Investing in liquefied natural gas shipping: A key overview

Part 10
Investing in liquefied natural gas shipping: A key overview (Part 10 of 12)

China’s shale gas reserve influences the liquefied natural gas trade

China’s LNG imports

New developments of shale gas in key marginal importing countries such as China would have important implications for the LNG trade and LNG carrier demand growth. This, in turn, affects the Gaslog Ltd (GLOG), Golar LNG Ltd. (GLNG), Golar LNG Partners LP (GMLP), Teekay LNG Partners LP (TGP), Dynagas LNG Partners (DLNG), and the Guggenheim Shipping ETF (SEA). As we noted earlier, how much LNG China will import is influenced by China’s natural gas electric power plant demand and domestic natural gas production.

Shale Gas Resource by CountryEnlarge Graph

Shale gas reserve

According to the Energy Information Administration’s estimates published in January 2014, China holds the largest technically recoverable amount of shale gas resources, equivalent to 1,535 trillion cubic feet (~35.3 cubic feet = 1 cubic meter). Note that these estimates aren’t comprehensive and don’t include some assessed basins in Australia, Russia, and Eastern European countries that the EIA doesn’t have estimates for. Plus, estimated reserves could increase or decrease based on natural gas prices.

Although China could be a major natural gas producer, it faces difficulties arising from a lack of water and a much more complex geographic landscape and deeper located shale gas compared to the United States. Water is essential to shale gas development, because it’s a key resource used to break apart rocks in order to reach shale gas. About 89% of China’s shale estimated reserves are located in Sichuan, Tarim, and the Yangtze Platform.

The government has set an ambitious target of 60 to 100 billion cubic meters a year by 2020, but progress has been slow. By the end of 2015, China is hoping to produce 6.5 billion cubic meters of shale gas a year. But the two largest oil and gas companies, China National Petroleum Corp. and China Petrochemical Corp., expect to produce ~3 billion cubic meters.

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