There are a whole host of reasons why China is finding it so devilishly difficult to replicate American shale success. China lacks the water resources, the geology, the roads, the pipelines, the technical know-how, and the wildcatting ecosystem, all of which helped foster the US shale boom. In a round-up of what’s gone wrong with China’s shale experiment, the Wall Street Journal points to an often-overlooked key to America’s energy revolution—mineral rights:
[U]nlike in the U.S., where landowners generally own rights to gas beneath their property, minerals in many countries are owned by the state, giving residents little financial incentive to support drilling near their homes.From May 2010—when Shell was conducting early exploration in the region—to March 2013, the company lost 535 days of work across 19 wells due to “spontaneous village based blockades” or government requests to halt operations, company officials said in a March paper delivered at an industry conference. Many of the villagers’ complaints stemmed from money disputes, the paper says.
The US is one the world’s few countries that pairs mineral rights with property rights. The default setting, though this varies state by state and can be altered by contract, pairs surface rights with the rights to what’s below the ground. That means that local communities get paid for the inconvenience of enduring the trucks, wells, and pipes that accompany shale energy. The alternative is a restive local population resentful of the encroachment of oil and gas companies on their land, which, as we’re seeing in China and we’ve seen in the UK, can stop shale dead in its tracks.The WSJ notes that Shell pays village leaders for the land it uses for drilling, though that strategy smacks more of graft than fair compensation, especially after the article concludes with the observation that in one village, “funds haven’t yet been spent.”Shale energy didn’t fall in to America’s lap. Sure, some of our advantages came from geographical good fortune, but the US had in place a series of conditions that helped nurture the fledgling resource into a full blown energy revolution.[Oil rig image courtesy of Shutterstock]