OGPSS - Chinese gas shale development

On occasion, the British Government goes through an internal shake-up that leads to various pundits trying to explain to us lesser mortals what it all means. Thus, with changes in the Ministers who work in the Department of Energy and Climate Change, there is a suggestion that the UK is pulling back from their commitment to wind energy, and instead beginning to look more seriously at shale gas supplies.

The UK is not unique. The success of the American development of long horizontal well drilling, with follow-on multiple fracture of the shale beds to release gas at economic volumes into the well, has caught the world’s attention, and with it a desire to emulate that success. Though it should be said that the American success comes in part with the volume of the release in supply and the consequent fall induced in the price of natural gas. That, in turn, is providing a less well recognized boost to the US economy, through lower energy costs.

This has not been lost on the Chinese, who are fully aware of their own need to keep finding resources at as cheap a price as possible to keep their own economy growing. It is, in relative terms, however, still an industry in its infancy. Earlier this year China agreed to buy 65 billon cu m of more conventionally produced natural gas from Turkmenistan – about twice the initial buy - roughly the equivalent of 6.3 billion cu ft/day (bcf/d). In addition, from April 1, China has started to import natural gas from Uzbekistan. That sale has been projected to be at around 10 bcm/year (1 bcf/day) and there has been a move in Uzbekistan to increase coal-fired power generation in the country in order to free up more gas to meet export demands as the sales to China ramp up to perhaps double this level in the next few years.

Further China still has the option of buying more natural gas from Russia, which has the potential to supply an additional 65 bcm/year into China. (6.3 bcf/d)

Figure 1. Path of the natural gas pipeline from Turkmenistan to China (Hydrocarbons technology )

To put these numbers into perspective China consumed around 12.5 billion cu ft/day (bcf/d) in 2011, which translates into roughly 130 bcm/year, but this rate increased 20% (23 bcm) from 2010 to 2011. (BP 2012 Statistical Review). It is also on track with the stated Government plan that China will consume some 375 bcm/yr (36 bcf/day) of natural gas by 2020, roughly tripling the current volume.

Figure 2. Changes in Chinese use of Natural Gas (Energy Export Data Browser )

Thus, although China has been able to provide for most of its needs until relatively recently, it is now starting to buy increasingly large volumes of natural gas on the international market, just to keep up with demand.

There is a flexibility in the supply of natural gas, through pipelines, that make it easier for a country with much mountainous terrain in the West to be able more easily to supply energy to more remote corners, without the heavy infrastructure demands that would be required, for example, to run new rail lines for coal delivery.




Figure 3. New gas pipeline being laid in China in 2009.

This June Sinopec has started drilling for natural gas in the shales under Chongqing in Sichuan Province. It is the opening step in developing a resource that might be as large as 1,275 Tcf, according to the EIA.

Figure 4. Main Sinopec natural gas trunk lines. (after Sinopec )

Note that while the supplies coming in from Turkmenistan and Ukbekistan are more easily connected to the northern of the trans-country pipelines, the new drilling in Chongqing looking for shale gas, will supply that into the more southerly of the two major pipelines that Sinopec runs across the country.

The Sichuan-Eastern China Natural Gas Transmission Pipeline passes through eight provinces including Sichuan, Chongqing, Jiangxi, Hubei, Anhui, Jiangsu, Zhejiang and Shanghai;the length is 2,246 km.

There will be nine wells in the initial test site, with the anticipation that this will yield some 11 to 18 billion feet of gas (per year). Outside this unconventional source of natural gas, Sinopec produced some 517 bcf of natural gas in 2011, up 76 bcf from 2010. Much of this came from the Sulidge gas field in the Ordos Basin , which is also considered to have the second largest potential natural gas resource in shale in the country.

It is hoped that with the development of the shale gas in the two Basins that shale gas will provide some 6.5 bcm/yr by 2015. As with the Chongqing field, there are existing pipelines at the Ordos field that will allow a fairly simple tie in to the national network to bring the new fuel to market, once produced.

Figure 5. Potential gas shale fields in China (IEA via Washington Post )

The potential of this new market for technology has already led Schlumberger to buy into a Chinese Oilfield Services company that will likely be used in the fracturing of the wells, necessary to China since they still lack expertise in the new technologies as they are evolving.

That evolution was highlighted recently by articles that have highlighted a number of different technologies that are now both lowering the costs, and increasing the performance of well fracking.

These have included the Hiway technology that is now being introduced and which, as with some of the other innovations, allows a significant savings in water, and proppant use during operations, while lowering costs and increasing productivity. These factors, particularly the significant lowering of cost, are likely to help in improving the economics of a shale gas industry which continues, at least in the United States, to have problems with return on investment, despite, or perhaps because of the large volumes of resource that it is making available. That is, however, much less likely to be a problem with the Chinese resource.

A little more on coal mining

I am reminded of the high price that nations have to pay, on occasion, for coal by the sad news of the death of thirty miners in a gas explosion at the Tonghua mine in the Chongqing municipality of China. Emotions over coal mining can become easily stirred by the inflammatory words that are sometimes used about the industry that we forget that there is often a real personal cost that comes with the provision of energy to the nations and their people. But the accident helps to emphasize a comment that I believe is important for the longer term preservation, not only of the industry, but also of its people.

In this case, as so sadly is the way in many, the result came about because known safety rules were apparently violated.

"The accident is caused by an illegal practice which violated the mining rules," said Luo Lin, chief of the State Administration of Work Safety said.

. We see the same thing in accidents that occur around the world. But is not only in the “wink and nod” violation of regulation of safety practices in the underground and surface that we should express concern. There are other factors, relating to mining operations, where, I believe that the industry is not doing itself any favors by trying to get around existing regulations.

I was led to this particular topic by a couple of articles (in the Los Angeles Times and the West Virginia Gazette, about the Administration attitude to mountain top removal of material to gain cheaper (and safer) access to the coal underneath. Essentially a number of President Obama’s supporters have been disappointed over his recent actions in regard to the policy in regard to this practice.
Basically they had been led to believe that the new Administration would ban the practice, but instead:

But in recent weeks, the administration has quietly made a decision to open the way for at least two dozen more mountaintop removals.

In a letter this month to a coal ally, Rep. Nick J. Rahall II (D-W.Va.), the Environmental Protection Agency said it would not block dozens of "surface mining" projects. The list included some controversial mountaintop mines. . . . . . . . "It was a big disappointment," said Joan Mulhern, a lawyer for Earthjustice, an environmental law firm that has led court challenges to mountaintop removal. "It's disturbing and surprising that this administration, headed by a president who has expressed concern about mountaintop removal, would let such a large number of permits go forward without explanation."

On the other hand this may be an Administration that is beginning to discover some of the harsh realities of life. That we do need coal, and that it can be mined in a variety of ways, depending on how thick the coal is and how deep. And that safe cheap means of mining are better than the alternatives.

Mountaintop Mining is a particularly controversial method. It is basically used in Appalachia where the coal appears as layers within the rock that make up the hills of that country. The EPA have described the process with diagrams of the different stages of the process. There are also photos on the site of the various stages of the process.

Now while I am in favor of methods of mining that make it safer for those that have to work to extract coal from the ground, (surface mining being much safer than underground) and strongly believe that coal will end up being as least as strong a supplier of energy to the global community in this century as it has been in the past, there are some times where one should be conscious of a larger goal than just producing coal. For example, this week A.T. Massey have been seeking to get a permit to carry out mountaintop removal as an expansion of their current mining in Boone County , West VA. But the regulators are balking, because Massey is apparently trying to get away with as little surface reclamation, after mining, as they can get.

In its permit application, Independence Coal says, "The pre-mining capability of the land is limited to unmanaged forest land and wildlife habitat because of the steep slopes and limited access.
"These steep soils are best suited to trees and shrubs rather than agricultural or other uses," the company said. "The inaccessibility of the area promotes a viable habitat for many wildlife species." . . . . . . In its permit application, Independence says the flat land created could be used for a variety of beneficial post-mining land uses. But the company writes off most of those possibilities.

"Because this mining and reclamation plan will produce level areas on the mountaintop and hollow fills, a variety of land uses after reclamation may be possible," the permit application states.

"Soils are generally too poor to provide intensive agricultural or horticultural development, although hay production and grazing has proven successful in many mined lands in the region," it says.

"Commercial or residential development of this property is not considered feasible at this time, but the nearly level land created by this project may present a future opportunity for economic or residential development."

Independence proposed "to reclaim the permit area to wildlife habitat and recreation." "A diverse vegetative cover will be established, providing habitat, food sources and protective cover for a variety of wildlife," the permit application said. "Over time, native plant species will likely invade the area, adding to species diversity.

"The surrounding area is covered in upland forest. The creation of wildlife habitat on the reclaimed mine site is therefore a viable postmining land use choice."

Now recreating a good wildlife habitat is not, in itself a bad thing. Regenerating the upland forest, with open pastures, may well encourage increased diversity of wildlife over that currently extant. But somehow one does not get the impression that the company intends to go that extra mile to make the results, post mining, of maximum acceptance to the community.

And this is my gripe, I suppose. We need coal as an energy source, the demand will be such that the price that will be paid for it will be quite sufficient for an adequate profit. Under such conditions it behooves the mining companies to go that extra mile to ensure that the land that they leave behind them is in better condition that when mining started. Further it is the role of the government to ensure that regulations are followed in a rational and reasonable manner to the good of all concerned. When this is not done then we find the problems that have plagued the industry around the world. Maybe it is time that we grew beyond that.