Overcoming barriers to fracking: what shale china do?

• Author: Yi, Li

1. INTRODUCTION II. BACKGROUND: CHINA'S FRACKING SOLUTION TO ITS ENERGY PROBLEMS A. What is Fracking? B. Why Does China Need Fracking? III. DEVELOPMENT OF SHALE IN CHINA IV. SHALE GAS IN THE UNITED STATES: REGULATION AND INDUSTRY V. CHINA'S REGULATORY FRAMEWORK FOR ENERGY POLICIES A. Current Shale Gas Policies VI. SHALE GAS DEVELOPMENT CHALLENGES A. Man-Made Challenges B. Geology C. Water D. Infrastructure VII. OPPORTUNITIES A. Can the United States' Oil and Gas Industry Serve as a Model for China? 838 VIII. CONCLUSION I. INTRODUCTION

   China and the United States are the world's two largest energy consumers. (1) China not only bears the burden of being the world's most populated country, but also the world's largest energy consumer. (2) Despite recent economic downturns, China is still a swiftly modernizing economy with a continuously growing middle class able to afford more energy-consuming accoutrements. (3) As a result of this economic growth, China's air pollution is among the worst in the world. (4) China is also the world's largest coal consumer, (5) and the largest emitter of GHG, (6) sulfur dioxide, (7) and carbon dioxide. (8) In fact, coal constitutes the majority of China's carbon dioxide emissions. (9) The projected uptake in energy demand will spawn a commensurate need for energy regulation to keep pace. (10)

   The shale revolution in the United States has stimulated a huge increase in natural gas production and has transformed world energy trade. (11) Referred to as a "bridge fuel," cleaner than other fossil fuels and capable of replacing hydrocarbons for cleaner energy, (12) shale gas has provided the largest source of growth to the U.S. natural gas supply, (13) and has made the United States the world's largest producer of natural gas. (14) At the turn of the twenty-first century, shale gas production in the United States comprised only 1.6% of the total gas output. (15) By 2007, shale gas production was increasing by fifty percent annually, and by 2012, natural gas produced from shale constituted the largest share of the country's total natural gas production, accounting for forty percent of the total. (16) At the same time that the United States was seeing this unprecedented growth in shale gas production, natural gas production from nonshale sources has decreased by twenty-five percent. (17)

   Despite this meteoric increase, the growth of the shale gas industry shows no signs of slowing. In fact, the U.S. Energy Information Administration (EIA) predicts that U.S. shale gas production will continue to rise from forty percent of total natural gas production in 2012 to fifty-three percent in 2040. (18) Due to technological innovation and increases in investment, the production of U.S. shale gas is now comparable to production from all offshore wells in the continental United States and is set to "explode" before 2035. (19) However, the shale gas revolution did not happen overnight; rather, it has been "over 20 years in the making," with a plethora of favorable circumstances contributing to its ultimate culmination, including decades of government support. (20)

   The success of the U.S. shale gas industry has not gone unnoticed and has created an abundance of social and economic benefits. (21) Fracking has numerous potential benefits; for example, it boosts the U.S. economy and excess supply can be exported to Asia. (22) In the United States, fracking has led to more jobs, lower utility bills, and a revival in domestic manufacturing. (23) The U.S. gas industry comprises three million jobs and $358 billion in economic activity. (24)

   The increase in U.S. shale production has garnered the attention of other countries seeking to tap into their respective shale gas resources. (25) Nowhere is this more evident than China, which is eager to see its own shale gas become a "game changer." (26) It is unsurprising that China, among others, wants to emulate the U.S. natural gas industry--a desire which some characterize as "revolution envy" (27)--to meet its own domestic energy demand and to (hopefully) provide a similar boost to its economy. (28)

   In 2005, China started researching and conducting exploration of its domestic shale gas. (29) Yet by 2013, China produced only a fraction of natural gas from both conventional and unconventional sources as compared to the United States. (30) Because of this slow growth, China's shale gas development is not yet profitable. (31) It was perhaps China's recognition of this trend that made the government realize it needed help in getting its own shale gas revolution jump-started. Accordingly, in 2009 the U.S-China Shale Gas Resource Initiative announced that the United States and China would use experience gained in the United States to assess China's shale gas potential, promote environmentally sustainable development of shale gas resources, conduct joint technical studies to accelerate development of shale gas resources in China, and promote shale gas investment in China through the U.S.-China Oil and Gas Industry Forum, study tours, and workshops. (32)

   The combination of limited conventional reserves and the growing global energy demand has made fracking attractive and economically feasible. (33) By examining a sample of U.S. and Chinese oil and gas laws, policies, and regulations, this Article attempts to juxtapose China's barriers to sustainable shale gas production with those faced in the United States throughout its shale gas revolution. For example, can the U.S. regulatory framework serve as a model for China? China currently has a host of general regulations and laws that are not specifically targeted to regulating the industry but rather are meant to apply to subject matters that are implicated by shale gas activity. One example of this is environmental law. Chinese environmental law consists of a myriad of legislation addressing expansion of comprehensive environmental protection, special litigation for pollution prevention, natural resource protection, and the ratification of international treaties focusing on environmental protection. (34) Can China overcome these hurdles in order to achieve its shale gas revolution dreams? The purpose of this Article is to contribute to the growing body of scholarly writing in the international oil and gas field by contrasting certain features of the Chinese industry, which heretofore was comparably undeveloped, with that of the U.S. industry.

   This Article will also examine key shale gas development issues, such as geology, infrastructure, and technology, (35) which may make it unlikely that China will see "meaningful production" until the 2020s. (36) Although the combination of political, technical, regulatory, geological, and environmental factors may limit China's shale gas market growth and make the future of its shale gas development "murky," (37) this Article argues that, as of now, China is in a better position than the United States because it has not only the unique opportunity to learn from mistakes made in the U.S. shale development process, (38) but also the ability to develop its shale gas resources without the obligation of having to balance private interests and correlative rights of the resource. This major difference gives China the ability, advantage, and significant opportunity to produce shale gas in a sustainable way. In other words, because the Chinese government owns all Chinese minerals, (39) it can meticulously shape the country's shale gas development--focusing on conservation and sustainability --without private landowner intervention.

2. BACKGROUND: CHINA'S FRACKING SOLUTION TO ITS ENERGY PROBLEMS

   1. What is Fracking?

      Although U.S. oil and gas industry stretches back almost a century, (40) by comparison, the ability to produce gas from shale formations is relatively new. (41) Several technological milestones contributed to the shale gas revolution. In order to understand the difference between recovery of hydrocarbon resources from conventional sources, such as oil from traditional vertical wells, and unconventional sources, such as shale gas, a brief overview of the relevant physical geology is important.

      Generally, shale gas is a term used to denote natural gas that is trapped in tight shale formations, which restricts the gas's free flow through conventional vertical wellbores. (42) Instead of flowing easily from the earth like it would from conventional reserves, the shale gas formation must first be broken up to allow the gas to move more freely. (43) This is where fracking comes in. The force of the injected fluids breaks up the geological formation by creating small fissures, which are propped open with small pieces of rock and other materials, allowing oil and gas to migrate more freely. (44) Fracking can be used with almost any geologic formation that may contain large quantities of gas (or oil) but has low permeability and a low flow rate, (45) or in situations where the formation is damaged or there is a clog during the drilling process. (46)

   2. Why Does China Need Fracking?

      Realizing the seriousness of its current reliance on coal for energy and the pressing concern for public health caused by pollution levels, the Chinese government is seeking to increase energy produced from natural gas and decrease its reliance on coal, effectively substituting coal, the burning of which causes high levels of pollution, with cleaner burning natural gas. New shale gas exploration comes at an important time for China. (47) China's reliance on coal is still rising steadily. (48) In fact, coal has been the primary source of the electricity that has powered China's expanding economy over the past few decades--too long, some argue. (49) China consumes, produces, and imports more coal than any other country in the world. (50) Coal constitutes nearly two-thirds of China's total energy consumption, which has prompted the Chinese government to begin considering capping coal use in hopes of mitigating...