In some respects, shale energy could be even more transformational in China than in the US. Consider that shale gas emerged in America just as the economy was entering a recession. GDP and demand for energy in all its forms have remained weak, forcing shale developers to capture market share from other suppliers. Many of the gains made against coal and other sources of electricity came as a result of slumping natural gas prices, as supply exceeded demand and gas imports were squeezed out of the market. Moreover, pipeline natural gas, whether from shale or conventional wells, is no novelty in the US, having accounted for one-fifth to one-fourth of total energy consumption for six decades. It is a major energy source for the residential, commercial, industrial and utility sectors, though it occupies only a tiny niche in transportation. US shale gas is likely to continue to displace other fuels at the margin, but it remains to be seen to what extent it will fuel growth outside gas's long-established roles.
By contrast gas accounted for just 4% of China's total energy consumption in 2010, according to BP's annual Statistical Review, compared to 70% for coal, 18% for oil, and 8% for hydropower, other renewables and nuclear power combined. China's official GDP growth target for 2012 is 7.5%, slower than in recent years, yet still robust compared to the OECD countries. Even with China's commitments to improve the energy intensity of its economy, that economic growth will translate into substantial energy demand growth. Shale gas stands to capture large portions of that growth, if developers can achieve well productivity comparable to US shales and attract the infrastructure investments required to deliver the gas to market. And with the environmental drawbacks of China's coal dependence becoming increasingly apparent, shale gas could materially improve both air pollution and greenhouse gas emissions in the world's largest energy consuming country.
China won't be the only country seeking to apply the shale extraction techniques perfected in the US to their own enormous, untapped resources. South Africa, with technically recoverable shale gas resources estimated to exceed Canada's, just lifted its moratorium on shale exploration. Meanwhile, Ukraine, with Europe's third-largest shale gas resources, earlier this year chose Royal Dutch Shell and Chevron to explore two large shale prospects and was reportedly considering another tender for this month.
Developing China's shale resources won't be easy, as the Financial Times noted on Tuesday. China-based companies have invested in shale plays outside China partly to gain expertise, while also inviting foreign companies to participate in China. The combination of horizontal drilling and hydraulic fracturing that has been so successful elsewhere must be adapted to the different geology of China's shale deposits. Just as importantly, drillers must adapt the shale business model to an environment with regulations, legal system and property rights quite different from the unique mix of state-level rules and privately held mineral rights that prevail in most of the US "shale patch." None of this looks insurmountable, and the potential prize is large enough to keep all parties focused on making progress.