* Tight gas output to triple by 2030 - ACE
* Shale gas, coalbed methane trail in unconventional
* Flagship tight gas play Sulige, China's largest gas
* To expand low-cost model, home-grown expertise
By Chen Aizhu
SULIGE, China, July 9 At the heart of the vast
desert region of Inner Mongolia, half a dozen young engineers
from PetroChina watch huge, flat screens in a brightly
lit central control office that oversees 5,000 wells at China's
largest gas field.
Just a few years ago, two workers travelling in a truck
would need three days to check conditions at 50 wells at the
Sulige field, which spans 20,000 sq km (7,700 sq miles) in the
middle of Maowusu, China's third-largest desert: now, the task
can be done in just five minutes.
Remote Sulige, which means "uncooked meat" in Mongolian, is
testament to China's success in developing its giant reserves of
so-called "tight gas", part of a drive to dramatically boost
consumption of cleaner burning natural gas to help replace dirty
coal and costly oil imports.
Like the better-known shale gas revolution in the United
States, tight gas is transforming China's gas production -
accounting for a third of total output in 2012 -- and will form
the backbone of the country's push to expand so-called
"unconventional" gas production nearly seven-fold by 2030.
The speed and size of the boom has outstripped forecasts and
has been led by local firms developing low-cost technology and
techniques, already being rolled out by Chinese companies in
similar gas fields outside of China.
Like shale gas, although less difficult to extract, tight
gas is an unconventional deposit that needs special technology
such as horizontal drilling or fracturing to free gas trapped in
tiny cavities in rocks like sandstone.
Output of tight gas hit 30 billion cubic metres (bcm) in
2012 -- nearly a third of China's total gas output -- and is
expected to rise to 100 bcm by 2030, leading an unconventional
fuel boom ahead of shale or coal-seam gas.
"We found our own approach to develop tight gas," said Hu
Wenrui, a former Petrochina vice president and a key architect
behind developing the deposits. "With this, China's tight gas
has entered the fast track."
Forecasts by the China Academy of Engineering (ACE) put 2020
output of tight gas at 80 bcm, more than a forecast 50 bcm of
coalbed methane and 20 bcm of shale gas combined.
Despite the excitement over shale gas, of which China holds
larger reserves than the United States, the world's top energy
user has taken only baby steps to exploit the more complex
deposits, drilling just 80 or so wells by the end of last year.
Its output of coal-seam gas continues to disappoint after
two decades of development, reaching about 6.5 bcm in 2012.
LOW COST LIFELINE
Tight gas production at Sulige alone is set to top 20 bcm
this year, making up nearly a fifth of China's total gas output,
but PetroChina initially struggled to develop the field after
declaring it the country's largest in 2001.
Global energy companies like Royal Dutch Shell,
Total and BP were brought in to do detailed
studies and service companies including Schlumberger and
BJ Services, now part of Baker Hughes, were invited to
provide drilling and logging expertise.
"The success that PetroChina has had on tight gas is
impressive," said Craig McMahon, head of Asia upstream research
of energy consultancy Wood Mackenzie.
"Back in 2005 when they offered some of the contracts to
Shell and Total it perhaps meant they did not have the expertise
yet. Eight years on, you can say PetroChina is very comfortable
operating Sulige on its own."
PetroChina focused on the cost-efficient drilling and
management of thousands of wells, cherry-picking experts from
six regional Chinese exploration companies.
"Low cost is the lifeline for Sulige," reads a poster
displayed in an open courtyard at Sulige's headquarters in the
county of Wushen, Inner Mongolia.
The company cut the time needed to drill a typical
3,200-metre vertical well by two-thirds to 15 days, while the
average cost of a well has fallen 40 percent over the past eight
Cluster wells -- with well-heads tightly grouped on the land
surface but diverging in multiple directions underground -- are
widely applied to reduce the use of surface infrastructure.
Instead of high-pressure fracturing to force open the cracks
in rocks and allow gas to escape, PetroChina engineers came up
with new ways to use low and medium-pressure fracturing.
"In the end we realized it's about applying a series of
technologies, not necessarily cutting-edge, but that best suit
Sulige," said Zhao Jianxin, a PetroChina manager at the field.
"The sophisticated technologies provided by international
companies did not work here, as they were too costly."
FEW FOREIGN ENTRANTS
Some three-quarters of China's newly proven gas reserves are
tight gas, says PetroChina's Hu, led by the vast Ordos basin,
which includes Sulige and spans five provinces and regions.
Ordos has a proven gas reserve of 4 trillion cubic metres,
equivalent to 40 years of China's total production at the 2012
level. Projects include the Shell-operated Changbei block and
the Total-invested Sulige South block.
Southwest China's Sichuan basin, where the second-largest
state energy major Sinopec Corp is also active, is
likely to be the next major play.
However, unlike coalbed methane and shale, which have been
opened up to wider competition, experts say China is unlikely to
offer new tight gas contracts to companies outside PetroChina
and Sinopec, beyond those already there.
"Now that they've honed the expertise and management skills
-- a lot through learning from international companies -- and
overcome the technological hurdles, it will be harder to see
them readily offering more tight gas blocks," said an official
with an international energy firm working in China, who declined
to be named.
PetroChina, a proven player in boosting output at ageing and
marginal oilfields in countries like Iraq, Venezuela and
Algeria, also hopes to apply its tight gas know-how beyond
PetroChina's parent, CNPC, is already applying Sulige-style
engineering and drilling skills in Turkmenistan, said Hu, the
largest source of China's gas imports via pipeline.
"The technological strength we have on tight gas would give
us more confidence assessing similar prospects overseas," said
Mao Zefeng, PetroChina's investment relations manager.