Sichuan's vast shale reserves are now being tapped by China.

China ranks second globally in shale gas production, trailing only the United States, yet still falls significantly short. Meanwhile, shale gas has become a notable contributor to China's overall gas production, accounting for 10%.

Sichuan's vast shale reserves are now being harnessed by China through increasingly deeper gas drilling operations within the ancient formations located in the Sichuan basin. This move is expected to boost domestic unconventional fuel output significantly, potentially exceeding one-third of current levels by 2035.

China's shale gas production has fallen short of government expectations, accounting for only 10% of the country's total gas output. State-owned oil companies are now exploring challenging terrain at depths of approximately 5,000 meters below ground level, a feat that ranks among the most extreme globally.

China's state-owned oil giant Sinopec has recently made significant strides in tapping its vast shale reserves, specifically at the Ziyang Dongfeng project, where 236 billion cubic metres of proven gas reserves were discovered approximately 4,500 meters below ground level.

PetroChina, listed as 601857.SS, has followed up with another significant find nearby in Ziyang this year.

China is actively extracting resources from the vast shale reserves found in the Sichuan basin, specifically targeting the Qiongzhusi Cambrian formation.

Companies have drilled over 100 wells, prompting a significant investment of billions of dollars into accelerated development projects. State oil company officials forecast commercial production within the next two to three years.

China's vast shale reserve exploitation is matched nowhere else but the Western Haynesville in Texas, which reaches depths of approximately 5,200 meters with associated cost and drilling time hurdles.

PetroChina, listed(601857.SS)601857.SS, has followed up with another significant find nearby in Ziyang this year.

Commercial shale gas production started in China in 2014, with ambitious goals outlined for the future: reaching 30 billion cubic meters by 2020.

Shale gas production in China skyrocketed to 20 billion cubic meters by 2020, primarily from formations located at depths of less than 3,500 meters. However the industry's expansion has slowed significantly in recent times, with annual growth rates plummeting to approximately 4%.

The country was poised to become the world's second-largest producer by 2025, yielding approximately 27 bcm, but its production trailed far behind that of the top-ranked U.S., which accounted for over 95% more output due to geological complexities in the Sichuan region.

Global energy majors such as Shell and BP have underperformed in China, while independent companies ceded ground to state-owned enterprises.

Analysts note that Beijing views shale energy as a means to reduce reliance on expensive liquefied natural gas imports and negotiate more favorable gas pipeline deals with Russia and Turkmenistan.

Rystad Energy's Chen Lin predicts a significant boost in China's shale gas output, potentially reaching 40 billion cubic meters by 2035, roughly double the expected level for that year, accounting for about 13% of the nation's projected gas production.

Preliminary evaluations indicate that the Qiongzhusi formation spans approximately 10,000 square kilometers, encompassing an area equivalent to 3,861 square miles, potentially containing 10 trillion cubic meters of gas reserves. Annual production estimates range from 30 to 50 billion cubic meters, contingent on investment strategies and implementation timelines.

According to Zhao's statement the discovery at Qiongzhusi represents a significant advancement in accessing complex geological layers.

Guo Tonglou, Sinopec's chief scientist, estimates that Qiongzhusi, a 540-million-year-old shale deposit, will supply between 10 and 15 billion cubic meters of gas by the year 2035.

Qiongzhusi boasts thicker, more extensive, high-grade shale formations compared to Fuling, the pioneering commercial site in China. Increased well depths complicate operations, elevating expenses and intensifying technical hurdles.

PetroChina and Sinopec are developing innovative drilling strategies to minimize gas seepage between horizontally drilled wells, according to Zhao and Guo's statements.

Analysts at Wood Mackenzie predict that Qiongzhusi will significantly contribute 10 billion cubic meters by 2035, as total shale gas production is poised to nearly double to 62 billion cubic meters, accounting for a substantial 18% of overall output.

Wood Mackenzie calculates ultra-deep asset breakeven costs at a range of $5 to $5.50 per million British thermal units (mmBtu). This stands out from the $4 cost for shallower shale. In contrast, Argentina's Vaca Muerta play and U.S. shale boast significantly lower prices: $3 to $4 mmBtu in the former and a mere $2.70 mmBtu in the latter.

Asian spot LNG prices have surged by approximately $19 per mmBtu due to recent market shifts.

Qiongzhusi wells incur expenses ranging from 90 million to 100 million yuan ($13.31 million to $14.79 million), a significant increase over shallower counterparts, yet substantial per-well yields and enhanced recovery rates render ultra-deep shale economically feasible according to Sinopec's Guo.

Guo attributes China's pursuit of deep shale to its limited natural resources, he explains candidly.

Technological advancements combined with effective cost management could lead to significant global benefits by releasing substantial resources from current constraints.

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