villages here in Shouyang, 220 miles southwest of Beijing, to authorize a large coal bed methane project, led by Far East Energy Corporation, based in Houston. Michael R. McElwrath, chief executive of Far East Energy, said he believed the project would improve coal field safety by removing explosive gas from subterranean seams.
But the Shouyang coal field is unusual within China because the coal is fairly permeable, allowing gas to flow underground. If there are no more discoveries of permeable coal, Mr. McElwrath said, “we will have a nice little project but the industry will not take off.”
Far East Energy faces its own issues. In June, the company announced that it had shut a quarter of its 160 wells for various reasons, such as gummy gels or a lack of gas-gathering pipelines; it plans to restart most of those wells later. “We are considering a variety of strategic transactions to fund the coming year’s drilling activities,” Mr. McElwrath said, declining to elaborate.
Crews have been working here over the last several years, laboring in a countryside of yellow dirt so soft that even small streams cut steep-flanked gorges 50 feet deep or more. Some of the locally rented equipment uses designs seldom seen in the United States since World War II, an indication that China still lags in drilling rig technology. At each location, workers struggle with the many idiosyncrasies.
“In the United States, it comes to the surface easier,” said Robert Hockert, a longtime Wyoming shale gas and coal bed methane drilling manager who is now the China country manager for Far East Energy. “Here, you’ve got to work at it.”

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