Royal Dutch Shell has discovered shale gas in China – a market that North American producers hope will drive demand for their export plans to Asia.

Shell has not made any public confirmation of the discovery, but their local partner PetroChina has indicated positive progress. Professor Yuzhang Liu, Vice president of Petrochina’s Research Institute of Petroleum Exploration and Development is quoted by Reuters as stating:

“Shell has two vertical wells and they got very good primary production. It’s good news for shale gas.”

And while shale gas has been a boon in the United States, a similar revolution in China would be at the expense of North American (and others) producers hoping to export natural gas to China. Canada is also is looking towards Asia as the US has increased domestic production and Canadian exports to the US have fallen. Two separate groups have formulated plans for an Liquified Natural Gas (“LNG”) export facility in Kitimat, BC. To get the natural gas to the coast, a major pipeline is required. Considerable investment considerations that now might be seeing the market they were targeting for sales, starting to diminish.

The U.S. Energy Information Administration estimates that  China has 1,275 trillion cubic feet (tcf) of technically recoverable shale gas resources. That would make it the largest in the world followed by an estimated 862 tcf in the US. And given their long term energy demands, China will invest heavily in proving up the potential of this major energy source. Its cleaner then coal, and its domestic exploration, extraction and production would be a major job creator.

But not all is lost for Canada’s export of natural gas. The three major target markets in Asia are China, Japan and Korea. And the latter two, are still desperate of natural gas, and have no known shale gas deposits of any commercially viable size. In fact, it’s Royal Dutch Shell that is leading one of the two LNG export facilities being contemplated for Kitimat, BC.  Shell along with Korea Gas Corp (“Korgas”), China National Petroleum Co. and Mitsubishi Corp., are considering a plant that would produce and load 1.8 billion cubic feet of natural gas per day onto LNG tankers heading for Asia. The other plan is for a 1.4-billion cubic feet a day facility proposed by Kitimat LNG, which is owned and backed by Apache Corp. , EOG Resources Inc. and Encana Corp.

If Shell and PetroChina do determine that shale gas deposits in China are economically viable, and they are able to recover the amounts suggested by the EIA it will have an impact on pipeline and export facility plans in Canada. Worse case it may merely delay the plans as other Asian markets will and have made long term commitments to buying Canadian natural gas.

Regardless, the shale gas revolution that HRN predicted would have a significant impact on the global energy market and global geopolitical is well underway and may happen faster then we all expect. Keep an eye on Shell’s progress in China as their drilling activities are expected to be concluded by the end of the year.

Reuters: Shell strikes shale gas in China