To what extent China can copycat the fracking revolution in US
Tuesday, May 8, 2012 at 9:32AM 
Big FT piece.
China, we are told, has enough shale gas to cover its needs for 200 years. It currently has no commercial production but wants to reach 60B cubic meters by 2020. A number of big Chinese and foreign energy firms are currently exploring China, with Sinopec running the big Tarim basin that is routinely described as the biggest in the world.
Dozens of exploratory wells have, so far, yielded mixed results. The geology is just not the same as the US - more complex, so serious additional innovation will be required. China's reserves are deeply buried and feature more clay, which is far harder to break up to release the gas.
China also lacks the US's existing pipeline network and trained personnel.
To overcome the stiffness of its three primary national energy companies, China has allowed foreign companies in and plans to liberalize prices on oil so its own companies will invest more.
Then there's the Chinese investment in US firms over here, a development that's been met with far less resistance than when CNOOC tried to buy Unocal seven years ago. CNOOC plopped a solid $2b into Chesapeake Energy to access some of this technology.
This will be one follow-on to the US fracking revolution worth watching closely.
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Reader Comments (6)
Given their population density, groundwater pollution might be a more serious problem for them. Especially if I'm correct in guessing that the only remedy is to move everyone away that depends on the polluted aquifer and filter the gas and chemicals out of the water--fewer legal obstacles but movees have more to lose.
From 1984-1987 I was in the geophysical industry in China. Oil related engineering. At that time our company had 5 contracts with China and I worked on the most successful one, collecting seismic information in the shallow water of the Bohai Gulf. We were more successful because we had Chinese counterparts that were more open to new ways of doing things. For this contract the Chinese bought, equipment, our team worked with the Chinese for 1 year and then the expats left. While we were working with the Chinese things went okay. As soon as we left the Chinese were not able to keep the operation going. It wasn't simple work and the Chinese weren't that good at this.
At the time I remember our company's geologist talking about the Chinese geologists. The Chinese made their drilling decisions on political/embarrassment avoidance based criteria. They hated the embarrassment of dry holes. So rather than using drilling to define and extend a field then used drilling to "harness" the field. What happened is eventually they would have so many producing locations in field that they would overpressurize the field and you wouldn't get as much oil as you would otherwise. Also conservative, dry hole avoiding drilling decisions meant that you wouldn't find the little pocket that you would otherwise.
My guess is that China's state-owned oil companies haven't changed much. This is unfortunate. From what I remember Xinjiang geology is very complex. I'm pretty sure it too hasn't changed much :-). You need really sharp people to harness that resource. There could be some really sharp Chinese in the field, but they're more likely to be in Houston than anywhere in China.
As I have said before, China has a lot of economic potential but that potential can only be realized by better engaging with the outside world. That certainly isn't how Chinese state-run oil companies operate currently.
My work currently is in coal-fired combustion in China. It appears I have little to fear from alternatives to coal.
David,
While 84-87 is like ancient history with current-day China (and I don't say that to be facetious in the slightest), your story rings true in a lot of industries, and it's probably more still true today in the high-end drilling than in most industries. I also think it's more often true (than not) across much of the PLA.
For sheer size reasons, coal will be king for a while in China, which is why I think US coal will ultimately find a very profitable re-direct there.
Yes it all depends on geology and technology of fracking shale gas , in Poland shale gas resources are lower than the originally forecast; approx. 1 trillion cubic meters compared to previous estimates of 5.3 trillion cubic meters.
http://www.naturalgaseurope.com/poland-shale-gas-reserves-drop
http://www.naturalgaseurope.com/poland-no-shale-moratorium
This is slightly off topic but does relate to the Chinese "way" of doing things. Chinese officials refused to renew the press credentials of the Al Jazeera reporter in the capital. The Al Jazeera reporter is of Chinese descent and...a U.S. citizen... from California. Talk about globalization!
This was a result of coverage on the story of the latest "dissident" that the Chinese government insists on making a a martyr.
Tom
The reason I felt qualified to comment is that from 2004-2012 I have been in the power industry in China and see the same issues with Chinese State-Owned-Companies in the power industry that I saw in the oil industry in China long before. Also in 9 years in power I see virtually know innovation and management not for the benefit of the company or consumer, but rather for the profit and comfort of the employees.
Ted
I don't think the Al Jazeera reporter being expelled is very related, but the link to the article below does have a lot of insight into the special issues of overseas Chinese in China.
http://blog.foreignpolicy.com/posts/2012/05/08/why_china_expelled_al_jazeeras_melissa_chan