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China to Embrace Fracking in an Effort to Ramp Up Energy Production

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Despite rising environmental concerns about fracking in both the U.S. and Europe, China has had no hesitation about the controversial natural gas production technique.

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China is leaving no shale deposit unturned in its effort to develop indigenous energy resources.

On November 24, China's Ministry of Land and Resources geological exploration department head Peng Qiming said during a press conference that China's combined oil and natural gas output, 280 million tons in 2010, is projected to rise to the equivalent of 360 million tons of oil by 2015, a 23 percent increase in four years, and will rise to 450 million tons by 2030, a 62 percent increase over 2010 production -- impressive rises in production by any yardstick.

And Beijing authorities in their drive are embracing a controversial natural gas production technique that is coming under increasing government scrutiny in both the United States and Britain -- hydraulic fracturing, or 'fracking." China has started drilling to meet an ambitious annual production target of 80 billion cubic meters by 2020 by which time the government is seeking to meet a target of generating 10 percent of its energy needs from natural gas and 15 percent from renewable sources, and to launch a national shale gas research center in August 2010.

In April the U.S. Energy Information Administration estimated that China has nearly 50 percent more "technically recoverable" shale gas than the United States, placing its reserves at 1.275 quadrillion cubic feet, 12 times the country's conventional natural gas deposits, as compared with U.S. shale gas reserves of 862 trillion cubic feet.

Despite rising environmental concerns about fracking in both the U.S. and Europe (see U.S. Government Confirms Link Between Earthquakes and Shale Gas Extraction), Chinese authorities up until now have shown no such hesitations. On October 20 in Shanghai, China's Ministry of Land and Resources Strategic Research Center deputy head Zhang Dawei said, "The government places high emphasis on developing shale gas and has been actively studying supporting policies," adding that a national shale gas plan will shortly be announced and more than 10 shale natural gas blocks are to be offered to Chinese state and private companies a the second round of auctions.

Earlier this year price and supply fluctuations in China's oil and coal imports triggered disruptive electricity blackouts, increasing the Chinese government's interest in the country's vast reserves of shale natural gas, which will likely prove to be a more stable and predictable energy source as the central government can more easily control the pricing for domestically produced energy supplies. An added benefit of developing the country's shale natural gas reserves is that over time, Chinese shale natural gas will be cheaper than importing liquefied natural gas over long-distance pipelines from Central Asia as rising volumes come online.

All that remainis are those pesky environmentalists -- not a current problem as China's media is largely state-owned and shies away from contentious topics.

Ever eager to get a share of the Chinese market, on November 2017, 2009 during a state visit to Beijing, U.S. President Barack Obama met with Chinese President Hu Jintao and agreed to share American shale gas technology and to promote U.S. investment in Chinese shale-gas development. The "U.S.-China Clean Energy Announcements" posted by the White House Office of the Press Secretary posted the same day stated, "The two presidents announced the launch of a new U.S.-China Shale Gas Resource Initiative. Under the Initiative, the U.S. and China will use experience gained in the United States to assess China's shale gas potential, promote environmentally-sustainable development of shale gas resources, conduct joint technical studies to accelerate development of shale gas resources in China, and promote shale gas investment in China through the U.S.-China Oil and Gas Industry Forum, study tours, and workshops."

Well, if Zhang's October 20 announcement is anything to go by, U.S. investment in China's shale gas industry will not include allowing overseas companies in the upcoming sale of shale gas leases. Up until now China has auctioned off two shale natural gas blocks in southwest China to two Chinese companies, including state-owned giant China Petroleum and Chemical Corporation Ltd. (Sinopec) (SNP) and plans to hold a second auction either later this year or early in 2012.

As a consolation prize for foreign energy firms, they can invest in and supply technology to Chinese domestic shale natural gas operators and developer. Despite the prohibition, Chevron Corp. (CVX), BP Plc (BP), and Norway's Statoil ASA (STO) are among international energy companies that have already begun talks to form joint ventures in China to tap shale gas assets.

What's Mandarin for "technology transfer"?

This article was written by John C.K. Daly of Oilprice.com.

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