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Shale Fail
China Still Can’t Frack

China’s state-owned oil firm, CNOOC, is giving up on a high-profile shale gas project in Anhui province, conceding that the play “is not suitable for development on a large scale.” The FT reports:

China National Offshore Oil Corp (Cnooc) has decided to shelve its shale gas project in Anhui province in the latest sign that the shale gas revolution that transformed the US energy industry is unlikely to replicate itself in China. […]

Cnooc joins larger Chinese firm PetroChina, which has already sharply scaled back on shale project in Sichuan province that it was developing with Royal Dutch Shell. Neither PetroChina nor Shell will publicly define the extent to which that project is on hold.

There are two factors at work here. First, the dramatic drop in the price of oil over the past nine months has oil companies taking a much closer look at their capital expenditures. High-cost projects—a set that shale plays certainly belong to—are being binned as these firms work to adjust their balance sheets.

But that only tells half the story, because even before the oil price crash Beijing was struggling mightily to catch up to the U.S. shale boom. Much of China’s shale gas is locked away in remote regions that lack the necessary infrastructure (roads, for example) to support large drilling operations. China also has a very real water shortage problem, which compounded with the relatively complex stratigraphy has stunted its push to tap its shale.

Beijing lays claim to the world’s largest shale gas reserves and third-largest shale oil reserves. Yet, as countries like Poland, Lithuania, Romania, South Africa, and the UK are all learning, simply possessing the resource isn’t enough. The American energy renaissance has not come gift-wrapped; rather it has been a product of a great number of favorable factors and innovative efforts.

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  • Kevin

    It might be that the recent oil price decline overseen by Saudi Arabia has more of an effect in preventing fracking from getting off the ground in additional countries than in reducing American production – though it will surely lead to that too (compared to what US production would have been had the price of oil remained above $100/barrel).

  • Jacksonian_Libertarian

    I’m sorry but the proprietary fracking knowledge that the American’s developed over years of effort, is the real reason all these projects are failing, not the fact that the strata isn’t layer cake organized. The fact is drillers can now make their holes in any direction and there by follow the strata where ever it goes. Also the people with the proprietary fracking knowledge aren’t the big oil companies but rather smaller independent wildcatters, it is they that are responsible for the American fracking revolution.

  • CaliforniaStark

    Don’t bet on there being much of a reduction in US production. The resourcefulness of American producers is incredible; better technologies allow more oil to be produced from existing wells, and there is now a considerable amount of refracking of old wells going on. Many producers are now able to make a profit at the current low oil prices. It is a difficult adjustment, but it is happening. Contrary to what many think, I don’t believe that Saudi Arabia is keeping world oil prices low in an attempt to limit American fracking; a world in which the United States and Saudi Arabia are the major oil producers still able to make a profit would make them quite happy.

  • rheddles

    rather it has been a product of a great number of favorable factors and innovative efforts.

    Better, or more opaquely, worded this time, but it’s still all about the culture.

    • fastrackn1

      “but it’s still all about the culture.”
      More like genetics…but of course no one wants to ever talk about that.
      I believe that American Exceptionalism is the result of hundreds of years of brain and type-A personality drain from around the world. That, I believe, is what has created the culture we have here.

      • Steve Gregg

        When the steam engine was invented, it took another two hundred tweaks by various other inventors to perfect it. Each tinkerer was motivated by profit to improve it, profit guaranteed by the law which protected intellectual property. These tinkerers can only operate in a culture that prized individualism and free speech. That means that a group of thousands of creative minds are engaged in all manner of improvments and they are richly rewarded for delivering those improvements. That America has, but China lacks.

        • fastrackn1

          Cultures, governments, constitutions, etc., etc., etc. …they are a manifestation of the gene pool that created them….

    • f1b0nacc1

      Culture may be part of it, but another (and hardly the only one) is the legal regime which gives property owners the rights to the gas underneath their land. In the US risky or difficult (i.e. expensive) projects can be justified by the wealth obtained for those undertaking them, but in China (as well as most of the rest of the world), this simply is not the case. Hence why spend the time and money to do it?
      Whether infrastructure, water, geology, culture, etc., the real problem is one of incentives. There are few incentives to make the investment to develop the technologies and the techniques in China, and a large part of this is their legal system.

      • rheddles

        The legal system is part of the culture as is the concept of private property and reward for risk. Check out Albion’s Seed: Four British Folkways in America by David Hackett Fischer for the persistence of culture in the face of waves of immigrants.

        • f1b0nacc1

          You made a solid point, but I wonder if the legal system underpins the culture, rather than the other way around.

          • richard40

            I think they feed off each other. A bad legal system will tend to slowly degrade an otherwise good culture, while a bad culture will tend to slowly degrade what might have started as a good legal system.

          • f1b0nacc1

            Sadly, I suspect we are seeing that play out here…

          • richard40

            Yes, and have you noticed that the institutions the leftists are most determined to dominate, hollywood, media, and academia, are all the key institutions that are most involved in influencing culture. They can never produce anything real, and are actually pretty lazy, so they dont have much influence in producing sectors, like mining, farming, manufacturing, research, or entrepenourialism, but as long as they control the gatekeepers of culture, they have power over everything else, despite producing and contributing nothing of much value, other than propaganda (which is only valuable to them, not to anybody else).

  • the_real_ch3

    Just a small point to quibble on this statement

    “Beijing lays claim to the world’s largest shale gas reserves and third-largest shale oil reserves.”

    If they can’t be economically produced with current technology then they’re not reserves, they’re resources.

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