Is Fracking The Answer For Water Scarce China

By China Water Risk 10 October, 2012

Lisa Genasci on China's possible energy alternative and its hold-backs

Natural gas may be a greener option to meeting its energy consumption by 2030
Yet fracking may lead to water and air pollution
These issues may be solved by the time tech & infrastructure are ready in China

China holds possibly the world’s largest reserves of shale gas, according to the US Energy Information Administration, with as much as 1,275 trillion cubic feet believed stored in the country’s geology.
The world’s largest energy consumer is looking to develop this resource as it faces huge future demand for clean fuel to power the economic growth needed to feed, clothe and employ the population of 1.3 billion.
Estimates are that to just keep up with domestic demand, by 2030 China must add the current combined power capacity of the U.S., UK, and Australia.
Another consideration is that China’s current over-reliance on coal means its cities are now choked in smog. Still, because there are no real alternatives, plans are for China to double its coal power capacity by 2020.
China must be considering that natural gas could take the lead if shale resources can be reached. Natural gas emits 45 percent less carbon per energy unit, while natural gas combined-cycle power plants are more efficient than coal-fired plants.  More efficient plants use less water, which is also a key consideration in water-scarce China.
Led by increasingly abundant supplies of natural gas and subsequent price decreases, the U.S. has begun to make the switch. In recent years, the U.S. has generated half its electricity from coal and 20 percent from natural gas. In April, however, for the first time gas usage was roughly even with coal, at about 32 percent. In 2008, shale-based gas production accounted for 9 per cent of total gas output, while the current estimate is 30 per cent, according to the U.S. EIA.
China has watched U.S. carbon dioxide emissions fall to their lowest levels in 20 years and  at least half that decline is attributable to abundant natural gas from advances in hydraulic fracturing technology. This has allowed U.S. drilling companies to reach previously inaccessible shale gas resources. The “hydro fracking” process involves injecting high-pressure water mixed with sand and chemicals deep underground to split shale rock and release trapped hydrocarbons.
The relative abundance of natural gas that in the U.S. and elsewhere is being released using this technique has also sent natural gas prices dramatically lower.  In 2008, natural gas prices hit a high of close to $10.81/Mcf, and while they are off their lows, spot prices closed out September at $3.48/Mcf.
China Looks to Fracking
Looking to this success, Beijing has introduced new policies of its own aimed at encouraging increased investment in fracking research and development.
Last year, China issued its 12th Five-Year Plan and this year, its shale and other unconventional gas strategy for the same period.
The Plan establishes four ambitious milestones, including  completion of a nationwide shale gas survey and appraisal; production output to reach 6.5 billion cubic metres by 2015, reaching an annual production of 60 billion to 100 billion cubic meters by the end of 2020; development of suitable methods, technologies and equipment for China’s shale gas survey, appraisal, exploration and production; establishment of technical standards, rules and policies regulating China’s shale gas development, including reserve survey, appraisal and certification, test and analysis, exploration and production, and environmental measurements.
China currently has 62 shale gas wells in trial development zones, 24 of which have generated natural gas qualified for industrial use.
Last month, the Ministry of Land and Resources announced that foreign joint ventures would be invited to bid for a second round of shale gas exploration rights in China. This is the second tender process but China limited last year’s to domestic companies and did not receive the expected response.
is most recent tender, covers 20 blocks across eight provinces for 20,000 square kilometers.
China has not traditionally been particularly open to foreign energy developers and investors, so clearly China of necessity is looking to develop hydraulic fracturing technology appropriate for its geology.
Fracking’s Many Challenges
But the unconventional gas drilling process is not without significant controversy.
In the U.S., the oil and gas industry argues hydraulic fracturing is a safe and environmentally sound way to produce clean energy and reduce dependence on foreign oil.
Critics, however, say that it contaminates water and releases large amounts of methane into the atmosphere. These concerns have led many countries to look at additional regulation. France last year became the first nation to ban hydraulic fracturing as a method of natural gas extraction.
In China, there are additional challenges related to water usage, although hydraulic fracturing does appear to compare well with other sources of energy generation.
The fact is that 97 percent of China’s power relies on water, whether it is water for cooling nuclear power stations, solar panel factories or coal-washing steam turbines – and fracking is no exception.A typical 500-megawatt coal-fired power plant draws about 2.2 billion gallons of water each year from nearby water bodies, to create steam for turning its turbines, according to the Union of Concerned Scientists.
Estimates are that hydraulic fracturing draws about 4.5 million gallons of water per well, which according to one energy company is equal to consumption of water by a 1,000 megawatt coal-fired power plant over just 10.8 hours .
A further problem, however, is that some of China’s largest untapped shale gas deposits are in the Western regions where water is scarce. Drillers could find themselves competing with consumers for water.
Additionally, the potential for contamination of existing water supplies – both aquifers and above ground sources – is certainly a factor China must consider in the context of already excessively polluted water. In many places where hydraulic fracturing is in heavy use, there has been controversy surrounding contamination of both water and agricultural land from improperly discharged toxic wastewater.
Environmentalists are also concerned about the leakage of methane during the extraction of natural gas from shale formations. They say this offsets at least a portion of the climate gains made from reduced emissions of carbon dioxide in the switch from coal to gas.
And then there are other factors to consider including China’s geology. The country’s reserves are believed to be twice as deep as those in the U.S. and are located far below mountainous terrain. It is unclear whether there will be sufficient investment to develop the appropriate drilling technology.
Finally, infrastructure is another challenge for China. By all accounts, the current pipeline network, processing and storage facilities, not to mention the roadways and bridges, are in no way adequate to handle the potential windfall in natural gas that would be released if fracking were substantially developed.
So for now, although China might be keen to develop its massive shale gas reserves, it is clear that it may be some time before the technology and infrastructure make hydraulic fracturing a real way forward for the country.

China Water Risk
Author: China Water Risk
We believe regardless of whether we care for the environment that water risks affect us all – as investors, businesses and individuals. Water risks are fundamental to future decision making and growth patterns in global economies. Water scarcity has emerged as a critical sustainability issue for China's economy and since water powers the economy, we aim to highlight these risks inherent in each sector. In addition, we write about current trends in the global water industry, analyze changes occurring both regionally and globally, as well as providing explanations on the new technologies that are revolutionizing this industry.
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