Policy Brief: China’s Energy Outlook and the Shale Revolution: New Actors and Competing Interests
As China’s energy demand outpaces supply, the country is desperate to boost gas production. Growing criticism of environmental problems, such as the endemic smog clogging Beijing and other major cities, has the government scrambling to replace China’s high coal usage with less polluting sources. China’s large estimated shale gas – and to a lesser extent coal bed methane (CBM) – resources present a rare chance to develop a domestic resource, thereby improving energy security. While unconventional gas alone will not solve China’s energy woes, its development has the potential to reduce the risks associated with import dependency that will come with increased natural gas usage. The government also hopes shale gas extraction will help lower gas prices for China. At the same time, the government hopes to lower emissions, particularly in cities, by using gas instead of coal for power generation.
Despite the government’s conclusion that unconventional gas development has clear benefits for China’s sustainable economic growth, a number of challenges risk derailing or substantially slowing the project. These hurdles range from gas prices that are too low, insufficient infrastructure, competing interests and priorities among China’s energy producers, and a lack of technological and management expertise. Of the 16 winning companies in China’s second bidding round announced in January 2013, not one had previous experience drilling for shale gas. Trying to address these obstacles requires more than new legislation on shale gas extraction. China will have to engage in fundamental reforms in controversial areas like state-owned enterprise (SOE) monopolies and policy decentralization if it wants to reach its development goals.