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Sieren's China

Frank Sieren / nmJuly 11, 2014

Most of the oil and gas needed to meet China's growing energy demand comes from crisis regions. Fracking to extract gas at home is at least as important for China as it is for the USA, writes DW columnist Frank Sieren.

Fracking site in Pennsylvania, US
Image: picture-alliance/dpa

The United States invented fracking, and it's a technique they have perfected. When it comes to using pressurized water and chemicals to force gas, and even oil, from deep-lying layers of rock, no one does it better. In the United States there are huge amounts of shale - the rock formations where natural gas is trapped. There is so much of it, in fact, that in 2013, for the first time, the global superpower mined more gas than it had to buy. Now it has set the ambitious goal of being independent of energy imports by 2017.

Rich in shale

Fracking is, however, no longer an American monopoly. The shale gas deposits in the United States are only the fourth largest in the world - behind Argentina, Algeria and China, whose reserves are about twice the size of those in the USA.

It is only a matter of time before the Chinese get started and begin exploiting their resources on a large scale, as in the United States, without much political debate about the potential risks to the environment.

Meanwhile, China has established the first cooperative venture to begin fracking operations. FTS International, the first and largest US company to perfect the fracking technique, has formed a joint venture with China's Sinopec, a state-owned energy giant with 1 million employees and an annual turnover of 350 billion euros ($475 billion).

The enterprise, known as SinoFTS, is scheduled to start fracking in central China next year. After that, the group will also explore reserves in the Yangtze River bed in southern China and in the Tarim Basin in the country's west.

A lot of catching up to do

Thus far, as is the case in many other sectors, the Chinese are still reliant on Western technologies - both for the production and for the development of infrastructure to tap into deposits.

Still, it's certain that Sinopec will be watching closely, and will learn quickly from what the Americans are doing. After all, we are talking about the national energy supply, and in their own country they certainly don't want to put that control permanently into the hands of the Americans.

As in other sectors, with fracking there's also the old question: How long will it take for China to stand on equal footing technologically with the United States? China's National Oil Companies (NOCs) already buy into North American companies that have experience in fracking.

Frank Sieren
DW columnist Frank Sieren says fracking could be a "game changer" for the USImage: Frank Sieren

By 2015, China plans to extract 6.5 billion cubic meters of shale gas. By 2020, that's expected to rise to 100 billion cubic meters per year. The US extracted 170 billion cubic meters back in 2011. But China is picking up the pace. Last year alone they produced seven times more shale gas than in the previous year.

It's a game of catch-up. But why then are American companies getting involved? Because the technology is not in the hands of a company, and they're better off cooperating with China before their competitors do.

And why doesn't the US government do anything to prevent it - as it does in the armament industry? Because the technology is not exclusively located in the US, and they prefer to win the contracts themselves.

In addition, the US assumes fracking is politically much more useful to them. Regardless of the international commodity markets, they are much faster than China, which is growing rapidly and already has to import 70 percent of its energy resources.

Strong competition

On the other hand, there is much greater pressure on the Chinese to make quick progress. And not just to be, like the US, as politically independent as possible from the oil-rich regions in crisis. Many in Washington are already dreaming about companies from around the world wanting to build production in the US, instead of in China, because energy in the US is so cheap.

Fracking has the potential to be a "game changer," a surprising twist in the story that could put the US back on top in just about every sector. That's something Beijing, of course, wants to avoid. They'll give Chinese companies a significant amount of funding and support so that their own fracking industry has a chance to compete at the world level.

But Beijing has a big problem: The USA has always used its soldiers to try and bring about stability in oil and gas regions. Now they have less and less interest in this, evident in their withdrawal from Iraq.

China, however, isn't able to fill this void, and it has no desire to play the world police, particularly after the US experience. Therefore it would appear China, not the US, is stuck in a quandary.

Our correspondent Frank Sieren is considered a leading German expert on China. He has lived in Beijing for the past 20 years.