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Costly imports

The country has been a net natural gas importer since 2007. According to IEA's projection, China is likely to double its natural gas imports over the next five years. During the same period China will also become the third-largest natural gas importer in the world after Europe and the Asia-Oceania region.

"There is no country in the world that wants to be reliant on other nations for energy supplies. The reasons for this are both economical and political," says Howard Rogers, director of the Natural Gas Research Programme at the Oxford Institute for Energy Studies in Oxford, United Kingdom.

Expensive energy imports put nations in a vulnerable position, especially when there is political turbulence across the world, says Youn-kyoo Kim, associate professor of International Studies at the Seoul-based Hanyang University in South Korea.

"The US success in shale gas has already made it less reliant on imports from the Middle East. Like the US, if China achieves a shale gas revolution it will also be less reliant on costly gas imports from Russia and the Middle East. It could also pave the way for a new cooperation mechanism in Northeast Asia," Kim says.

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The shale gas revolution has helped the US to become the leading nation in terms of natural gas stocks and also cut its oil imports from 60 percent of total consumption in 2005 to 46 percent. Over the next five years, the US is also set to be a leading exporter of natural gas.

"I think China is very impressed by what has happened in the US shale sector and would like to replicate that success. However, I think it will be some time before China can achieve significant volumes of shale gas output," says Rogers from the Oxford Institute for Energy Studies.

Short run

It took the US more than 100 years, after accidentally finding shale gas, to find an affordable way to extract the natural gas from shale rock and for commercial production.

China, which started focused research on shale gas only in 2009, is looking to shorten the long march into a short run.

According to China's first shale gas development plan, which was released in March, the country is set to increase its currently next-to-zone production to 6.5 billion cu m a year by 2015, and then to 60 billion cu m to 100 billion cu m a year by 2020.

The plan is quite ambitious as conventional natural gas production in China last year was just about 100 billion cu m. By 2020, the government expects shale gas consumption in China alone to be 100 billion cu m.

That is easier said than done.

Several countries from Asia and Europe have in the past tried to emulate US success in shale gas but none of them have been quite as successful.

Despite Poland's strong desire to develop shale gas and to reduce its dependence on gas imports from Russia by offering a number of mining exploration rights to foreign companies, it has not achieved much success. Global oil major ExxonMobil had earlier this year said it was ending its search for shale gas in Poland after two wells failed to yield gas flows that were substantial enough to make commercial development viable.

Andrzej Pieczonka, first counselor at the Polish Consulate in Shanghai, says shale gas is just like a new baby. "Everybody is happy to have a new baby, but how to raise it is often a major problem," he says.

Different strokes

It took the US many years to develop and properly apply the current technology, though the companies were well aware of the shale gas reserves even as they were drilling/exploring for conventional oil and gas reserves.

China drilled its first test well for shale gas in 2010, and had 63 test wells in operation by the end of April. In contrast, the US has more than 80,000 shale gas wells in commercial operation.

Li Yuxi, a senior researcher at the Ministry of Land and Resources, says that though the early results from most of the test wells are optimistic, the outcome is still not that rosy enough to ensure profitable commercial production.

Whether an investment is profitable or not depends largely on the cost and returns from the project. According to Li, the cost of drilling shale gas in China ranges from 20 million yuan ($3.2 million) to 100 million yuan, depending on the geological situation. The average cost in the US is $3 million. "We are still in the early stages of shale gas development in China. We need to learn more about it, no matter what the cost is," Li says.

However, for investors who are interested in shale gas, cost does matter. With such high cost and an unpredictable gas price in the future, the risk of investing in shale gas is high, says Li Jun, board secretary of Zhongtian Urban Development Group, who often travels across China to attend all kinds of conferences, seminars and summits to gain information about shale gas.

Li says the listed real estate company from Guizhou province with total assets of more than 15 billion yuan is contemplating an entry into the shale gas sector.

"We can handle the risks. But I am not sure whether many of the smaller private companies have the requisite funds to drill shale gas wells. It is not like companies can drill just one well and start making money. In this business you need to drill a lot in order to find the one well that can yield abundant gas," Li says, adding that, small and medium-sized companies have fueled the shale gas revolution in the US.

Falling prices

But with more investment in the development of the sector, the cost is expected to drop.

Ye Dengsheng, general manager of a downhole service company at Chuanqing Drilling Engineering Co, an affiliated company of China National Petroleum Corp, which has drilled as many as 18 shale gas wells in China, says the extracting cost will decline further with the development of better management techniques.

He says that his Chengdu-based company spends about 60 million yuan to 70 million yuan on one well. "We plan to further hone our skills and improve efficiency. This will help reduce overall costs for each well to around 40 million yuan to 50 million yuan," he says.

According to Ye, drilling shale gas is much more difficult than conventional natural gas. "It requires more machinery, equipment and workforce. I think we've already mastered the required cutting-edge hardware for shale gas development. However, from a software perspective there are still lots of things that need to be done," he says.

It is true that for China to "re-discover" and "re-invent" these approaches will take a long time. However, it is still unclear whether China will develop a framework that will allow US companies sufficient profit incentives to transfer the technology to Chinese companies.

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