China’s Gas ambitions could have a huge impact on energy markets

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China has been working on developing its shale gas resources for a few years now, with mixed success, mainly because of the difficult geology. But times are a changing and, due to developments in shale, Asia’s biggest economy is well on its way to becoming the world’s second-largest producer of natural gas.

The Energy Information Administration, in its latest International Energy Outlook 2016, estimates that China, which was last year producing 500 million cubic feet of shale gas daily, is on its way to ramping this up to over 20 billion cubic feet daily by 2040. While 2040 may seem a long way off, this still represents seriously significant growth, and there is more than one reason for this new focus on shale gas.

For starters, China’s oil and gas majors are suffering not just from low oil prices but also from mature fields, many of them nearing depletion. However, its energy needs are not declining, and the country is still the world’s top energy consumer, with consumption 30 percent higher than that of the U.S., according to World Finance.

Second, while currently China relies predominantly on coal to satisfy these energy needs, it is also paying increasing attention to the environmental problems related to coal, the cheapest – and dirtiest – fossil fuel that helped its industrial revolution turn into the economic hothouse the world still looks to in hopes that Chinese consumption of energy and mining commodities will help the respective ailing industries. It’s for the very same reason that China was among the main culprits of the recent commodity price slump in both energy and metals.

So, China is becoming more conscientious about its carbon footprint, and gas is a great alternative to coal, since it’s the cleanest (or least-dirty) fossil fuel.

Third, China is finally moving away from heavy industry and towards a more service-focused economic model. This has been bad news for energy exporters that have counted on the Asian economy’s huge energy needs for much of their revenue, but it shouldn’t be too bad as the transition won’t be quick, and there is still India, who will replace China as Asia’s industrial hothouse.

Bad news for oil has become good news for gas, and international companies have started betting on China’s shift towards gas, safe in the knowledge – or assumption – that its conventional gas resources are not enough for self-sufficiency and shale gas will be difficult to extract. Some analysts argue that shale gas in China is more hype than anything else. This may well be the case, but it’s not certain, as the EIA forecast suggests.

China has proved time and again in its modern history that when there is enough determination, things can get done. It also has a lot of motivation as well as an example in the U.S., which is now nearly self-sufficient with regard to energy thanks to the shale boom.

This drive towards self-sufficiency can have a pretty bad effect on international gas prices, as Oilprice.com warned earlier this month, if it turns out successful. Its chances of success shouldn’t be underestimated in light of the three factors listed above. China wants to decrease its energy dependency, and it looks like it’s prepared to spend heavily to develop its shale gas reserves, which are estimated to be the largest in the world, or 1.7 times greater than those in the U.S.

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