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Tim Daiss

It has been more than a decade since China started its shale gas trajectory. Now all of that hard work is paying off. Shale gas made up an estimated 12 per cent of China’s natural gas output last year, according to the US Energy Information Administration (EIA).
This is no mean feat. Back in 2013, when China was bent on emulating the US shale oil and natural gas success story, it had so many hurdles to surmount that many analysts thought the government should discontinue its support for the fledgling sector.
Notably, some of China’s most prolific shale basins are at least twice as deep underground as many US shale gas plays, making exploration and production not only more difficult but also more capital expenditure intensive.
The sector also has significant aboveground challenges. These include topography, high population density and lack of access to water sources. Though the situation has improved, there is still weak fiscal and regulatory support for the sector and this has kept development costs high while eating into profits.
But since 2013, Chinese companies have gained a greater geological understanding of shale formations and deployed more advanced hydraulic and automation techniques, steadily growing their shale gas production.
China Petroleum and Chemical Corp (Sinopec) and China National Petroleum Corporation (CNPC), state-run energy giants tasked with developing China’s shale gas resources, saw shale gas production last year jump to 2.51 billion cubic feet per day (bcf/d), up markedly from just 0.02 bcf/d in 2013, according to S&P Global Commodity Insights.

China is one of only four countries in the world producing commercial volumes of shale gas. The others are the United States, Canada and Argentina. The EIA estimated in 2015 that China had 1,115 trillion cubic feet (tcf) of technically recoverable shale gas resources. More than half (626 tcf) are in the Sichuan Basin.
Shale gas is a form of natural gas – largely methane – found underground in shale rock formations. However, extracting that gas requires hydraulic fracking, a controversial production method that consists of using large amounts of highly pressurised water, chemicals and sand to penetrate the rock. Energy companies are often keen to tap shale rock for oil and gas but it is a growing point of contention for environmentalists who point to the harmful impact.
Last year, CNPC produced gas from shale in the Low Cambrian formation in the Sichuan Basin at a depth of more than 14,760 feet. It was the first time that commercially viable gas had been produced from this deeper formation.
The Zi 201 well had an initial production rate of 26.1 million cubic feet per day (mmcf/d). The S&P report said that this commercial rate could signify the entry of the formation into a new stage of large-scale shale gas development. If so, it would no doubt placate China’s energy planners and prove wrong those that thought shale gas development in the country was too difficult.
But even amid China’s increasing shale gas success, the question is whether it still needs this expensively produced gas, especially as funds for the sector could be used to boost the country’s renewable energy sector, particularly green hydrogen.

Cost has always been an issue for shale gas development. PetroChina officials found that exploration and production costs for shale gas were some 20-30 per cent higher than for more conventional resources. Green hydrogen, for its part, has numerous applications and can be used in fuel cells to power vehicles as well as provide electricity.
China is the world’s largest hydrogen producer and consumer. Yet much of that production is brown hydrogen, which is produced using fossil fuels, including coal, so it offers no decarbonisation benefits. To its credit, the Chinese government is going long on green hydrogen development, with a plethora of incentives available. China has also set a target of producing up to 200,000 tonnes of green hydrogen annually by the end of next year.
The sticking point, at least in the medium term, could be the price tag. It still costs two to three times more to produce green hydrogen, which uses renewable energy, than blue hydrogen, which is made using natural gas.




Simply put, the process of producing green hydrogen, compressing it and then turning it back into electricity is still inefficient. But as the technology progresses, costs are predicted to continue to fall. PwC has forecast that green hydrogen production costs will halve by 2030 and continue to fall steadily at a slightly slower rate until 2050.
In that capacity, green hydrogen is the most promising fuel for power plants not only in China but worldwide. It is carbon-free, has a high production energy efficiency and in time, will become the most cost-competitive power sector fuel choice.
This is especially when juxtaposed against shale gas for the power sector. Problematically, gas used for the power sector emits at least half of the carbon dioxide typically released by coal, the dirtiest burning fossil fuel. Worse yet, gas has methane leakage problems across its entire value chain.
As such, it behoves both Sinopec and CNPC to stoke more investment in the hydrogen sector, even at the cost of slowly defunding emissions-intensive shale gas production. To not do so will jeopardise China’s goal of becoming net zero by 2060, while also failing to modernise its power sector.


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For China, choosing green hydrogen over shale gas should be a no-brainer

Green hydrogen is the most promising fuel for power plants not only in China but worldwide. Photo: Shutterstock

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Opinion

China Opinion

News

Knowledge

Topics

China and climate change

Fracking is technically challenging, expensive and polluting. Much better to devote more resources to green hydrogen


Fracking is technically challenging, expensive and polluting. Much better to devote more resources to green hydrogen.


Energy

Renewable energy

Hydrogen energy

Commodities

Sinopec

PetroChina

Business of climate change

Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


For China, choosing green hydrogen over shale gas should be a no-brainer

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Fracking is technically challenging, expensive and polluting. Much better to devote more resources to green hydrogen

Fracking is technically challenging, expensive and polluting. Much better to devote more resources to green hydrogen