CHENGDU, China -- A convoy of white vans barreled down a dusty road three hours south of this provincial capital in late September. Lush valleys were drying out after another long and turbulent rainy season.

U.S. and Chinese government officials and brass from the nations' biggest oil and gas companies tailed their police escort deeper into Sichuan province. Truck traffic clogged the road, bisecting vegetable patches and rice paddies that seemed to disappear into the fog that morning. Around a final bend, the sunburst insignia on PetroChina's flag soared above the first horizontal natural gas well drilled in a Chinese shale basin.

The troupe of official visitors, dressed in red lab coats and hard hats, listened as a young PetroChina spokeswoman read from a sprawling billboard, in Chinese, then English: "Sichuan Basin, one of the earliest regions to discover and use natural gas in human history, is now becoming a hot spot for shale gas development," she boasted.

Shale gas is among the largest onshore energy prospects in China, and it is treated as such in Beijing and by local officials in central China and its sprawling Northwest. Unlocking trillions of cubic feet of gas buried in underground formations means heating more city apartments, generating more electricity from a resource other than coal, and feeding industrial plants hungry for energy.

But the government's quest to develop China's large shale gas deposits is in its earliest days. National oil companies and Beijing are moving cautiously. China is well aware of the environmental pitfalls that are raising doubts in the United States. There are geological differences that make the U.S. shale boom difficult to duplicate in China. Water for extracting gas is relatively abundant in Sichuan, but farmers in the nation's breadbasket need it more. Sichuan farms supply 7 percent of China's rice, wheat and other grains.

Tapping the homegrown shale, as China sees it, could buffer the economy from supply shocks if Russia or its gas-rich neighbors bordering the Caspian Sea restrict pipeline access. And, as it proved out in the United States, shale gas can be a formidable competitor for high-priced liquefied natural gas shipments sloshing around on the open seas.

Seeking an escape from foreign oil with U.S. help
"If the strategic goal is energy security and you're now 55 percent dependent on foreign crude, that undermines the goal of domestic energy security," said Damien Ma, a China analyst at Eurasia Group. "A lot of companies want to do more gas."

China's state-owned energy companies are captivated by the prospect of an onshore gas bonanza where there had never been one before, and they're not alone.

U.S.-based oil and gas giants Exxon Mobil Corp., Chevron Corp., ConocoPhillips, Anadarko Petroleum Co. and Halliburton Co. -- with the help of the U.S. government -- are delicately urging regulators in China to loosen restrictions on foreign gas field operators. The multinationals, confident that their expertise in cracking shale basins is worth something to China, are approaching with varying degrees of success the largest state-owned producers with offers to partner on projects.

So far, Royal Dutch Shell PLC is the only major Western producer to sign a broad partnership agreement to help PetroChina build wells. Offering few details, Exxon has said it is partnering with Sinopec to explore in the Sichuan Basin. BP PLC and Statoil are reportedly also in joint venture talks.

"It's way too early to really judge what the potential is and what's going to happen here in China. It's in its infancy," said Mark Pospisil, senior vice president of geology for XTO Energy Inc., speaking at an energy conference in Chengdu. XTO and Exxon merged in June 2010 to create the world's biggest shale gas producer.

"It's like George Mitchell drilling the first well in the Barnett [Texas shale deposit] in 1984 and trying to frack it," Pospisil said of China.

3 Comments

1. 1. 2008RealityCheck 04:59 PM 10/14/11

   With Iran being a big natural gas exporter, China's fields could sap some of Iran's funding for terrorism.
   
   Also it should lower China's overall carbon soot emissions that are a part of the cause for icefield and glacier melting.

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2. 2. timjwilson 05:24 PM 10/14/11

   Great! Maybe we can get them to screw up their water supply as badly as we have in this country.

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3. 3. Jordo0522 in reply to Nagnostic 10:41 PM 10/16/11

   That's a pretty rediculous question. Apples and high energy low cost efficient oranges.

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