U.S. shale companies find a market in China

By May Ma | 09/30/2016 07:10 AM EDT

Natural gas is becoming the centerpiece of U.S.-China collaboration in the energy and climate sectors, top energy officials from both countries said at a joint oil and gas industry forum this week.

Natural gas is becoming the centerpiece of U.S.-China collaboration in the energy and climate sectors, top energy officials from both countries said at a joint oil and gas industry forum this week.

Earlier this month, the United States and China officially committed to the Paris climate change agreement at the G-20 summit, a meeting of leading rich and developing nations. And natural gas might be the key for the two countries to comply with the agreement while ensuring that the business sector still has an opportunity to grow.

The United States has achieved great success in shale gas production, and China would like to see U.S. companies help explore and develop its gas industry, Li Fanrong, deputy administrator of China’s National Energy Administration, told the U.S. oil company executives and government officials attending the forum.


China has the world’s largest shale gas potential, with total reserves of 130 billion cubic meters, according to government data released last month. But the country’s production of the fuel is still lagging behind — constrained by geological complexity, limitations of infrastructure and the service industry.

The state-owned energy companies are pushing harder to extract gas from shale. China Petroleum & Chemical Corp., or Sinopec, aims to double domestic gas production within five years. The output, though, was not as promising as was hoped — the country missed its production target for last year.

But companies that have succeeded in drilling gas in U.S. shale fields are more than willing to help out as they see growing business opportunities in exporting existing technology.

Scott Donald, the vice president of global direct sales at Baker Hughes Inc., said extracting the deep-hidden Chinese shale requires high-tech equipment and services, and that is exactly what his company provides.

Donald said Baker Hughes has been working with all the Chinese energy majors, including Sinopec, and China is currently the No. 1 customer for the Texas-based oil services company. Although he isn’t proficient in Chinese, his business card is printed in two languages: English and Chinese.

Chinese oil companies have become leaner during the oil-price downturn, and with budget cuts, they will choose to pay for technology rather than pay for research and development, Donald said. "It’s far more effective for them to buy from American companies," he said.

Donald also welcomes more environmental regulations from the Chinese government, saying a strict rule would potentially benefit companies like Baker Hughes that focus on producing high-tech equipment. Donald introduced his company’s environmentally friendly fracking liquid at the forum and said he was hoping to find a distribution outlet to sell in China.

"The legislation in China has changed. The Chinese government is asking companies to fully eliminate the use of diesel in the drilling fluid. But what I’m seeing is companies are not eliminating the diesel, but only reducing it," Donald said. "We’ve developed a tech used in the U.S. shale play which eliminates the whole of diesel."

Christopher Smith, assistant secretary for fossil energy at the U.S. Department of Energy, said the Chinese government makes its own decisions about how it approaches its regulatory reform, but there are areas where the two governments can collaborate. One of them is how to reduce the emission of methane, a potent greenhouse gas that is a main component of natural gas. Eliminating methane emissions is "consistent with the commitments we made in G-20," he said.

"The U.S. and China are the two biggest economies and two biggest emitters," Smith said. "We had a tremendous result last year in Paris; now it comes to the details: How do you move forward with actual verifiable steps that are going to ensure growth but at the same time reduce greenhouse gas emissions?"