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What Shale Gas in China Means for the United States

Today I testified before the U.S.-China Economic and Security Review Commission during a hearing on China’s Global Quest for Resources and Implications for the United States. In my testimony, I described the prospects for shale gas in China and its implications for the United States. Considering the speed with which shale gas has shifted the U.S. energy outlook, this is an important moment to consider the implications of the development of China’s shale gas resources. China appears to have significant reserves of natural gas trapped in shale. According to a 2011 EIA study, China overlays eight basins containing 1,275 trillion cubic feet (Tcf) of technically recoverable resources, which is larger than the study’s estimate for the U.S. (862 Tcf).

However, Chinese oil experts point out that these estimates are not based on any studies of what the recovery rate would be for China’s shale gas and recognize an urgent need to evaluate the extent and scale of the resource. Even if the estimates are overstated, shale gas could be a game changer in China’s energy future in the same way that it changed the future energy context here in the United States.

1. Current state and future direction of China’s shale gas industry: The shale gas industry in China is in early development, but the topic has already garnered significant interest from the national government. The Chinese government is implementing new policies that support the future development of China’s gas industry broadly, as well as supporting shale gas research. State-owned and provincial-owned enterprises are conducting exploration and pilot demonstrations on shale gas in China. Through its state-owned enterprises1, China is also investing in shale gas development in the United States. Partnerships between U.S. and Chinese companies in the shale gas sector have been used to the near-term economic benefit of both countries and provide potential for U.S. companies to benefit domestically and abroad.

2. Impacts on the energy situation in China: Shale gas development in China will reduce natural gas imports. Because total natural gas demand will continue to far outstrip all domestic production for the foreseeable future, any natural gas from shale in China is expected to be consumed domestically. The more China can develop energy alternatives to imported oil and domestic coal, the less pressure it exerts on global energy markets and the global environment. China’s domestic use of its own natural gas resources would be unlikely to have an effect on net U.S. energy imports, as the U.S. is projected to domestically produce sufficient quantities of natural gas to meet its own demand for at least the next 25 years.23

Development of shale gas in China will shift future global energy dynamics, and how it is done will affect the environment and global climate picture. As I described in my testimony, shale gas can help improve international energy security by providing an abundant domestic energy resource and reducing the need for natural gas imports. What role it plays in addressing climate change will depend in large part on the degree to which shale gas in the United State, China, and beyond displaces inefficient coal plants and supplements continued improvements in energy efficiency and renewable energy.

WRI will be further exploring these issues both in China and the US in the weeks and months ahead.

  1. Large investments made by the enterprises are overseen by the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) ↩︎

  2. According to the U.S. EIA Annual Energy Outlook 2011, from 2012 to 2035 net imports of liquefied natural gas are projected to never exceed 2% of total supply: ↩︎

  3. Andrei Korzhubaev and Alexander Khurshudov, Shale Gas: Great Expectations, Modest Plans, Oil & Gas Eurasia, 2011; Olivia Chung, China Joins Shale Gas Hunt, Asia Times, 2011. ↩︎

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