8-26-13 11:07 PM EDT | Email Article

The future


In 2010, natural gas accounted for only 4.4% of China's primary energy consumption, significantly lower than the world average of 23.8%. The latest five-year plan, wants this to increase to 7.5% by 2015.


Despite the appeal of shale gas production, the country will still need to rely on conventional natural gas to meet this ambitious goal.


The vice chairman of the advisory committee of Sinopec Exploration & Development Company's Research Institute, Zhang Kang, said the country had to focus on increasing reserves and production of conventional oil and gas.


He said development of nonconventional resources should be done first in older oil and gas areas and areas with relatively developed economies.


"That's because not only do we already have relatively detailed geological and source rock data in old oil and gas areas, but equipment and infrastructure for exploration and development in those areas is relatively complete," Zhang said. "Market demands in areas with relatively developed economies provide the conditions for local usage."


He also said some shale gas goals may be out of reach. "They shouldn't have established overly high goals for shale gas production in the Twelfth Five-Year Plan, but should have set high goals for exploration of shale gas reserves."


The China director of management consulting firm Accenture, Yang Wei, said that the reason that shale gas development in the United States has been profitable was because an active industry chain has formed, which spurred operators at every stage.


Unlike in China, small and mid-sized companies -- not traditional oil and gas powers -- account for over 80% of U.S. shale gas production.


In 2005, 23 companies were developing shale gas projects in the United States. Two years later this number jumped to 64. In the face of pressure from high costs, small and medium-sized companies are quick to upgrade technology. This has been the primary driver of rapid technological advancement in U.S. shale gas extraction.


"From the very beginning in the United States, it was small companies, not large companies, that had a handle on the technology because their investment recouping models were different," Chen said.


"Their shale gas development was more like a process of continuous production. In this model, when they extract gas, they immediately sell it, and use that money to continue developing."


The director of the Hope Investment Management Co., Fang Fenglei, said China's government-led initiative is inefficient.


Fang said conditions in the country don't allow for private companies to spur development through innovation.


On the one hand, there are too few private companies, and their capacity for investment and risk-taking is too small. On the other, capital markets are uncooperative, and there are obstacles to fundraising at every level.


Read this report on Caixin Online. Follow Caixin on Twitter at @Caixin.

-Pu Jun; 415-439-6400; AskNewswires@dowjones.com


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(END) Dow Jones Newswires

08-26-13 2307ET

Copyright (c) 2013 Dow Jones & Company, Inc.
Copyright 2014 MarketWatch
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