Guest Post: The “Fracking” Revolution Comes to China

Tyler Durden's picture

Submitted by Elliot Brennan of The Diplomat,

As shale gas fever sweeps through Beijing, analysts are looking at the costs and benefits of extracting what is increasingly a controversial source of energy. But for China, with its growing middle class, the immediate and long-term demand for energy has the potential to spark a revolution in shale gas before sufficient and safe technological know-how and regulations are developed.

A very vocal debate continues to rage in the U.S. and Europe as to the environmental consequences of shale gas extraction. Meanwhile, China’s National Oil Companies (NOCs) continue to purchase and buy into North American oil and gas companies with specific expertise in shale gas extraction. For better or worse, China’s shale gas revolution looks set to be thrust into the public spotlight, both at home and abroad.

Extracting shale gas is tricky. Shale, a sedimentary rock that is typically highly porous and has low permeability, traps hydrocarbons as it is formed. To remove the gas, shale formations must be stimulated, most commonly using hydraulic fracturing, or “fracking.” The technique involves pumping water, sand and chemicals at high pressure into the shale formation, cracking the rock and allowing the gas to be released to the surface. The 1 to 3 million gallons of water that are pumped into the shale formation must then either be recycled or pumped into water disposal wells in subsurface rock formations.

In addition to these skill-intensive practices, the extraction process also demands three-dimensional seismic surveying, which evaluates potential subsurface resources, and horizontal drillingtechnology. Both demand expertise and experience, yet the capability of most companies outside of North America, including China’s National Oil Companies (NOCs), to safely and effectively perform such high-tech extraction is limited.

The emergence of shale gas is a game changer. Countries that have traditionally relied on hydrocarbon exports for political clout (the Persian Gulf, Russia, Venezuela) will inevitably lose some of their petro power. Europe could become less energy dependent on Russian supply by importing liquid natural gas (LNG) from North America and by exploiting the potentially significant shale gas deposits in Poland and other countries. Australia, which has significant deposits and much of the pre-existing infrastructure to begin extraction, could see its clout in the energy politics of the region increase– forcing a significant redraft of Canberra’s “Australia in the Asian Century” White Paper.

In effect, the “shale revolution” signals the end of the peak oil debate. New technology means new resources, which in turn could mean a new geopolitical map. However the mere presence of the resources doesn’t mean that their extraction in the short-term is viable, a problem China knows all too well.

China’s oil fields are drying up. The International Energy Agency’s (IAE) World Energy Outlook for 2010predicts China will import 79% of its oil by 2030, a figure that demonstrates the pressing need for China to develop new energy sources. Enter shale gas and the “unconventionals.”

Estimates of China’s shale gas resources differ. China’s Ministry of Land and Resources estimates reserves of 886 trillion cubic feet (tcf), while the U.S. Energy Information Administration puts the country’s resources at 1,275 tcf. The upper estimates would mean China sits atop more shale gas than the U.S. and Canada combined. According to China’s 12th Five-Year Plan, by 2015 China should be extracting 6.5 billion cubic meters of shale gas per year, with a view of producing 100 billion cubic meters by 2020. China’s goal is to meet 10 percent of the country’s energy demands from shale gas the same year. To successfully meet the goal, China’s oil and gas industry needs to bridge its large knowledge deficit. Despite some progress, recent successes in domestic extraction technology have been modest.

Under the Shale Gas Development Plan for 2011-2015, shale gas has been labeled by the Ministry of Land and Resources as a separate mineral from conventional hydrocarbons. This move frees shale resources from the clutches of “the big three;” Chinese state-owned majors – China National Petroleum Corporation (CNPC), China Petroleum & Chemical Corporation (Sinopec) and China National Offshore Oil Corporation (CNOOC) – allowing Beijing to redistribute exploration contracts. Importantly, the move encourages competition among state-owned majors, local enterprises and foreign companies.

China’s NOCs, while not state-run, benefit from state financing. Their capital flows during the global downturn in 2008 gave them the flexibility to expand globally. For China’s NOCs, establishing partnerships with other international oil companies allows them to diversify risks and gain technical know-how through the supply chain.

At home and abroad China is making waves. The opening of a recent tender to foreign companies demonstrates the extent to which the often go-it-alone Chinese Communist Party feels it needs to secure a rapid and successful energy boom. Royal Dutch Shell, Chevron, Exxon Mobil and British Petroleum are alljointly surveying the key provinces of Sichuan and Guizhou with local companies. As part of the new tender, other joint ventures are expected to follow.

Flush with state financing, China’s NOCs have in recent years begun buying up stakes in North American energy companies and their subsidiaries. Some of their recent buy-ins have been the purchase of Nexen and a stake in Devon Energy Corp, one of the founders of shale gas extraction. Such purchases allow China’s NOCs to absorb expertise. While this in itself isn’t enough to meet their energy needs, it is a step toward building capacity for China’s NOCs in shale gas exploration and extraction.

China’s NOCs have been known to employ a “market-for-resources strategy,” whereby access to China’s market is granted to a resource holder in exchange for imports of resources from that country. This now looks to be morphing into a “market-for-know-how strategy.” In the early stages of coal bed methane exploration in China, foreign groups contributed 70 percent of the funding. With already significant foreign involvement, the shale gas industry looks set to emulate this model.

However, the all-important extraction process of shale gas, hydraulic fracturing, just as its name suggests, needs water – and large amounts of it. So while shale could provide energy, it will require large volumes of water that will be costly both to consume and to recycle. Water scarcity remains a key concern for the Chinese government, while water pollution is an increasing worry for the Chinese public. One recent report noted that already “up to 40 percent of China’s rivers were seriously polluted” and “20 percent were so polluted their water quality was rated too toxic even to come into contact with.”

Experts warn that China will face growing water shortages in coming years. Water-intensive industries such as mining are competing for increasingly scarce water sources. Low rainfall in the northwest of the country, where much of the shale is believed to be, means these areas will have to rely on limited and finite groundwater. In the face of these shortages, China established a special 25 million USD fund for a cloud seeding program in 2012 to operate in “areas prone to drought and haze.” Water can be transported into China’s northwest via pipeline but that would be costly and require significant new infrastructure, such as desalination plants and pipelines that would likely need to stretch across the country for thousands of kilometers – a similar feat to the 4,200 km Xijiang to Shanghai gas pipeline.

Shale gas has approximately half the carbon content of coal. For China, the replacement of coal for gas in power generation could reduce emissions and pollution.  It would kill two birds with one big stone, as criticism grows over the country’s pollution levels both in air and water. However, some warn that shale gas may also reduce investment in renewable energy sources.

In the U.S., environmental concerns dominate the debate. Public concern over water contamination and the release of harmful gases during shale gas extraction are gaining increasing media attention. This has been exacerbated by claims that research commissioned by industry-friendly lobby groups in the U.S., such as the American Petroleum Institute and the American Natural Gas Alliance, have muddied the water on the environmental impact of shale gas extraction. However, according to an IAE report, Golden Rules for a Golden Age of Gas, the environmental risks inherent in the process can be easily mitigated. The report outlines the “golden rules” required to address the environmental and social impact of developments in unconventional gas. It predicts that major risks can be decreased and safety improved if the cost of drilling and completing of a shale gas well is increased by 7 percent.

A dozen or more chemicals may be added to the water and sand pumped into a shale-gas well, including radioactive tracers that help assess the formation and relevant fractures. While these tracers are strictly monitored under guidelines handed down by the Nuclear Regulatory Commission in the U.S., in China the regulations may be less stringent. In addition, other radioactive material may be dislodged in the fracking process and may have to be disposed of from flowback water.

If strict regulations are not in place to seal the well from leaching, aquifers and ground water may become contaminated by run-off chemicals, methane or radioactive minerals displaced in the process. A 2011 US Environmental Protection Agency (EPA) report suggests that fracking may have resulted in the contamination of ground water.

Recent and successful protests in China to stop the construction of a chemical plant in Ningbo demonstrate growing public concern about some government-backed developments. The October 2012 protests followed other victories to stop the construction of petrochemical plants in Xiamen and Dalian. In Dalian, some 10,000 protesters took to the streets. With a growing middle-class, increasing internet and social media access, and more public involvement and activism in key local concerns, the government and local authorities will likely have to be accommodating of public displeasure in order to maintain stability as China grows. A Tiananmen-style alternative appears unlikely as it could backfire, both at home and abroad.

If the current hype proves correct and gas prices remain strong, China’s shale gas could be just the energy boom that Beijing seeks. It could allow China to meet its ambitious growth targets. As many commentators have suggested, however, shale gas may prove less of a blessing and more of a “resource curse,” spelling environmental disaster and nationwide instability. Either way, as Sino-American partnerships are forged and shale gas extraction in China ventures into unchartered waters, one thing is certain: The world will be watching.

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markmotive's picture

Fracking is a low EROEI source of oil. Short boom followed by bust.

Nothing to see here.

MSimon's picture

Depends on where the energy comes from. If it is a fraction of the energy recovered. It doesn't matter. If you have to get the energy from elsewhere it matters. It all depends on prices. EROI is just another Maltusian trick. Net energy and price are all that counts.


Unless you believe in CO2 doom - after 17 years of static temps with rising CO2 according to the head of the IPCC.

dubbleoj's picture

msimon, if you havent noticed, net energy is going down while price keeps going up. kind of a problem dont you think?

is this author retarded? he calls the peak oil discussion over and links a paper that doubts the long-term viability of the "shale revolution" in the same sentence

simon.dc3's picture

EROEI is an inherint equation all organisms must contend with; done by the lowliest amoeba, yeast in a vat, AND civilization-scale organisms.

Read the works by Dr Charles A. S. Hall at New York University Syracuse, the researcher who conceptualized EROI.

merizobeach's picture

The US Army and the USGS independently concluded that fracking can cause earthquakes.  Or are there fault lines in Oklahoma?

gasmiinder's picture

Yes - in fact a huge number. The very minor seismic activity caused by fracking is due the lubrication of those fault planes - and the energy release from the faults means there is LESS likely to be major seismic activity at some point in the future.

thisandthat's picture

And so do dams, specially major ones, with huge reservoirs, which can affect nearby fault lines.

Atomizer's picture

Oh, we flick flack Mr. Barack. xie xie ni.


Executive Order -- Supporting Safe and Responsible Development of Unconventional Domestic Natural Gas Resources| April 13, 2012


H.R. 1337 (111th): America’s Energy Security Trust Fund Act of 2009


In summary, there were nearly 70 different types of leasable minerals extracted from federal lands and waters in fiscal years 2010 and 2011, but their volume cannot be aggregated because they use different units of measure. For example, the volumes of the four most valuable of these minerals--oil, gas, natural gas liquids, and coal--are measured in barrels, million cubic feet (mcf), gallons, and tons, respectively. According to ONRR data, the total value of all leasable minerals extracted from federal and Indian land and sold in fiscal years 2010 and 2011 was $92.3 billion and $98.6 billion, respectively.


The resulting revenue to the federal government from mineral leasing activity on federal and Indian land in fiscal years 2010 and 2011 was $11.3 billion and $11.4 billion, respectively. Of this amount, oil, gas, and natural gas liquids accounted for the majority of the revenue--$10.1 billion in each fiscal year. The bulk of this revenue comes from royalties, which accounted for 92.8 percent of total revenue in 2011.


The mechanisms used to calculate the three types of leasable mineral revenue--bonus bids, rents, and royalties--vary widely. For example, for oil and gas leases, bonus bids--up-front payments to obtain a lease--are determined by a competitive bidding process, with leases going to the highest bidder. Prior to the competitive bidding, Interior sets a minimum acceptable bonus bid for each offshore parcel and a minimum per acre bid amount for each onshore parcel offered for lease. Rent is charged annually for a lease until production begins or the lease is terminated or relinquished. Royalty rates depend on the mineral and are generally calculated based on a proportion of sales value, less allowable deductions, such as transportation and processing allowances.

The Heart's picture

Excuse please, does it say anything in this document about the radioactive chemicals they put into the fracking sludge, or how that eventually ends up in the finished product that is then burned in heating fuels inside peoples homes resulting in radiation released in gaseous form? Or, how does the radioactive fuel usages indoors effect human beings over a long course of time? Hummmmm....

Our water has long been fracked for several years. Once was a good water well, now it's a hot pit of smelly stenchy frack!

machineh's picture

In effect, the “shale revolution” signals the end of the peak oil debate. 

If not the end, at least a postponement till mid-century.

Bad news for some of the more vociferous tub-thumpers.

CrashisOptimistic's picture

I don't think you have much knowledge about this matter. 

Cruise on over to the North Dakota Industrial commission section of the .gov website and have a look at Bakken output in 2 of the last 3 months.



"Shale gas has approximately half the carbon content of coal."

I hope folks here with a physics background understand that sentence to be completely empty.

gasmiinder's picture

I hope folks here with a physics background understand that sentence to be completely empty

I hope folks here with a chemistry background can disabuse of your ignorance. Shale gas is CH4 - meaning the energy release is purely a function of the oxidation of a single carbon to produce energy plus one molecule of CO2 and 2 molecules of H2O. Coal is a chaotic mix of extremely long chain hydrocarbon molecules and a vast array of contaminants. Burning coal requires MUCH higher activation energy (more energy to create the reaction) and produces a vastly higher amount of CO2 and other contaminants to deliver the same net energy.

CrashisOptimistic's picture

And the physics folks will then arrive, examine your text, and note that you did not support in the least the claim of the explicit and precise number 1/2. 

The problem with the sentence is quantity, hence empty.

Matt's picture

Hey Crash, what are your views on Japan extracting Methane (Hydrate or Clathrate)?

Flakmeister's picture

I'll take that one...

Unlikely to ever happen on a commercial scale...

gasmiinder's picture

I do not believe "approximately" means "expicit and precise" as you seem to be trying to suggest. I also would not interpret the appeal to physics to deliver a verdict of "completely emtpy" to indicate a minor concern with the accuracy of the calculation.

The crawfishin ain't workin

gasmiinder's picture

Peak oil was never about "running out of oil". Peak oil is about running out of CHEAP oil.........and unconventional oil is most certainly NOT cheap.

Flakmeister's picture

No, peak oil was always about the maximum rate of extraction...

The price of oil will only influence the shape the of curve, not the asymptotes....

Flakmeister's picture

Are you yet another person that does not grasp the difference between Q and dQ/dt?

It is not about the resource base, it is all about the rate of extraction...


snblitz's picture

Fracking has been used for decades.  Horizontal drilling is what is new.  And even that is not very new.

zorba THE GREEK's picture

Shale oil is a scam to make Americans feel Okay with higher gasoline prices because soon the

U.S. will have so much oil it will become a net exporter. Bull.... shale oil is expensive to extract and as

we are rapidly learning, wells dry up very fast and new ones have to be drilled often at great expense.

earleflorida's picture

desalination paid for, and pumping station no big problem considering china's geography

win, win

note: 2007 data... so were already half way there [graphine/ polymers, etc., etc.


eaglerock's picture

Elliot- I don't think you ever answered the question of where China gets the necessary water supplies to frack.  Desalinating water from the ocean and piping it across the country doesn't seem to make for a profitable enterprise.  More energy to extract than you get from the gas itself.

MSimon's picture

The water can be recycled. If China wants to go to the expense.

akak's picture

They're gonna have to make sure they filter all those dead pigs out of the water first.

Matt's picture

"I don't think you ever answered the question of where China gets the necessary water supplies to frack. "

Alternative methods are in developement and show promise, such as using propane gel instead of water, in much lower quantities. We'll see soon enough if any of these solutions work real-world.

snblitz's picture

"The Oil is a Lie"

May I suggest "The Deep Hot Biosphere: The Myth of Fossil Fuels"Indeed I thought it would be a bunch of propaganda, while it is actually rather well researched.  The book is hated because of the assertion that oil is a chemical process of the planet rather than dead plants and animals.

Here are a few of the really easy to understand claims:

1) No chemist has managed to squish dead plants and animals into oil.

2) Chemists have been able to duplicate the chemical process asserted in the book in the lab

3) The prime components of oil exist on asteroids, moons, and other planets without the slightest trace of dead animals and plants.

CrashisOptimistic's picture

Every so often I do this here.

It doesn't matter how oil forms.  How's that for specific?  Abiotic.  Biotic.  Extraterrestrial.  Via incantation.  Via excrement.  It doesn't matter.

What matters is 100 years of drilling has taught where to find it.  There are specific gravimeter signatures in 3D seismic imagery that identifies rock folding underground that will have the **containment* (aka caprock) required to keep oil from migrating away when it has 80 million years to do so.

Over the past 100 years, 10s of thousands of dry holes have been drilled in places where such imagery (had it existed then) could have told the drillers they were wasting their time. 

So, repeat after me, it doesn't matter what its source is.  It only matters where you can find it, and those rock formations are getting damned scarce.

gasmiinder's picture

3D seismic doesn't have a damn thing to do with gravimeters. The exploration you describe is what is known as "conventional" exploration and is as you say getting scarce. The hydrocarbon sources being discussed here are what are known as "unconventional" because the hydrocarbons have not in fact migrated anywhere. They are still trapped within the rock in which they formed. It is quite clear where to find them. They are expensive to extract.

gasmiinder's picture

Oops - I should have also noted that sniblitz is an idiot.

"The Oil is a Lie" is a freaking joke and those who are taken in thereby don't have a clue how to think analytically. Lot's of those here on ZeroHedge tho so I suspect he's quite the hero. The biggest proof that it is a joke is the unconventional production that we're discussing. It only works if the traditional view of petroleum sourcing is accurate, no way can deep mantle hydrocarbons MIGRATE into rocks as dense as these.

Dr. Sandi's picture

And petrochemicals have been detected floating throughout space without even a planet to hold onto.

If one were to think about it too much, one might conclude that it's been sitting here with all the rest of the earth resources since the planet formed, moving under and over the land along with plate tectonics. Kind of like it apparently was, and still is, on Saturn's moon Titan.

But thinking about something too much always causes trouble. Especially if it challenges the universal truths we learned when we were 10 years old.


Joe moneybags's picture

Dr. Sandi, what's the density of those petrochemicals floating through space?  One part per Brazilian?  I think they call that "idiotic oil".

YHC-FTSE's picture

It's not just China. I read a similar article a few months ago on shale gas potential in the UK. Apparently we're sitting on huge deposits, at least 150 billion cubic m according to a 2010 BGS survey with recent unconfirmed surveys claiming as much as 400 times larger.

I am not an expert on this subject, but the opinions of some seem to suggest that there have been deliberate scaremongering by parties unlikely to profit from a shale gas boom. 

Anyway,  China & the US are certainly not alone in developing technology to extract gas by fracking. The whole world will soon be pumping water and chemicals into the ground pretty soon, for better or for worse. George Osborne even made provisions in his 2013 budget for giving generous tax breaks to fracking companies. 

prains's picture

like you said "pumping water and chemicals into the earth" that should end well. Big oil is so environmentally conscious what could possibly go wrong. They have everybodies interest at heart, right? The studies all say it has no adverse affect yet there is no truly independent body of thought not bought and paid for by some financial interest (except maybe the beatniks). When you nuke the general ground water supply its game over.

YHC-FTSE's picture

I expressed no opinions of my own about whether it is good or bad. I don't know enough about the technical process to render an opinion.  Just the fact that the usual assholes will be making profits in shale gas all over the world, especially the UK, not just in China and the US regardless of anyone's concerns.


prains's picture

the issue as I see is;

to make money people buy PhD's to stand in the way of common sense;

1. oil and water don't mix

2.once oil and water are mixed the water is finished for 1000 years

3. we don't live without water past 3 weeks

4. 1000 minutes - 3 weeks = Rumsfeld prediction for the Iraq War

prains's picture

i love fucktards who junk a perfectly valid comment

thisandthat's picture

Maybe because you can't do basic maths: 1000 min are exactly 16h40min, not even close to the 30240 min in 21 days.

Also because water can be depurated, if not, we would be dead since long.

Don't even know where the 1000 years comes from - guess it just sounded good?

Btw, I didn't junk you.

prains's picture

this and thwat


i have a degree in calculus but thanks for going 2 dimensional

thisandthat's picture

Gee, I'm... how do you say it... impressed - yep, that must be it.. now off to take advantage of it by throwing it out the window - just watch out for little girls getting their panties in a bunch for being called out on their 1 dimensional lines of thought.

gasmiinder's picture

Bullshit. There is not one rational argument in your entire comment.

Fracking has been going on for 60 years. There is not ONE study that has shown groundwater contamination from the hydraulic fracturing process. At some point your ignorant appeal to emotion needs to find one tiny freaking piece of evidence that a danger actually exists. It does not. What you need to understand is that the fracturing occurs miles below the fresh water and there is much research to develop the ability, with no success yet, to be able to produce fractures that extend more than 200 - 300 feet MAXIMUM in vertical extent.

You can tell it's bullshit when the media stops quoting the liars and starts in with "concerns have been expressed"


prains's picture

and you know so much about subterrain pressure and the direction water travels under heat and pressure that you're positive that only gravity works in such an environment.

squeeze some water between your upper and lower gunt to test your hypothesis

ForTheWorld's picture

Upvoted purely for "gunt".

gasmiinder's picture

I know a great deal about subsurface pressures because it is my expertise. God forbid I get caught up trying to explain science to Zerohedgers again but I will point out your statement here makes no sense. A great deal of research has been done on the physics of fracturing, it's very well understood and you have no clue.


Here's a simpler question for you - there IS in fact environmental risk associated with shale exploration, do you have any IDEA what that might be?

prains's picture



the same reason the american army stopped fracking in the 1960's


do you know what that is?

prains's picture

also gasminger


look at the comment below containing the word "Alberta" put a 33 old year PhD in glacial geomorphology together with the practical experience of watching fracking in actual (NOT theoretical practice) and you know IT DOES NOT WORK


stop trolling for big oil 

gasmiinder's picture

stop trolling for big oil 

Congratulations - that's a new record for playing the cowardly ad hominem "shill" card as an excuse for avoiding rational argument. I'm not surprised though since your posts don't make any sense from a rational standpoint.

The comment re: Army makes no sense so I'll be generous and assume a /sarc tag

This one is also nonsense - a Phd in glacial geomorphology has exactly zero connection to fraking. Alberta's oil sands are MINED you moron. Making the connection to the environmental concerns there and fraking shows once again you don't have any idea what you're talking about as is also true of the comment you reference. I can also assure you that my experience with fraking is practical NOT theorectical.


Mark Urbo's picture

"pumping water and chemicals into the earth"

Jez, where do you think the water and chemical (elements) come from ?
..another planet ! You econ nuts are really something....

lolmao500's picture

They are doing this in Alberta and it's polluting as hell. Build liquid thorium reactors instead of destroying your land, air and water with fracking...

Forbid it here... let China destroy their own land...