A Play for China's Coming Shale Gas Boom

By: Yiannis Mostrous, Investing Daily

China recently announced aggressive shale gas production targets of 6.5 billion cubic meters (cm) of natural gas by 2015 and up to 100 billion cm by 2020. Although the shale gas story is still in its early stages inChina, the country’s plans for huge expansion are for real.

China is a prisoner of oil producers, which puts energy security at the forefront of the Chinese leadership’s strategic economic plans. The country is projected to import at least 10 million barrels of oil per day by 2020, 10 percent of estimated global production. While natural gas only plays a minor role in primary energy use at around 4 percent,Chinaintends to increase the proportion of gas in its total energy mix.

China enjoys huge unconventional natural gas resources. Taking its cue from the success of the US in this sector,Chinais poised to greatly reduce its dependency on foreign suppliers for gas.

As Peters Staas explains in Shale Oil and Gas: Energizing the US Economy,US shale production was very low between 2000 and 2005, but it took off after 2006, soaring from 15 billion cm in 2005 to 31 billion cm by the end of 2006. Since 2006, growth has hovered at around 50 percent per year

China currently does not have any domestic shale gas production. Consequently, high gas imports will be unavoidable even beyond 2020, unless the country starts hitting its targets on shale gas production. The latter will prove to be a challenge, givenChina’s lack of experience with shale gas geology and procedures. However, this challenge presents a huge investment opportunity.

Chinais preparing to award 20 new shale gas blocks, which should spark a wave of exploratory activity in the sector. Chinacurrently has 62 shale gas wells in trial development zones. See Shale Oil and Gas in China for more onChina’s shale growth story.

One way to gain exposure to this long-term investment trend is through Sinopec SNP. The company announced last month that it has started development of its shale gas project in the Peiling block in Sichuan, aiming to produce 0.3-0.5 billion cm of shale gas by the end of the year and 1 billion cm by the end of 2013.

Sinopec has budgeted more than USD12 billion for upstream operations for this year and management expects that a big part of this money will go towards unconventional gas development. The company is also working with BP BP and Total TOT on other shale development blocks. For more on US shale deposits, check out the free report, Profit from the Shale Gas Revolution.

Article originally posted here.