SPECIAL REPORT • ENERGY
Tough prospects
China’s shale gas resources are vast enough to relieve dependence on imports, but getting energy out of rock will transform the industry in the process
N ALSO IN THIS SECTION
CONTESTED TERRITORY, P34 Environmentalists say the green
benefits of shale gas are exaggerated. It unquestionably wastes a lot of water
atural gas production in North America surged over the past decade as drilling companies
discovered ways to exploit the gas-rich shale rock that lies beneath much of the continent. Today, Chinese energy man- darins look to benefit from the American experience. Te technique of the moment is
called hydraulic fracturing, or “fracking,” where a slurry of water, sand and chemi- cals is shot into a horizontal well at pres- sures of up to 8,000 pounds per square inch (psi) – about 800 times the pressure needed to demolish a concrete building. Te blast splinters the shale in a radius of up to 1,000 feet around the well, freeing a sea of tiny gas bubbles from the rock matrix. Drilling operations sprang up across
North America as fracking made ex- tracting shale gas profitable for the first time. In the US, shale gas production has grown eightfold in the past 10 years. Tis glut of new gas caused spot prices to fall to less than US$5 per cubic foot in 2010 from around US$10 in 2005, which encouraged big energy companies to move in and acquire smaller drilling entrepreneurs. Chinese companies took part in this
buying spree: PetroChina and China National Offshore Oil Corporation (CNOOC) snapped up stakes in North American shale drillers like Chesapeake Energy and EnCana with the intent of acquiring technology and ramping up production at home. Te case for unconventional energy in
China is compelling: Domestic resources are abundant, burning gas generates half the carbon emissions of coal, and domes- tic production will be far cheaper – and
30 China Economic Review • May 2011
diplomatically simpler – than imports. But unlike in North America, pro-
duction is likely to begin in China not with a bang but a trickle. Te country’s unconventional gas industry may not take off until after 2020, when cheap conven- tional gas reserves begin to dwindle. Bei- jing has yet to officially distribute shale gas blocks, and Chinese producers need time to acquire technology, run pilot projects and build pipelines. In addition, current extraction tech-
niques pollute massive amounts of water – 4-5 million gallons per well, roughly equivalent to the daily water use of 200,000 Chinese people – and China does not have much water to spare. Even proponents of unconventional energy
High and dry
Dry gas supply and demand, 2009 25
20 15 10 5 0
Source: IEA
US
Canada Production
China
India Consumption
Australia
Imaginechina trillion cubic feet
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