China’s crude demand is yet to prove as voracious as forecast but that is not stopping national oil companies from calling for a shale oil drive to boost domestic energy supplies.

The increased production is necessary to safeguard China's national energy security, they say.

Speakers at a recent shale oil and gas conference in Shanghai organised by Energy China Forum made it clear that the country is eyeing shale oil as a way to replenish dwindling domestic crude production.

Energy researchers, however, are less enthusiastic, noting that China may not need as much oil as expected in the future.

Dai Jiaquan, director of the oil market research department at China Petroleum Economics & Technology Research Institute, said the country’s petroleum demand will peak in 2025 at 690 million tonnes before tapering off to 598 million tonnes in 2050.

Should the prediction come true, China’s shale oil drive could fizzle out before the boom ever starts.

Along with the bearish demand scenario, high costs, fast depletion and complex geology are the major hurdles that make China’s shale oil drive such a challenge.

On average, the “all-in” breakeven cost for shale oil at China’s pilot project in the Jungar basin is $55 per barrel. The economics do not stack up with a current price of around $38 per barrel.

Incentives

In China, shale oil production and reserves are normally categorised as conventional oil.

However, industry officials are urging the upstream watchdog, the Ministry of Natural Resources (MNR), to list it as a special resource, like shale gas, that deserves incentives for developers to help boost activity.

Under the current regime, the central government subsidises coalbed methane production at 0.3 yuan ($0.04) per cubic metre and shale gas at 0.2 yuan.

In a survey conducted last year, the MNR put the country’s shale oil in-place volumes at 28.3 billion tonnes (208 billion barrels), up from the 15.3 billion tonnes (112.5 billion barrels) estimated in 2013, with most located in the Ordos, Songliao and Jungar basins.

The figures are much higher than the 4.4 billion tonnes of technically proven recoverable reserves estimated by the Paris-based International Energy Agency.

This is in sharp contrast to the current 1.8 million tonnes produced from eight prospects with 450 million tonnes of proven reserves.

China National Petroleum Corporation (CNPC) has marked 540,000 square kilometres in the Ordos, Songliao and Jungar basins as the major battlefields to build up shale oil production capacity to 6 million tonnes by 2030.

In the Jungar basin, CNPC has launched a 10-year campaign to boost shale oil exploration and development at the Jimsaer prospect.

The company plans to build 85 well pads in high-prospect areas with 302 horizontal wells scheduled to be drilled.

The campaign will involve tapping 240 million tonnes of shale oil reserves, which will be enough to support annual production of 2.7 million tonnes by 2025, up from 470,000 tonnes planned for this year.

CNPC pegs Jimsaer’s shale oil in place at 1.5 billion tonnes.

High production does not mean high return, however. “It is not worthwhile to invest too much for too little returns,” said Jia Haizhen, a senior engineer of CNPC’s Xinjiang oilfield, which oversees Jimsaer shale oil development.

The Jimsaer trough, which is located 200 kilometres east of Xinjiang’s capital, Urumqi, covers 900 square kilometres where 44 wells have been drilled with 22 flowing shale oil with commercial value.

Last year, CNPC put 28 horizontal wells into production at Jimsaer, including 19 at upper sweet spots and nine at lower sweet spots.

The 19 wells in upper sweet spots are producing 10 tonnes per day of shale oil, while those at lower spots now turn out a daily average of 28 tonnes.

A pilot test for shale oil at Jimsaer started in 2012 when the well Ji-172 flowed 70 tonnes of shale oil with a five millimetre choke.

At northern China’s Songliao basin, CNPC is aggressively pushing shale oil development at Dagang field, with production from an estimated humble start of 60,000 tonnes this year to rise to 100 million tonnes by 2030.

Between 2026 to 2030, the shale oil production will increase by 150,000 tonnes per day, a company official said.

Technology

Current technology is not sophisticated enough to produce shale oil for profit in areas with less favourable thermal maturity, according to industry officials attending the Shanghai conference.

At Dagang oilfield’s Cangdong trough, CNPC has drilled 46 wells this year with 31 of them starting production at 60,000 tonnes to date.

The horizon well Yiyeping 1, with a horizontal length reaching 942 metres, was drilled in late 2019 at Jiyang trough at Dadang oilfield and flowed 93 tonnes per day at its peak for 103 consecutive days.

A plan calls for drilling 152 horizontal wells by 2025 for an annual production of 1 million tonnes at Cangdong.

CNPC is not the only shale player in China. The government has licensed four companies — CNPC, Sinopec, CNOOC Ltd and independent Shaanxi Yanchang Petroleum — to produce oil and gas.

Shaanxi Yanchang Petroleum has identified six shale oil proven areas with 250 million tonnes of reserves in an area covering 161 square kilometres in Ordos basin.

The 447 horizontal wells the company operates now produce an average of 2.7 tonnes per day per well of shale oil, said Gao Ruimin, director of the Research Centre of Yanchang Petroleum.

China tried to replicate the US-style shale drive about 10 years ago by launching two national shale gas licensing rounds, attracting more than 20 companies to participate, mostly independents.

By the end of last year, only six companies had survived the exploration period.

Shale

Shale oil struggles for foothold in China's energy scene