Chinese shale gas is thought to be about four times more expensive to produce than America’s. That means it is more costly than liquefied natural gas, for instance. Beijing will undoubtedly narrow the gap, but success in making shale viable is by no means assured. China’s leaders seem more concerned about keeping the best blocks for state enterprises and making sure these enterprises develop their own expertise to keep profits in Chinese hands. Sinopec’s proudest boast at Fuling is that all the production equipment and tools used there are domestic.
Xenophobia always has economic consequences. Today, only two foreign companies—Royal Dutch Shell and Hess—have signed production-sharing contracts. Two more majors—ExxonMobil and BP—are studying sites. It’s unlikely we will see companies rush in soon because the rules for private capital are still skimpy. That, naturally, creates risk because of the resulting uncertainty.
There is one factor investors can count on, however. Beijing fixes prices for natural gas, and there is immense political pressure to keep costs low for purchasers.
So production costs are high, and sales prices are artificially depressed. All this suggests that Chinese technocrats will not meet their reduced 2020 target.