China faces a "pressing need" to develop new energy sources as its oil fields dry up, writes Elliot Brennan for The Diplomat, and shale gas may hold the key to its future energy security:
Estimates of China’s shale gas resources differ. China’s Ministry of Land and Resources estimates reserves of 886 trillion cubic feet (tcf), while the U.S. Energy Information Administration puts the country’s resources at 1,275 tcf. The upper estimates would mean China sits atop more shale gas than the U.S. and Canada combined. According to China’s 12th Five-Year Plan, by 2015 China should be extracting 6.5 billion cubic meters of shale gas per year, with a view of producing 100 billion cubic meters by 2020. China’s goal is to meet 10 percent of the country’s energy demands from shale gas the same year. To successfully meet the goal, China’s oil and gas industry needs to bridge its large knowledge deficit. Despite some progress, recent successes in domestic extraction technology have been modest.
At home and abroad China is making waves. The opening of a recent tender to foreign companies demonstrates the extent to which the often go-it-alone Chinese Communist Party feels it needs to secure a rapid and successful energy boom. Royal Dutch Shell, Chevron, Exxon Mobil and British Petroleum are all jointly surveying the key provinces of Sichuan and Guizhou with local companies. As part of the new tender, other joint ventures are expected to follow.
Flush with state financing, China’s NOCs have in recent years begun buying up stakes in North American energy companies and their subsidiaries. Some of their recent buy-ins have been the purchase of Nexen and a stake in Devon Energy Corp, one of the founders of shale gas extraction. Such purchases allow China’s NOCs to absorb expertise. While this in itself isn’t enough to meet their energy needs, it is a step toward building capacity for China’s NOCs in shale gas exploration and extraction.
If the current hype proves correct and gas prices remain strong, China’s shale gas could be just the energy boom that Beijing seeks. It could allow China to meet its ambitious growth targets. As many commentators have suggested, however, shale gas may prove less of a blessing and more of a “resource curse,” spelling environmental disaster and nationwide instability. Either way, as Sino-American partnerships are forged and shale gas extraction in China ventures into unchartered waters, one thing is certain: The world will be watching.
In addition to investing in energy stakes abroad, Brennan notes that China's national oil companies (NOCs) have also established domestic partnerships with global energy giants in what he calls a "market-for-know-how-strategy." On Tuesday, Royal Dutch Shell announced it will spend $1 billion developing China's shale gas reserves as part of a production sharing contract with China National Petroleum Corp. (CNPC). From Bloomberg:
China is working with overseas partners to introduce hydraulic fracturing, the technology known as fracking that breaks open underground shale rocks to release natural gas, as it seeks to boost domestic consumption of the cleaner-burning fuel. Shell and CNPC had drilled 24 wells by November and planned a further 14 this year, Maarten Wetselaar, executive vice president of Shell Upstream International, said Nov. 15.
“I welcome the aggressive target of the government in the 12th five year plan and its long-term objective to make gas a significant component of its energy mix,” Voser said today. “This is the right energy source for the longer term for China given its advantage from the perspectives of carbon dioxide versus coal and oil.”