China: #1 in Shale Gas Reserves, Paltry Production

♠ Posted by Emmanuel in ,, at 9/09/2013 05:36:00 AM
Much has been made of the United States growing energy independence as it taps shale gas reserves at home. A salutary effect has been reducing the trade imbalance America is legendary for. However, the US is far from the only country with a lot of shale gas reserves. China purportedly has the most, but it has been quite slow in tapping these reserves. The numbers tell the story of China's backwardness:
Beijing has struggled to find a way to emulate the frenetic exploration and production activity of the shale gas boom in the United States, and the latest setback makes reaching even a modest 2015 output target of 6.5 billion cubic metres (bcm) unlikely. This is only a fraction of the 224 bcm of shale gas the United States produced in 2011, and would amount to just 6 percent of China’s total current output of natural gas.
Why this sloth? There are environmental concerns over fracking in places such as Europe, but let's just say they are outweighed in China's case by the more immediate cause of energy security. Others would even argue that shale gas is less polluting than burning coal. So China lags behind despite its even larger dependence on imported energy. It's a combination of various things, with less readily accessible reserves and uncertain land ownership featuring large:
When [Shell] began a multibillion-dollar effort to tap China shale gas a few years ago, it seemed like a can't-miss wager. China has the world's most extensive shale gas reserves, biggest energy market, and a government pushing for expanded gas production.But for Shell and its state-controlled partner, China National Petroleum Corp. the reality on the ground makes its bet look riskier.

The region's rough terrain, poor infrastructure and deeply buried gas formations present tough technical challenges. The area is so densely populated and intensely farmed that drilling sites are being built within 360 feet of homes in villages like Maoba—upsetting residents who complain of noise, dust and environmental concerns. To ease the way, Shell and its partners are compensating local residents and local government officials for using their land and roads and other inconveniences.
You would have thought that in an authoritarian regime alike China, it's easier to excavate since the state owns more land and can evict people if it is deemed necessary, but no: it's proven easier to pay US (private) landowners for mining for shale gas. By contrast, in China you have militant residents who do not want to deal with the mess of fracking since they will not benefit directly from state-owned resources. I argue that a lot of their environmental complaints would be mitigated otherwise. Such difficulties are compounded by rudimentary infrastructure in parts of China with lots of shale and an unclear regulatory framework:
Some shale-rich countries, including China, are short on developed roads, water and drilling contractors trained in modern safety standards. Others like France and Bulgaria have put up legal barriers to the hydraulic fracturing needed to extract shale gas. And unlike in the U.S., where landowners generally own rights to gas beneath their property, minerals in many countries are owned by the state, giving residents little financial incentive to support drilling near their homes [...]

Regulatory concerns also heighten China risks. The country hasn't finalized fracking regulations. And to fight inflation, the government controls prices at which gas may be sold, which could weigh on profits.
So there are still areas China is falling behind the United States. Good governance champions will highlight that the unclear regulatory framework for this industry in China is harming prospects for mining shale reserves.