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Global Competition For Energy Resources on Leaders’ Agenda
  Source:CNN
Cyber-security, North Korea and Asia-Pacific military matters are the big issues on the Xi-Obama agenda, but the competition for global energy resources will also figure in the two leaders’ discussions.
Much of the recent energy buzz is over whether China can replicate the shale gas boom that is transforming the US outlook for industry, transport and power generation, given that China’s potential shale gas reserves in the Sichuan, Tarim and Ordos basins outstrip those of the US.
But issues over water scarcity, geology, infrastructure and technical expertise mean any significant shale gas production in China is unlikely in the near term. Coal-bed methane may prove an easier, quicker resource to develop.
First, some background: China and the United States are the world’s two biggest energy consumers, and the way they use oil, gas, coal, nuclear, hydro and renewable power sources such as wind and solar has a huge impact on global markets.
China overtook the United States as the top energy user in 2009. Every day, according to the International Energy Agency, it eats up the equivalent of 6 million tonnes of thermal coal, 10 million barrels of oil and 350 million cubic metres of natural gas.
Most of the coal comes from China’s own mines, but more than half its oil and a third of its gas is imported. For now, coal remains the dominant fuel, providing 70% of China’s energy needs. Oil follows with just under 20%. Gas is only about 4% but growing quickly, and could reach 10% by 2020. China’s goal, laid out in its latest energy white paper, is to be producing 6.5 billion cubic metres (bcm) a year of its own gas by 2015 and up to 100 bcm by 2020.
For China, energy security is so crucial to its economic and social wellbeing that it is engaged in a relentless drive to shore up future supplies. That means exploration and development at home, and acquisitions and alliances abroad – often in the face of stiff competition from other big energy users such as India, Europe and Japan -- to gain access to the best technology and energy assets.
It is why, for instance, the three big state-owned oil and gas companies China National Petroleum Corp (CNPC), China National Offshore Oil Corp (CNOOC), China Petroleum & Chemical Corp (Sinopec), and petrochemical company Sinochem have all invested in North American conventional and unconventional energy in recent years. They want both a stake in productive oil and gas fields, and the know-how that may allow them to unlock reserves at home.
The latest big deal to go through was CNOOC’s $15 billion acquisition of Canadian oil and gas company Nexen in February this year. Sinopec is adding to its interests with a $1 billion stake in Chesapeake Energy’s Oklahoma properties, and Sinochem will spend $1.7 billion for a share of Pioneer Natural Resources’ Texas shale field.
Some observers believe unconventional gas – primarily shale gas and coal-bed methane --could constitute an energy bonanza for China equivalent to what is happening in the US now. They cite China’s technically recoverable shale gas reserves of 36 trillion cubic metres, which is about 50% higher than the US Energy Information Administration’s equivalent estimate for the US.
But can China really hope to replicate the US experience? Difficult, but not impossible, given the determination China has shown in the past when an existential threat or a development opportunity emerges. Think of the advances China has made in steel-making, solar power or high-speed train technology.
To do the same in gas energy, however, requires recognition that China is short of four essential ingredients: water, pipelines, geological records and shale gas expertise. It can buy or build up its capacity for the last three over time, but solving a water shortage in a country where water stress already blights big cities and regions is a major challenge.
Associated with water is land usage and land rights. Chinese authorities must contend with the social and environmental implications that come when drilling companies seek access to farm land. Sichuan province, for example, is one of the country’s prime food-producing areas. But the Sichuan Basin is a designated prospective zone for gas development and the site of China’s first shale gas exploration well. That puts drillers on a collision course with farmers.
The North American shale gas revolution of the past five years has not come easily. Horizontal drilling and hydraulic fracturing (“fracking”), the key techniques that enable shale gas exploitation, have actually been three decades in the making. They were developed mainly by small, independent explorers prepared to take risks.
Fracking involves injecting a mix of sand, water and chemicals into rocks beneath the surface to crack them open and get access to the shale. It is a water-intensive process whose environmental impact is yet to be fully resolved. Access to water in the US is far less problematic than in China, but even so, there is substantial opposition to fracking.  
On the infrastructure front, there are also huge differences between China and the US. North America has thousands of kilometres of gas pipelines and receiving points. In China, CNPC  is expanding its pipelines, but its network is geared to bringing in gas from Central Asia.
The US has extensive geological survey records for its shale gas areas; China lacks the equivalent data and its vastly different topography means assumptions about drilling prospects are not easily transferable. Each shale gas field is unique, which is why China is allowing domestic joint ventures between Chinese explorers and oil majors ExxonMobil, Shell, ConocoPhillips, BP and Total.
US rig crews are regarded as the best in the world and have ready access to the inputs they need for fracking. As well, a strong service sector in finance, distribution, processing and marketing supports the US oil and gas industry. China is a long way behind on these fronts.
Gas research expert Gavin Thompson of Wood Mackenzie believes coal-to-gas conversion and coal-bed methane offer more scope for China in the near term. At the World Gas Conference in Kuala Lumpur last year, he said: “By 2020, we see CTG and CBM producing 27 bcm and 17 bcm respectively against only approximately 11 bcm of shale production. These sectors are therefore far more significant through the medium-term, but are not receiving the appropriate level of attention outside of China.”
The Sunnylands summit may herald a reset for China’s domestic energy roadmap.