Caixin
Nov 20, 2012 12:59 PM

Environmental Frets as Frackers Move In

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(Beijing) -- Adding an environmental standard to a law book takes at least three years in China, which helps explain why the State Council's decision to fast-track the nation's fledgling shale gas industry is making a lot of people nervous.

China has no rules to protect groundwater and other resources from the potentially harmful side-effects of hydraulic fracturing, or "fracking." A Ministry of Environmental Protection source said the agency would need three to five years to write one.

Nevertheless, a white paper on energy development released October 24 by the State Council calls for ramping up the industry and pumping 6.5 billion cubic meters of natural gas from underground shale formations by 2015.

Complementary policy documents released by several central government ministries suggest the nation's ultimate goal is a huge fracking industry that extracts up to 100 billion cubic meters a year by 2020.

The model for China's anticipated success is the U.S. shale gas sector, which according to the U.S. Energy Information Administration grew 14 times in its first decade and last year produced 170 billion cubic meters of gas.

Some Chinese companies have drilled test wells, although none so far has started a commercial operation. The potential is substantial, however, as geologists estimate the nation's recoverable reserves at about 25 trillion cubic meters, on par with the United States.

As development accelerates, said a source at the Geological Exploration Department under the Ministry of Land Resources (MLR), the government will likely introduce specific, shale gas drilling policies designed to protect the environment, particularly groundwater.

However, according to an industry source, these anticipated policies are unlikely to be legally binding.

Indeed, there was no mention of pollution prevention or water protection or even environmental issues in general written into official documents prepared for MLR's second official auctioning of shale-gas exploration blocks October 25. The government is leasing exploration rights in predetermined areas to the highest bidders.

Altogether, rights to gas in two blocks were awarded to Sinopec and Henan Coal Seam Gas Development and Utilization Co, in deals worth an estimated 800 million yuan. In addition, bidding for another 20 blocks was held in October. Results have yet to be announced.

All of the shale gas blocks auctioned so far are in southern China, such as Sichuan Province and Chongqing, where supplies of the water fracking demands are plentiful.

Not included on the auctioneer lists of sites eligible for drilling were potential shale gas reserve areas in chronically dry parts of the country, such as Liaoning and Shaanxi provinces. Most of the nation's shale gas, say experts, lies in areas plagued by water shortages.

Soaking Wet

Drillers need 10 times more water to extract natural gas from underground shale formations than to pump equivalent amounts of oil and gas from conventional wells, said Bao Shujing, deputy director of Sinopec Petroleum Exploration and Development Research Institute's Department of Non-Conventional Energy Technology Support.

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