What’s the Fracking Problem?

China has been a net importer of natural gas since 2007. The US Energy Information Administration has published a report stating that China’s shale gas reserves are the largest in the world; at current levels of consumption, they could satisfy Chinese energy demand for the next 300 years, but the geological complexity of the fields means that full exploitation of the huge deposits requires highly advanced technologies. It should come as no surprise, then, that China is showing particular interest in acquiring the best available techniques and know-how to take advantage of the energy source that is currently dominating the energy market.
 
Shale gas is extracted from bituminous shale formations, via a process called “fracking.” High pressure jets of water and chemical compounds are injected into the formations, shattering the rock and releasing the gas. Fracking has already been in use for decades in the US, but with high costs and modest results. The percentage of shale gas in the US energy portfolio is still marginal, but advancement in extraction techniques by the US and Canada have made the resource more advantageous, and production of shale gas is beginning to rise.
 
The geopolitical ramifications have been immediate: the fall of international gas prices and reduction of dependence on an unstable Middle East. China, ever the energy seeker, is showing a keen interest in shale gas as a means to satisfy its voracious appetite and reduce dependence on domestic coal and foreign oil. Beijing cultivates its relationships with exporting countries because they are indispensable. Last month, the State Council gave shale gas the status of “independent mining resource,” releasing it from a government research and development monopoly and  paving the way for the private sector to enter the market with their vast capital. The Ministry of Land and Resources recently published a yearlong study putting Chinese explorable reserves at 25 trillion cubic meters (TCM), but this immense natural wealth, mainly located in Sichuan and Xinjiang, is purely theoretical without the technology to extract it properly, and profitably.
 
To acquire the vital technology, Beijing has extended a network of connections that goes beyond commercial territory and into the political. Sinopec and PetroChina, both state-owned energy giants, are investing heavily into the acquisition of smaller companies involved in development of shale gas extraction, mainly in Canada. PetroChina has paid more than 1 billion Usd for a 20% stake in Royal Dutch Shell Plc’s shale gas project in western Canada. Shell, Chevron, and BP are also involved with their Chinese counterparts CNPC, COOC, and Sinopec, to carry out joint research and exploration into Chinese reserves. These investments are strategic, but uncertain and expensive. Companies rich in technical competence are being courted, but cannot sell their assets without government approval. There is also the question of environmental impact. Initial positive evaluations that led the Obama administration to permit extensive exploration are now giving way to concern from the scientific community over the emission of greenhouse gases by fracking. China can try to neglect these aspects, but cannot ignore them entirely, because the technology it needs is being developed abroad, and does not depend on Beijing’s laboratories.