Shale Gas: A New Era of New Energy

In recent years, China’s dependence on foreign energy has increased year by year. In 2010, China’s crude oil dependence on foreign trade reached 53.8%, and net coal imports amounted to approximately 146 million tons, an increase of nearly 41% year-on-year, increasing year by year; at the same time, China’s natural gas consumption demand increased. The speed has exceeded that of coal and oil, and the contradiction between supply and demand of natural gas is outstanding. In 2010, China’s dependence on natural gas reached 11.7%. In the current environment where coal is facing environmental pressures, high external dependence on oil and gas, public safety of nuclear power, and new energy grids meeting resistance, accelerating the development and utilization of shale gas is of great significance for securing energy supply.

Shale gas exploration and development have different characteristics from conventional natural gas. Shale gas refers to unconventional natural gas that occurs in the organic matter shale and its interlayer, and is mainly in the form of adsorption or free state. Its composition is dominated by methane. A clean and efficient energy resource.

Shale gas development has the characteristics of low output per well, low recovery, high investment, rapid production declining, and long production cycle. This results in shale gas only hitting a large number of gas wells, which can only be formed after replacing production to generate scale effect. Stable investment returns, early development and small-scale single wells are difficult to form a stable return on investment.

"It can be seen that the effective mode of shale gas industrial development is the formation of large-scale gas recovery, which also makes shale gas development in the core technology, investment demand, regulatory mode, risk characteristics and other aspects are different from the conventional natural gas development law," China Energy Network analyst Zhang Kui leaves said.

Shale gas deposits are not clear and bring development disputes The shale gas is not included in the 171 kinds of minerals specified in China's "Detailed Implementation Rules of the Mineral Resources Law", and shale gas has not been included in the "Minerals" promulgated by the State Council in 1998. The Measures for the Administration of the Registration of Resources for Exploration Blocks (No. 240 Document) and the “Circular on Further Regulating the Management of Mining Right Transfer” (Ministry of Land and Resources [2006] No. 12) issued in 2006 by the Ministry of Land and Resources.

“This has caused problems such as the fact that shale gas exploration and development in China are virtually impossible and the division of minerals is not clear.” Zhang said, “The classification of minerals does not clearly affect the exploration and development of shale gas resources , bringing about a major controversy over the shale gas development investment subject and development model in the domestic market."

The definition of the shale gas independent mineral species is of great significance. The State Council will approve the independent mineral properties of shale gas will be of great significance to promote the development of China's entire shale gas industry. In accordance with the spirit of the State Council, considering the characteristics of shale gas and the exploration and exploitation progress of shale gas in China, as well as foreign experience, the Ministry of Land and Resources will manage shale gas as an independent mineral species, introduce various investment entities, and formulate relevant support policies. The process of exploration and exploitation of rock gas to realize the scale development of shale gas in China as soon as possible will help ease the shortage of oil and gas resources in China, increase the supply capacity of natural gas, help change the energy structure of China, increase the supply of clean energy, and form a new pattern of oil and gas exploration and development.

Investment in the shale gas industry at this stage needs to be alert to six risks:

In the face of shale gas exploration right tendering and the possible rapid development of China's shale gas industry in the future, market investors need to be treated with caution. In fact, shale gas exploration, development and utilization in China are also urgently needed to seek breakthroughs in management systems, industrial policies, core technologies, price mechanisms, cost and economics, and environmental supervision. If these issues are not resolved as soon as possible, they will be The main players in the investment in the shale gas industry bring greater risks.

Resource Exploration Risks At present, shale gas resources in China have not yet been fully understood. The Ministry of Land and Resources has not conducted a comprehensive survey and assessment of shale gas resources. The existing shale gas resources and major distribution areas are basically based on the US page. In terms of rock gas geological data or domestic natural gas geological data, the number of shale gas resources in China still needs careful exploration, evidence collection and evaluation. Therefore, at the present stage, under the circumstances that the shale gas resources in the country are unclear, the investment in shale gas resources and exploration risks are relatively large.

At the same time, underground mineral resources exploration itself is a high-risk, high-input economic activity. According to experts, there are many dry wells or wells that do not have economic development value in China's conventional oil and gas drilling. The failure rate of early oil and gas drilling is as high as 40%. Deeply buried shale gas exploration and development is a high-risk industry, and investment and mining risks are relatively large.

Technology R&D and Technical Cooperation Risks At present, China has not yet formed a core technology system for shale gas resource evaluation and horizontal wells, fracturing and stimulation production and development technologies, and has not mastered the complete set of technologies for shale gas development. Some of the key core patent technologies are basic. All are in the hands of American companies. Therefore, the market entities that intend to be involved in the upstream exploration and development of the shale gas industry will either develop their own home-based research and development of rock gas development technologies or carry out technical cooperation with the main technical service providers of oil and gas development in the early stage of the shale gas industry.

However, under the present situation that China's oil and gas technology services and engineering team services are not fully marketed, no matter which method will be faced with risks in terms of technical R&D and technical cooperation, if the market investment subject conducts independent technology research and development, it needs to increase. The investment in R&D and innovation of shale gas exploration and development of their own, and the investment of a large amount of R&D funds may bring about economic benefits in the short term and bring about technology investment risks; if the market investment subject chooses foreign technical cooperation, then there are technical levels of the partners that cannot be achieved. The risk of exploration and development technical requirements for a particular shale gas block may also be subject to risks such as foreign-related business cooperation, negotiation, and adaptability of technology localization.

Exploration and development costs Economic risks The economics of shale gas development are very different from those of conventional oil and gas fields. On the one hand, due to the higher initial production of shale gas, shale gas wells can be recovered quickly in the early stage, but in order to maintain production, it is necessary to continue to increase stable investment in the construction of new wells, which requires the investment bodies and development entities to have continuous capital investment. With support. On the other hand, because shale gas is located deep in the stratum and the burial depths of different lands are different, the increase in exploration and development costs caused by the increase in burial depth is an exponential increase, which is a continuous funding for shale gas miners. Strength challenges.

Take the largest Marcellus shale gas field in the United States as an example. Because shale gas fields are extremely thick, with a thickness of 8-80 meters and a burial depth of 700-3000 meters, shale gas producers need to develop this gas field. Drilling 10-22 million wells, the value of each well is between 3 million and 4 million U.S. dollars, so the investment for drilling alone is at least 300 billion U.S. dollars, or that every 1000 cubic meters of shale gas is needed for mining. 197 US dollars investment in drilling.

According to experts, China's shale gas geological conditions may be more complex than in the United States. At present, shale gas wells in China are also mostly parameter wells, and the specific exploration and development costs are not very clear.

Market application price risk At present, China's shale gas industry is still in its infancy. The country has not yet introduced a pricing mechanism for shale gas market application. According to experts' predictions, China may refer to conventional natural gas pricing mechanisms in the future. However, in China's conventional natural gas sector, natural gas wells have very complex gas prices, and the natural gas wellhead price and urban gas prices are strictly controlled by the central government and local governments. This not only results in high prices for industrial and commercial gas, but also a serious low price of civil gas. In the case of the same calorific value, the price of natural gas is far lower than the price of coal, and it does not reflect the value of natural gas as a clean energy source and the market price of natural gas for large-scale application.

After shale gas is produced, it will be used as natural gas. If we continue to use the current natural gas pricing management system, not only will the economics of shale gas exploration and development in China be difficult to achieve, but also the construction of shale gas application market will be difficult to open. This will affect the economic viability of the investment shale gas industry and increase investment economic risks.

In addition, changes in international oil and gas, coal and other energy prices and fluctuations will also affect the economics of shale gas development, which will in turn lead to investment risks. For example, in the United States, the decline in local natural gas prices brought about by large-scale production of shale gas has caused exploration and development activities of some shale gas producers to become unprofitable and even cause huge losses.

Policy Risk At present, China's shale gas exploration and development and market application related laws and policies, as well as shale gas industry development planning and strategic needs have not been clearly announced. Although this time shale gas is listed as an independent mineral species management, the development of shale gas industry in China is at specific operational levels, such as mining rights management, market access thresholds and standards, and related taxation and subsidy policies. The problems have not yet been solved. There is still no legal basis for confirmation and policy basis.

In the current situation of high exploration and development costs of shale gas in the PRC and imperfect application conditions in the shale gas market, the uncertainty in the exploration, development and utilization of shale gas related policies will inevitably increase the risk of investing in the shale gas industry. It is also a great policy investment risk for Huadian Group, which does not have the qualifications and experience in the exploration and development of mineral resources.

Environmental factors In recent years, environmental issues in the development of oil and gas resources have attracted increasing attention, especially following the oil spill from the BP Gulf of Mexico, the nuclear leakage from Fukushima, Japan, and the oil spill accident of the Penglai 19-3 oil field in cooperation with CNOOC and ConocoPhillips. The international community is more cautious about the environmental issues of oil and gas development. Environmental accidents and environmental protection factors that already have oil and gas development have brought huge economic and corporate reputation losses to all investors and mining companies.

At present, shale gas development in the United States is also facing environmental controversy. The various issues and concerns raised by the "Gas land" documentary have caused widespread concern among the government, research institutions, miners, environmentalists, and residents in the United States about the environmental impact of shale gas development. debate. In response to a series of debates over shale gas mining and concerns about potential environmental issues, the US federal government is trying to implement more stringent controls by revising some laws and requiring shale gas producers to strengthen environmental investment and solutions.

The development of shale gas in China has just started and environmental problems and accidents have not yet occurred. However, the Chinese government has expressed concern about the environmental issues of shale gas development, and does not rule out the implementation of strict environmental supervision on shale gas development in the future, and the environmental regulatory policies. Changes also urgently require the attention and attention of market investors.