By Jane Nakano & Molly Walton
China and India are two of the world’s fastest-growing economies, and their economic growth drives a strong demand for energy and natural resources. Between now and 2035, global energy consumption is forecast to grow by 50 percent, and China and India together will account for more than half of this global growth. The scale of their energy consumption affects global supply and demand and, inherently, the price levels of various energy commodities—including natural gas—in the global marketplace.
The development of shale gas in China and India warrants close observations because of a host of potential economic and energy security benefits successful development may bring for the two growing economies. According to a recent resource assessment by the U.S. Energy Information Administration, technically recoverable shale gas resources (not reserves) in China alone is larger than those in the United States and Canada combined.
China and India have already begun exploring their substantial indigenous shale gas resources, but the question of how well they can replicate the U.S. experience—and over what time period—still looms large.
Yet, the volume of geological resources is only one side of the coin. In fact, a host of “above-ground” conditions are essential in fostering the successful development of these resources.
In the United States, the so-called shale gas revolution resulted from the confluence of factors, including access to shale gas resources on private lands, economically attractive natural gas prices (2007–2008) that spurred investment interest, operational and technological advancements like hydraulic fracturing and horizontal drilling, an evolving understanding of how shale formations react to stimulation, and availability of infrastructure to process and transport the gas.
The results have thus far been nothing short of extraordinary. Shale development, which accounted for a negligible amount of U.S. natural gas production less than a decade ago, now makes up almost one-third of domestic output.
In addition to the regulatory and pricing reforms to improve the investment environment so as not to dis-incentivize investors from getting involved in a high risk venture like shale gas exploration and development, here are some of the key factors that will determine the pace of shale gas development in China and India:
Expertise and Technology: The key to successful development of shale gas is the combination of both expertise and technologies. At present, China and India have neither. Technical expertise is largely based on firsthand experiences. Therefore, one key challenge for the Chinese and Indians may be the gap between intellectual capacity—which both populations possess—and operational capability. Arising from this observation is a question as to how quickly one can bring local labor force up to speed. Moreover, the pace of shale gas development may be determined by how open the sector may be to foreign companies with technologies and expertise as much as how successful the country may be in technology transfer.
Physical Infrastructure: The transport and delivery of energy and natural resources are generally an expensive endeavor. The delivery of natural gas, including shale gas, is no exception. Even with a strong reserve estimate, the scope and speed at which shale gas may join the mix of domestic energy supply are affected by whether a country has reliable physical infrastructure in place. The existing pipelines in China and India are already committed to conventional energy sources. Additionally, the role of powerful state-owned companies and their de facto operational monopoly over main pipelines need to be addressed before shale gas finds can be brought to market efficiently.
Resource Management: Shale gas exploration and production is a water-intensive process and water is already a bottleneck for resource development in China and India. The ability to manage water resources and regulate waste water would hold a key to whether shale gas industry would take off successfully in China and India. For example, the Chinese government acknowledges the importance of environmental evaluation and management in association with shale gas resource development, but their inability to enforce its laws and regulations has hampered the effectiveness of past efforts.
For greater discussions on drivers and challenges associated with shale gas development prospects in China and India, readers can see our recently published report here.
Ms. Jane Nakano is a Fellow with the CSIS Energy and National Security Program. Ms. Molly Walton is a Research Associate with the CSIS Energy and National Security Program.