China's Golden Age of Gas
Exploiting China's Gas Greed
It's easy to get caught up in the hype over North America's shale gas boom.
And while the United States' natural gas industry has come a long way since the days when wooden pipelines were being laid outside of Fredonia, New York, we often forget that countries like China have been drilling for natural gas much, much longer — since the second century CE!
By 1050, the Chinese had invented a cable tool that allowed them to drill much deeper than by hand. The rigs back then were constructed using iron and bamboo, and their brine and gas production was shipped out via bamboo pipelines.
Now, the country is desperate for another such drilling innovation, this time hoping to crack the shale code inside the Sichuan Basin.
There's simply too much at stake. Success will usher in China's own golden age of natural gas, and failure will fetter the Middle Kingdom to foreign energy powerhouses like Russia for the rest of the 21st century.
China's Golden Age of Natural Gas
To say that China is praying for a breakthrough in developing its shale gas resources would be a gross understatement.
Simply put, the country needs to boost its natural gas production. As it stands now, China imported roughly one-third of its natural gas in 2013. And despite the fact that last year's imports were 25% higher than the previous year's, consumption increased nearly 14%.
This situation will only worsen unless the country can kick-start its own shale gas boom.
If things are tight now, just imagine how hard-pressed the Chinese will be when their natural gas consumption reaches 315 billion cubic meters in 2019.
In other words, China's gas demand is expected to nearly double in five years.
The frustrating part, however, is that the country holds more shale gas resources than anyone else. And even after a slight downward revision, the EIA still believes China has approximately 1,115 trillion cubic feet of gas locked underground.
Ground zero for China's potential shale gas boom is in the Sichuan Basin, where nearly 60% of this resource is located.
But as you and I both are well aware, it's not so much about how much is underground as how much you can produce — and at what cost!
Right now, the costs are exorbitant. Compared to the U.S., where shale gas production costs roughly $3.40 per MMBtu, China's Sinopec believes it can extract shale gas in the Sichuan Basin for more triple that price — $11.20 per MMBtu — in 2015. One shale gas well will cost upwards of $14 million.
Sure, it's a start, and the country is on pace to hit its target of almost 7 billion cubic meters in 2015. To give you a little more perspective, that was the amount of shale gas the U.S. was producing in the 1990s.
Is it enough?
In a word: No.
Exploiting China's Gas Greed
You can tell the Chinese aren't putting all of their eggs in the shale basket (unlike the U.S., which we'll talk about later this week)... nor should they. Remember, the country is still years away from ramping up shale gas production in the Sichuan Basin.
After all, it was only a month ago that China agreed to a $400 billion, 30-year deal that would allow approximately 38 billion cubic meters of Russian gas to flow into China. Although that amounts to less than a quarter of China's current gas consumption, these exports aren't expected to start for another four years.
By then, this added supply will be a drop in the bucket to the country's overall demand. Of course, that's also assuming the Chinese stay on Putin's good side. Just yesterday, Russia cut off gas supplies to the Ukraine for failing to pay its bills.
Like Russia, there's no reason you shouldn't be capitalizing on China's gas gluttony — that's really the only thing we can call it. China's President reiterated this after calling for an energy revolution that would shift the country's dependence away from coal and toward various sources like natural gas.
Unfortunately, I'm not buying into the craze over U.S. LNG exports, and it's clear that our gas supply can be used best in other areas. More importantly, I've had my doubts on whether these exports will ever make it to the Chinese coast.
In fact, there's only one natural gas exporter that is truly in a position to take advantage of this situation. Not only do these companies need to have the infrastructure in place, but they also need access to a huge supply of gas that can be sold at a profit.
As it turns out, my readers and I have uncovered four overlooked companies that have been slowly positioning themselves for years in order to exploit China's golden age of natural gas. You don't want to be on the sidelines for this one...
Until next time,
A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.