28 September 2012

China SignPost™ (洞察中国) #67–“Central and Southwest China: The Key Battleground for Shale Gas and New Low-Cost Coal Supplies from Xinjiang, Mongolia, and Wyoming”

Gabe Collins and Andrew Erickson, Central and Southwest China: The Key Battleground for Shale Gas and New Low-Cost Coal Supplies from Xinjiang, Mongolia, and Wyoming,” China SignPost™ (洞察中国) 67 (28 September 2012).

China SignPost™ 洞察中国–“Clear, high-impact China analysis.”©

Shale gas development plans in China have generated excitement throughout the energy community, and the Chinese Ministry of Natural Resources has just completed its second shale gas exploration block licensing round. The 20 blocks are located in Guizhou, Chongqing, Hunan, Hubei, Jiangxi, Anhui, Zhejiang, and Henan Provinces. Yet no blocks in the shale-rich Ordos Basin of Shaanxi, Inner Mongolia, or Tarim Basin of Xinjiang are up for bidding in this latest round.

The choice of location of the new shale exploration blocks may just be coincidence, but it highlights a geographic reality—shale gas reserves near major low-cost coal production areas such as Xinjiang face tough development challenges because the shale gas is likely to cost substantially more per unit of heat than the coal it must compete with in the electrical power generation market.

Sichuan in China’s Southwest and Central Chinese provinces such as Hunan and Hubei are far from the low-cost coal supplies, populous, and are poised to continue growing more quickly than the coastal provinces. As such, the Central-Southwest provinces of Sichuan, Chongqing, Hunan, Hubei, and parts of Henan, Anhui, Jiangxi, and Guangdong will be the key battlegrounds where new supplies of low cost physical coal and coal delivered in the form of electricity battle for market share with shale gas. …