Gas production in China reached 16.5 billion cubic feet per day (cfd) in 2019 and is projected to continue to increase in the medium to long term, driven in particular by gas output growth in the shale gas segment. This article assesses the status and outlook of China’s gas segment, illustrated by the three key drivers: production, economics of unsanctioned discoveries, and capital investments.
China is the largest gas producer in Asia, taking up more than 25% of the market in 2020. And its gas contribution continues to grow, highlighting the importance of the country’s oil and gas industry on a regional and global level. Figure 1 depicts the gas production forecast for China from 2010 to 2025, split by various sources of production. Total supply reached an all-time high of 16.5 billion cfd in 2019, driven by growth across all sources of production. In absolute terms, conventional output increased the most, by over 700 million cfd, supported by the ramp-up on the Tarim project. Particularly, gas output on Anyue Phase 1 and 2, Puguang 2, and Hetianhe Phase 2 fields has increased significantly as these fields reached plateau production last year. Over the next five years, gas output from conventional sources of production is expected to remain flat, supported by multiple large fields which are already producing at peak. Nevertheless, total gas production in the country will continue to grow, driven by unconventional sources of production. As such, tight gas and especially shale gas will drive future output increases in China. Among tight gas projects, Changqing will drive future output growth with the Sulige field boosting gas supply by 350 million cfd as soon as 2020. Post 2020, tight gas additions are set to remain relatively stable with about 50 million cfd of growth per year on average up to 2025. When it comes to shale gas, Longmaxi shale projects will provide stable gas output increases going forward. Fields in Weiyuan shale and Fuling shale in particular will contribute to gas supply growth over the next five years. Thus, shale gas additions will stand at over 400 million cfd per year. In total, gas production in China is projected to reach 17.2 billion cfd in 2020, growing by 4% year-over-year, and reaching 19.6 billion cfd by 2025.
Figure 2 depicts total recoverable resources and breakeven gas prices at the date of sanctioning for the top gas fields expected to be approved within the next five years in China. Notably, Sinopec discovered the Eyiye shale gas field in January 2018, which is a major discovery located in central China’s Hubei province. It holds an estimated 1.8 trillion cubic feet (Tcf) of recoverable gas resources and has a breakeven price around $4 per thousand cubic feet (kcf). The shale gas development in the Yuanba field, where Sinopec’s test well flowed with shale gas in early 2012, is estimated to hold 1.3 Tcf of recoverable resources and has a breakeven price of $4.40 per kcf. Apart from the expensive Linxing West coalbed methane project, which has an estimated breakeven of $7 per kcf, China’s other large discoveries waiting to be developed are conventional. These include coal-to-gas projects (CTG), such as the second phase of the Qing Hua CTG project and the Shanxi CTG project, which have a breakeven price around $4.3 per kcf.
Figure 3 shows the total investments in China’s gas and gas-condensate fields from 2010 to 2025, split by gas production type. Capital expenditure reached $14 billion in 2019, nearly matching the all-time high seen in 2013, but is now projected to decrease by 25% per year in 2020-2021. Spending levels on producing fields, especially within the Changqing and Tarim projects, are driving the capex decrease as fields in these projects have largely reached production plateau, meaning that less investment is needed compared to in previous development years. At the same time, investments towards projects that are under development and unsanctioned discoveries will continue to increase. Weiyuan and Weirong shale gas, as well as Fuling shale will see continued growth in spending in 2020. From 2021, investments into unsanctioned discoveries will pick up, with contribution from both conventional and shale gas sources of production. Total investments are projected to reach $12.5 billion by 2025.
Over the past 10 years China’s gas supply has grown significantly, a trajectory that is expected to continue going forward. Shale gas projects will be especially important to support this growth. The Longmaxi shale projects, including the Fuling gas field and the Changning-Weiyuan block in the Sichuan Basin, will support this gas supply growth over the next five years. At the same time, Longmaxi shale, along with the development of the Sulige tight gas field, will contribute to increasing investments going forward.