US, China To Discuss Shale Gas During Bilateral Talks

BEIJING - The U.S. is prioritizing China's development of shale gas in discussions relating to energy at an upcoming bilateral summit, as it views the unconventional fuel as vital for securing China's energy security, reducing carbon emissions and freeing up gas for global markets, the head of the U.S. Energy Resources Bureau said Tuesday.

U.S. Ambassador Carlos Pascual, the country's special envoy and coordinator for international energy affairs, said the main focus of energy discussions at the U.S.-China Strategic Economic Dialogue, which starts Thursday, will be on how the U.S. can help develop China's shale-gas resources.

China's development of shale gas may benefit U.S. oil majors such as Exxon Mobil Corp. and Chevron Corp. through partnerships with Chinese firms, he added.

In recent years, a boom in hydraulic fracturing, or fracking, to free up gas locked in shale deposits has flooded the U.S. with cheap natural gas--and China is hoping to replicate that experience.

China plans to boost the contribution of natural gas to the country's energy mix to 10% by 2020 from less than 5% in 2010 to cut its dependency on coal, which accounts for around 70% of the mix.

China, the world's largest energy consumer, may hold 25.08 trillion cubic meters of "potentially recoverable shale gas resources," its Ministry of Land and Resources has said. In comparison, the U.S. has about 13.65 trillion cubic meters of "unproved technically recoverable resources," according to the U.S. Energy Information Administration.

In February, the U.S. Geological Survey released a study of unconventional gas in China's Liaohe Basin. Future partnerships with the USGS will be discussed during the summit, along with lessons or experiences the U.S. can share with China on community engagement prior to drilling, Pascual said.

China's National Energy Administration "recognizes how the issue of fracking can affect communities," Pascual said.

Companies that use the technique in the U.S. are facing increasingly strident community opposition to gas fracking in some areas, with concerns ranging from potential triggering of earthquakes to contamination of water supplies with gas and chemicals used in the process.

Local communities and will be more willing to support drilling activity if they see companies making efforts to drill in environmentally sound and sustainable ways, Pascual said.

China recently set a target to produce 6.5 billion cubic meters a year of shale gas by 2015 from virtually zero this year and hopes to produce between 60 billion and 100 billion cubic meters a year by 2020--a figure some analysts are skeptical it can achieve.

China held its first auction for shale-gas exploration areas last June for state-owned companies and plans to hold a second auction later this year that will extend bidding to private domestic companies.

Meanwhile, China National Petroleum Corp. recently signed a production-sharing contract to explore, develop and produce shale gas with Royal Dutch Shell PLC in China. China's top three oil majors have also made a string of investments in shale gas assets in North America, partly to gain knowledge and expertise in the field. 

Copyright (c) 2012 Dow Jones & Company, Inc.


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