Jeremy Carl and David Sandalow have mixed reviews for China's leaders as they ramp up fracking to reduce the country's coal burning and end the stigma of being the world’s largest GHG emitter. Progress has been painfully slow as huge, state-run oil companies try to copy the rapid and nimble rise of the US shale-gas industry.
Now the whole government — from ministers on down — must feel like it's trapped on George Lucas' Death Star, unable to change course, their hopes sputtering along with the nano-sized gas boom. China may have drilled its first shale gas well in 2010, fired up by reports that it was sitting on the largest shale reserves on Earth, but five years later, most shale gas remains underground, and ambitious production targets have been cut several times. Even the revised goal for 2015 may be impossible to reach, as both foreign and domestic companies halt drilling.
China has discovered that it isn't easy to duplicate a shale boom fueled by a special cadre of small, wildcatting oil and gas exploration companies. Modern China lost its entrepreneurial "wildcatter" culture during the Mao-era bureaucratic bulk-up, and it can't easily import a new one either. Every country with untapped shale reserves is fighting over the same fracking talent nurtured and sequestered in the US.
While China drilled 200 new wells last year, bringing the total to 400, and may have added a few hundred this year, the US has about 82,000 wells operating nationally. Since 2005, Texas and Colorado — the American mega-frackers — have drilled 33,753 and 18,168 wells, respectively.
What's missing?
Carl and Sandalow, who have deeply researched China's energy markets, both feel there are several obstacles holding China back. A short list includes few financing options and no tax incentives. What's more, sharing geological data, as is commonly done in the US, is nearly impossible because it's either "secret" or siloed in recalcitrant government ministries.
They also feel that China has to root out corruption. During the country's first shale-gas auction, none of the leases in the shale-rich Sichuan Basin went to PetroChina or Sinopec. Instead, in a friends and family sleight of hand, the two upstream specialists lost out to state-owned coal and utility companies, as well as local governments that had no expertise drilling for the oil and gas.
But the two researchers think that China's slow learning curve is par for the course. After all, the United States took 60 years and 200,000 wells to lay the groundwork for the shale-gas revolution.
Fortunately China isn't in denial about the problem. Sandalow has spent time briefing officials who have already acted on his recommendations. Just a few weeks ago, the government split up the upstream and midstream parts of its state oil and gas companies, ensuring that future drillers have access to markets.