China to increase development of natural gas sources

China will establish four natural-gas blocks and produce shale gas for commercial purposes by the end of 2015, the National Energy Administration said on Monday.

The country will move faster to develop both natural gas and shale gas to maintain its domestic supply of the fuel, the administration said in the country's 12th Five-Year Plan (2011-15) on the natural-gas industry.

It said each of the four blocks will be capable of producing 20 billion cubic meters of natural gas a year by the end of 2015.

The country plans to be producing natural gas on a commercial scale at its 19 current shale-gas blocks by the same year.

China's output of natural gas has risen quickly amid the country's increasing demand for the resource, said Yu Baocai, deputy general manager of China National Petroleum Corp.

He estimated China will be producing 200 billion cubic meters of natural gas a year before 2020.

The country is expected to use about 147.68 billion cubic meters of the gas this year, according to the energy information consultancy ICIS C1 Energy.

Huang Qing, information manager at C1, said natural gas is the source of only about 4 percent of the energy used in the country, which is far less than in developed economies.

She said infrastructure construction will have China using about 350 billion cubic meters of natural gas a year by 2020.

"China's increasing work to develop shale gas is also meant to ensure there is enough gas to supply the country's increasing demand for energy," she said.

According to the latest figures from the Ministry of Land and Resources, China has 134.42 trillion cubic meters of shale gas in its reserves. But outside of the Qinghai and Tibetan Plateau, only up to 2.51 trillion cubic meters of those resources are exploitable.

"China is still at the beginning stage of shale-gas development, but it has already attracted many investors to the industry," Huang said. "If it succeeds, it will see huge profits, but there will also have to be large investments and large risks."

The country's 12th Five-Year Plan for the natural-gas industry said the industry is now regulated by an incomplete set of rules. It also said the country can ensure gas services are provided fairly by strengthening its supervision of companies that operate gas pipelines.

The country's two oil and gas giants - China National Petroleum Corp and China Petrochemical Corp - own the rights to build, manage and operate most of the country's pipelines.

Analyst said it is possible the gas industry plan will lead to reforms that help to break up their near-monopoly.

"To further these reforms, the government will ensure conditions are good for competition," the administration said in the plan.

"Although China's natural-gas reserves offer huge opportunities, exploration is affected by the shortage of competition," the plan said. "There is also a need for policies that support shale-gas exploration."