China, consuming energy at the fastest pace among major economies, has set ambitious targets to exploit its reservoirs of shale gas, the same fuel the U.S. touts as the means to energy independence. It won't meet them.
China is producing no commercial quantities of shale gas yet has set a target of 80 billion cubic meters by 2020, or 23 percent of total expected demand. Output in 2020 will likely be 18 billion cubic meters, according to the average estimate of seven analysts surveyed by Bloomberg. That's more pessimistic than a year ago when the forecast was 23 billion cubic meters.
"China's production targets are not realistic," Chris Faulkner, chief executive officer of Dallas-based shale driller Breitling Oil and Gas Corp., which is in talks in China, said in an e-mail. "The only way China is going to be able to meet its output goals is for the government to pour money into exploration and development and ease up on the price controls."
By dictating fuel prices in a centrally controlled economy, China has discouraged investment in shale because drillers risk losing money. The result: China National Petroleum Corp. and China Petrochemical Corp., the two largest gas producers, didn't win exploration blocks in the last auction while companies with zero gas-drilling experience did.
Missing targets to develop the world's biggest reserves of shale means China's imports from foreign gas markets will be greater than anticipated. Such purchases might benefit suppliers of liquefied natural gas from Exxon Mobil Corp. toWoodside Petroleum Ltd., while bolstering supply from nations like Turkmenistan that pipe gas to China.
David Fuller's view I am not sure why China is adopting this seemingly tentative and amateurish policy towards its shale gas production, but this may reflect a lack of technological confidence. China may also prefer to see how others fare in producing its shale gas, before stepping in with more active government involvement. Additionally, there may be opposition from China's other government overseen energy policies. However, this is conjecture on my part and I would welcome any feedback from subscribers who are closer to the action.
Meanwhile, until other countries become more willing and adept at extracting their own shale gas and oil, global energy supplies will remain tight and in the controlling hands of major exporters such as Saudi Arabia and Russia. Among leading manufacturing countries, this will continue to favour the USA which has the potential to become energy independent, as Fullermoney has been pointing out for several years.