Recent production surges and developments by major state-owned exploration companies show promise for China to meet its 2015 shale gas production goal, but its ambitious 2020 target remains distant and a shale gas ecosystem development has proven sluggish. The central government is therefore determined to reform the industry further with a series of policy updates, in its push to achieve shale gas commercialization, says an analyst with research and consulting firm GlobalData.

Based on non-residential city gate pricing and financial incentives expected to be set by the Chinese government, GlobalData evaluated one of China’s most promising shale blocks, known as Sinopec’s Fuling project, and calculated a 7.1% internal rate of return and a break-even price of $7.77 per thousand cubic feet.

However, according to Howe Wang, Upstream Analyst for GlobalData, a combination of political, technical and financial issues are impeding further development of China’s shale gas industry. While recent policy updates include enhanced financial incentives for shale gas production, existing resource and infrastructure monopolies remain intact and have had a particularly detrimental effect.

Wang says: “The majority of China’s premium shale blocks are still closed to foreign gas producers, while national oil companies possess a monopoly over gas pipeline systems. This discourages competition, constrains market participation, and hinders significant advances in exploration and technical knowledge.”

The analyst says that the need to fuel China’s fast-growing energy demand is pressuring the government to accelerate domestic shale gas development. As a result, more foreign collaboration is being facilitated to incentivize various investment bodies to enter the market, and ambitious 2020 production goals of 5.8 billion cubic feet per day (bcfd) to 9.7 bcfd have been set.

However, as Wang continues: “While large-scale production, comparable to American levels, and a dynamic shale gas industry still appear to be distant prospects in China, a robust development plan for the next two years shows encouraging signs of achieving the Ministry of Land and Resources’ goal of 630 million cubic feet per day in 2015.”