China's five-year shale gas production target is ambitious and will face several challenges, says global business intelligence provider GlobalData energy research and consultancy director Matthew Jurecky.

The Chinese Ministry of Land and Resources stated on March 1 that China had onshore shale gas reserves of 134.4-trillion cubic metres and exploitable shale gas reserves of 25.1-trillion cubic metres. China's shale gas development plan for 2011 to 2015, released on March 16, sets a yearly shale gas production target of 6.5-billion cubic metres by 2015.

The plan also targets a two-year appraisal of China's shale gas reserves, an increase in China's expertise on shale gas technologies, and the development of a regulatory framework.

"However, there is a gap between current exploration and appraisal activity in the country, and their ambitions of full-scale commercial development," says Jurecky.

Bridging this gap will require significant capital investment and the government will need to support the initiative in the form of subsidies, tax breaks and the inclusion of foreign participants, he adds.

Further, the oncoming gas supply will require a significant expansion of the country's pipeline network to link the gas supply from remote locations with the demand in major cities.

"This will require at least a year's lead time for approval, engineering and construction, and progress towards reaching the 2015 production target could be indicated by evaluating the pipeline capacity expansion," he says.

Sufficient services and equipment will also have to be available to support a development of this scale.

The government can take steps to accelerate growth of the industry by including the participation of nonspecialised companies and foreign partners, which will help to alleviate a tight supply chain; however, global competition for these resources is increasing, which complicates the matter, Jurecky explains.

State control over natural gas prices will keep those prices artificially low, which do not reflect the realities of the natural gas market. Therefore, shale gas development companies will have little incentive for development, as profitability will be minimal, GlobalData stated in a media release in June.

Meanwhile, to achieve the 2015 production target, more than 1 000 wells would have to be drilled. The drilling and completion costs alone will exceed $10-billion, Jurecky says.

"Operators in China have yet to identify the well locations, secure the capital and develop the technology."

Chinese shale gas companies cannot cur- rently use the high-performance drilling technologies used to extract shale gas in the US, as further research is needed to adapt these drilling methods to China's different geology, GlobalData said.

Water shortages are also an issue in China as hydraulic fracturing technology requires vast amounts of water.

Challenges will have to be overcome relating to sourcing the water required to 'frack' the shale as well as transporting it to the drilling sites, says Jurecky.

"A remote shale resource pool would have to be of significant size for the government to justify access to distant and inconvenient water sources if they are not locally available," he adds.

Water transportation and drilling operations will also be burdened by navigating challenging and difficult terrain with a less-mature ground transportation network than that of North America.

Meanwhile, while public perception and concern has affected shale gas developments in North America and Europe, it should not prove to be a problem in China, Jurecky states.

"Political restrictions and challenges can be overcome as the government has placed priority on developing the resource at all costs.".