Why China’s Shale Industry Isn’t Destined for Success

Across the globe the shale revolution is gaining rapid momentum, with countries such as the USA using advanced hydraulic fracturing technology to harvest the readily available natural gas. However across the pond, China is failing to tap into the full potential of the shale insurgency.

Why? While the country has recently rolled out a series of reforms designed to boost the competitiveness of its oil and gas industry, critics such as Dr. Derek Scissors maintain that they aren’t as genuine as they seem. While the nation’s law enforcers are cracking down on corruption existing within the state run oil giants, Scissors points out that long-term and meaningful change is not on the horizon.

Irrelevant reforms

“They are arresting some of the people in the oil firms for corruption. That opens the door, in theory, for reform,” explains Scissors, Chinese economy expert and professor of economics at George Washington University. “But the reform they have been talking about is merging two of the three state-owned oil companies to make one of them even bigger. They are not looking for any meaningful change in state control of the sector,” he adds.

Should China merge its major oil and gas players into one mega corporation the country would burden itself by putting all its eggs into one basket. When combined with the heavy state-control of the industry it would be extremely difficult for China’s oil and gas industry to react to changing market dynamics.

US technology clashes with Chinese geology

As well as a state run oil and gas industry, the cutting edge shale technology developed in the US simply doesn’t translate to Chinese geology. For this reason, China will never experience the same shale boom the US is currently on the brink of.

“Shale was not created by Exxon and Chevron; it was created by little American companies. [China] does not have those. And you don’t have land-rights, and you don’t have water,” explains Scissors.

Interested in finding out more about the shale industry and what it means for oil and gas industries across the globe? ‘Hydraulic Fracturing - A Further Step to Foreign Oil Independence’ looks at the benefits of shale investment in a variety of countries that depend on external suppliers to fulfil their energy needs. Resource rich regions that could benefit from foreign oil independence include Europe, Latin America, Africa and the Asia-Pacific.