This is an area of strong regional demand for natural gas with proximity to major long distance pipelines, providing opportunities to key power generation and industrial segments in the growing domestic market.
The basin is China’s largest gas-producing area with the Changqing oil and gas field alone producing 2.4 bcf/d gas in 2013, constituting 22% of China’s total gas production and 73% of China’s tight gas production. Total cumulative production from the field >100 bcm (3.6 tcf) as of December 2014. The Sulige tight gas field achieved peak production of 1.7 bcf/day in 2012. The area also hosts major resources of coal (~37 billion tonnes or 20% of China’s total), petroleum, natural gas and coal bed methane (CBM). Operators include Total, Shell, CNPC and Sinopec.
Gas was first discovered in the basin in 1989 and it has since been identified as one of three basins in China targeted for large-scale production following a Wood Mackenzie study of global unconventional gas assets. The basin was recognised for its competitive well costs relative to large resource potential and recoverability; and presents one of the highest potential returns on investment for developers.
China’s 12th Five-Year Plan stipulates accelerated development of Ordos Basin gas, while Sino Gas’ Linxing PSC receives a specific mention in the Plan.
The Chinese Government has been significantly investing in pipeline infrastructure over the last 10 years to open up the transportation of natural gas supplies to end market users.
The Ordos Basin pipeline infrastructure represents a key transcontinental gas transport hub that has opened a new stage in the evolution of China’s natural gas market, from that of a local business to a nationwide business. The pipelines in the Ordos Basin are owned by Shanxi Gas, Sinopec and CNPC , and boast both existing above ground infrastructure and ample spare capacity. Nearby gas fields are operated by Total, Shell, CNPC and Sinopec.
Sino Gas’ projects are serviced by existing provincial pipelines, the West-to-East Gas Pipeline and the Shaanxi-Beijing Gas Pipeline to Beijing. These serve a crucial role providing gas to the two largest cities in China: Beijing and Shanghai. The West-to-East Gas Pipeline runs from Xinjiang province to Shanghai, with a current capacity of 600Bcf/y and targeting to reach 706Bcf/y before 2015.
The three Shaan-Jing Gas Pipelines together supply 847Bcf/y of natural gas to Beijing with ~950km per pipeline in length.
Draft reforms announced in August 2013 are designed to provide a more open access to the state- dominated natural gas pipeline market. Reforms are expected to encourage an increasing number of smaller unconventional gas producers to boost output above local consumptions, hence increasing overall output nationally.
On current estimates, the existing and planned demand for natural gas far exceeds supply, with the Shanxi Province alone (population ~ 35 million) underpinning supply.