_

U.S. oil company ConocoPhillips COP +0.34% is looking into expanding its China operations to include shale gas, a company executive said Tuesday.

A move by ConocoPhillips would help China—a country with no commercial shale gas production in 2011—along on its ambitious target to produce 229.5 billion cubic feet a year of shale gas by 2015. ConocoPhillips, which currently holds stakes in Chinese offshore drilling projects, is “looking into expanding into shale” in the country, Mark Nelson, ConocoPhillips’s vice president of commercial and sustainable development, said.

Mr. Nelson spoke on the sidelines of the U.S.-China Oil & Gas Industry Forum in San Antonio, where Chinese government officials and energy executives met with their U.S. counterparts to discuss energy policy and attempt to form partnerships. During the forum, ConocoPhillips took three buses of Chinese delegates on a tour of the Eagle Ford shale region south of San Antonio, where oil rigs and hydraulic-fracturing work crews dot the drought-stricken landscape. The area’s booming oil patch has been instrumental in bringing U.S. oil production to its highest level in more than a decade.

China is expected to put 17 domestic shale-gas blocks up for auction in the coming weeks, hoping to entice U.S. energy firms to form partnerships with domestic companies and kickstart the sort of shale-gas revolution that the U.S. has undergone in the past decade. ConocoPhillips, Chesapeake Energy Corp., CHK +2.64% EOG Resources EOG +0.03% and others have used advances in drilling technology to unlock natural gas from shale formations throughout the U.S., sending the country’s natural-gas output to 66 billion cubic feet a day in 2011, up from 56 billion cubic feet a day in 2001, according to the U.S. Energy Information Administration. Without shale gas, which accounts for about 40% of domestic natural-gas output, production of the commodity would have declined and the U.S. would have had to import massive quantities of liquefied natural gas, experts say.

The energy needs in the world’s second-largest economy continue to grow, with Chinese consumers using 39 billion cubic feet a day of natural gas in the first quarter according to the EIA.

But even if ConocoPhillips and other U.S. firms decide to partner with Cnooc Ltd. and other Chinese national oil companies to develop the country’s estimated 1.28 trillion cubic feet of recoverable shale gas, China still may not hit its 2015 production target, which some executives at U.S. energy producers working in China have called too ambitious for the country’s current capability.

“The shale gas target is too aggressive,” said one executive for a U.S.-based oil-and-gas firm doing business in China. “They won’t get that far.”

China has little experience in drilling for shale, and its workforce lacks the technology and engineering know-how needed, said Julio Friedmann, chief energy technologist at the Lawrence Livermore National Laboratory in Livermore, Calif., who has visited China to conduct technical analysis on the country’s shale potential.

“Chinese companies, including Cnooc, are finding it challenging to quickly learn about shale-gas and tight hydrocarbon tech,” Mr. Friedmann said. “The transfer of knowledge and know-how is limited by language, culture and different commercial goals.”

Despite the skepticism, a Chinese official on Tuesday reaffirmed the government’s target.

“This goal can be attained,” said Zhang Yuqing, deputy administrator of China’s National Energy Administration. “We would like to utilize U.S. technology to increase our development. We would like to learn from you and establish a good framework for shale gas development.”

original article

(Reuters) – China is expected to hold its second shale gas auction in July, with private investors allowed to bid for the first time, local media said on Friday.

More than 70 companies have expressed interest in participating in the shale gas tender, a third of which are private enterprises, local media quoted Zhang Dawei, head of oil and gas strategy centre of the Ministry of Land and Resources, as saying.

Foreign firms will be excluded from the auction, the ministry has said.

The ministry could not immediately comment on the news when contacted by Reuters.

China awarded two out of four blocks offered in its first shale gas tender in June last year to China Petroleum & Chemical Corp (Sinopec) and a provincial coal seam gas company.

Shale gas development is still at the early stage in China, where technically recoverable reserves of the unconventional fuel are estimated to be even higher than in the United States.

Top energy agency, the National Energy Administration, targets to produce 6.5 billion cubic metres (bcm) of shale gas by 2015, or roughly 6 percent of China’s current total gas production.

It intends to dramatically boost output to 60-100 bcm in 2020, a level some experts say is over-ambitious as it faces technological, environmental and regulatory roadblocks.

China, the world’s largest energy user, has said it wanted to draw more private investment into its energy sector as part of a plan to fast-track infrastructure investment to shore up economic growth.

Original Article

-

“The trendy belief that China is switching to renewables for its electricity generation is a myth.” That’s the conclusion of a report issues last week by the Energy Research Institute in Washington. In particular, the report states that 1) China continues to build coal plants at a phenomenal rate and will still be using coal to generate 66 percent of its electricity by 2035, and 2) the huge bulk of windmills and solar panels being manufactured in China are strictly for export, shipped to gullible Western countries whose governments are mandating and subsidizing the pursuit of “renewable energy.” (The report is posted above in “Research.”)

“The Energy Information Administration (EIA), in its International Energy Outlook 2011, expects China to build 1,020 gigawatts of generating capacity between 2008 and 2035, of which almost half (48 percent) is expected to be coal-fired,” says the report. “China’s coal-fired capacity is already about 80 percent higher than that of the United States and by 2035, it is expected to be more than 200 percent greater. Hydroelectricity is also expanding rapidly. “China has more hydroelectric generating capacity than the United States—about 120 percent more—and is expected to build another 188 gigawatts, slightly more than its 2008 inventory, according to the EIA.” And nuclear will also play a big part, expanding to ten times its current capacity. “Some Chinese officials have announced that hydroelectric and nuclear generating capacity will make up most of the country’s targets for clean energy in their most recent 5 year plan that requires 50 percent generation from renewable sources by 2050.”

So what happened to all the windmills and solar collectors? Projections are that by 2035 wind will only provide 5 percent of China’s electrical capacity and solar less than 1 percent. “While China is putting more money into green energy technologies than the United States, it is doing so for reasons other than securing a green energy future. Rather, it is investing in order to export technology to developed countries promoting green technologies, like the United States and Europe. The laws, policies, and subsidies in the United States and Europe are creating a renewable market for China.”

Original Article

-

By Bloomberg News

(Updates with comment from official in third paragraph.)

Oct. 10 (Bloomberg) — China, estimated to have more gas trapped in shale than the U.S., will hold a second auction of exploration blocks in the fourth quarter.

More domestic companies will be invited to participate compared with the first auction in June, Zhang Dawei, deputy director of oil and gas strategy research at the Ministry of Land and Resources, said by phone from Chongqing today.

“A detailed plan hasn’t been finalized yet,” Zhang said. “We aim to complete it by the end of the year.”

China, the world’s biggest energy consumer, aims to triple the use of gas to about 10 percent of energy consumption by 2020 to cut its reliance on more polluting coal and oil. It may have 1,275 trillion cubic feet of shale gas, 48 percent more than the U.S., the Washington-based Energy Information Administration said in a report in April.

China Petroleum & Chemical Corp. and Henan Provincial Coal Seam Gas Development and Utilization Co. won exploration rights in the country’s first auction of shale-gas blocks, the Ministry of Land and Resources said in July. Sinopec, as China Petroleum is known, was “initially selected” to explore the Nanchuan block in the country’s southwest, according to the ministry. Henan won the right to search for shale gas at the Xiushan block in the same region.

Foreign Interest

Foreign companies were barred from bidding. Chevron Corp., BP Plc and Statoil ASA are among international explorers that have entered talks to form joint ventures in China to tap shale- gas assets. China National Petroleum Corp. agreed in June to form a venture with Royal Dutch Shell Plc to improve its drilling efficiency after taking 11 months to complete the country’s first shale well.

Sinopec parent China Petrochemical Corp. yesterday agreed to buy Daylight Energy Ltd. for about C$2.2 billion ($2.1 billion) to gain Canadian shale-gas reserves in the company’s largest acquisition this year.

–Editors: Paul Gordon, Mike Anderson

Original Article

-

By Kenneth Rapoza

Two things drive the oil market: the price targets set by the big bulge bracket banks, namely Goldman Sachs, and China.  Goldman Sachs’ thoughts are generally focused on momentum. When momentum looses forward motion, oil bulls point to Chinese demand as being the floor under which oil can always stand.  Yet, despite strong fundamentals in China, and 9% GDP growth forecast again this year, oil prices are declining. Maybe they would decline more, but the driver of oil remains the U.S. and European economies, says Richard Soultanian, president of energy consulting firm NUS Consulting Group.

“Because of our client base, we view the market from reality based fundamentals,” he says.

Oil prices were sustained by quantitative easing, but that ran out June 30 so liquidity slowed as a result, including speculative hedge fund flow into oil futures. Fundamentals in the advanced economies are not that great, to put it mildly. The U.S. and Europe face serious and highly unpopular structural reforms in order to reduce its debt burdens.

China isn’t going to get OPEC to rev up production anytime soon.

“China demand is not enough to make up for the U.S. and European declines going forward,” Soultanian says. “China has become more of a psychological trade for oil and is used to support fundamentals. When momentum is pushing oil prices higher, any China news on demand will drive prices higher. But when momentum turns on you, China can say they are buying a million barrels of oil today and oil prices will still decline because the trade is mostly speculative and not looking at underlying demand,” he says.

China’s oil demand is rising. The country consumes around 9 million barrels a day, up from 8.5 million daily in 2009 and around 7.5 million in 2008. China is the No. 2 oil consumer in the world, using up more oil on a daily basis than Japan and India combined. However, by comparison, it still consumes less than half of the what the U.S. consumes daily. Before the 2008 economic crisis hit the U.S. and Europe, American companies and individuals were consuming over 20 million barrels of oil daily, according to the U.S. Energy Information Agency. The number is now around 19 million, with the Energy Information Agency forecasting Monday that U.S. oil demand will likely end the year at 19.03 million barrels daily, a 150,000 barrels a day decline from 2010.

When oil prices are rising steadily, investors are betting on growth, like the U.S. returning to pre-crisis oil consumption levels. When oil prices are trending downward, investors are betting on a slowdown in the global economy.

Yet, the long term trend might be for the U.S. and Europe to consume less. Both regions have strong conservation policies, with Europe leading this trend by far. That could eventually mean more people driving a Toyota Prius or Chevy Volt than gas guzzling Volvo.

“Oil analysts like to imagine the day when everyone in China has a car, but even if everyone in China does one day have a car, or two cars, why should we believe that when that happens, maybe 10 years from now, that those cars are going to be powered by gasoline engines and not electric, or hybrid engines?”

There is a significant downside risk for oil prices if economic and financial market concerns become more widespread or take hold, regardless of the China oil support line.

EIA forecast this on Aug. 11 that world crude oil consumption grew to a record high 86.8 million barrels per day last year 2010. Despite continued concerns over the pace of the global economic recovery, particularly in the advanced economies, EIA expects that world consumption to grow by 1.4 million barrels daily in 2011 and by 1.6 million a day in 2012, outpacing average global demand growth of 1.3 million from 1998‐2007, prior to the onset of the global economic downturn.

One of the main reasons for the demand increase — China and the rest of the emerging markets. Chinese oil demand continues to show strong growth despite Chinese measures to slow its economy. EIA continues to increase its China oil demand forecast, with China expected to increase consumption by nearly a million barrels a day, bringing it up to around 10 million barrels daily. That’s high. But it is still much less than the U.S., even as the U.S. economy stagnates.

U.S. weakness has led to severe swings in oil prices. That makes it harder for American consumers to budget for gasoline prices. It makes it nearly impossible for energy heavy companies to reduce electric power costs, cutting into margins and affecting growth.

In July 2008, Goldman Sachs forecast oil prices to top out at $200 a barrel. They were trading around $145 at the time. Then Lehman Brothers folded and all hell broke loose, leading to TARP and QE1 and QE2 and now, maybe, QE3 and another recession, according to the opinions of CNBC viewers polled on Aug. 15. Over 53% told CNBC that the U.S. economy was heading for a recession. During the last recession, oil prices were in the $40s. It rose this year back over $100 and is now down in the mid-80s.

Original Article

-

By Robert M Cutler

MONTREAL – China’s demand for oil in May continued at the near-record level of 9.3 million barrels per day (bpd), 8.3% more than the same period last year according to the country’s National Development and Reform Commission (NDRC).

In 2010, China’s oil consumption increased 11% from a year earlier to an average of 9.2 million bpd. The record was set in April at 9.36 million bpd.

That pace is seasing amid signs of the economy cooling – the consensus estimate for 2011 economic growth has been ratcheted back to the 9.0-9.5% range from around 10%-10.5% China’s oil imports fell to an eight-month low in June, at 5.7% lower than the month before and down by 11.5% year on year. Even so, unless the Chinese economy totally stalls, such declines can be expected to be a temporary blip.

Of the 4.8 million bpd of oil that China imported last year (52% of its total oil consumption), nearly half came from the wider Middle East. Saudi Arabia, Iran, Oman, Kuwait and Iraq (listed in order of importance) accounted for 45% of all Chinese oil imports in 2010.

This dependence on overseas oil imports is projected to increase, with new supplies particularly coming overland in Asia itself, considered by energy-security planners to be less risky than seaborne sources using chokepoints such as the Malacca Strait.

At the start of this year, for example, Russia began shipments of oil to China through the Skovorodino-Daqing oil pipeline, a branch of the Eastern Siberia-Pacific Ocean (ESPO) project for which China lent Russia US$25 billion in early 2009. The ESPO begins over 3,000 miles (4,800 kilometers) away in Irkutsk oblast (administrative division).

As Russia was constructing the Skovorodino branch with the Chinese loan, China constructed a spur from the Russian border running domestically to Daqing, a Chinese oil province of long standing in its own right that produced almost 800,000 bpd last year. (For background, see China on buying and lending spree, Asia Times Online, March 5, 2009.) The ESPO pipeline has ramped up to capacity throughput of 300,000 bpd so far in 2011.

Russian Deputy Prime Minister Igor Sechin announced last month that oil shipments may be raised further to feed a refinery to be jointly held between Rosneft and China National Petroleum Corp (CNPC), reportedly already under construction near Beijing with a capacity of 260,000 bpd, of which Russia intends to supply over two-thirds.

This joint project is part of a push to increase China’s national refining capacity (currently 10 million bpd), by as much as one-third by 2016, according to the Paris-based International Energy Agency. Talks are also underway with the Kuwait Petroleum Corp for a 300,000 bpd refinery in Guangdong province, including construction of a retail network to allow Kuwait to reach an export target of 500,000 bpd to China.

Despite the joint Sino-Russian construction of the refinery near Beijing, and despite increasing Chinese demand overall, not all ESPO oil will to go to China. That is because Russia wishes to diversify its customer base overseas (specifically targeting Japan and South Korea) using its port of Kozmino, located not far from its border with China and North Korea.

Chinese oil companies have reached as far as Iraq (see Surprises aplenty in selloff, Asia Times Online, December 16, 2009) in their search for more sources.

Total overseas oil production by Chinese companies reached 1.2 million bpd in 2009, including oil China has been importing from Kazakhstan since 2005. The Kazakhstan-China oil pipeline, which carries oil from both Kazakhstan and Russia, is expected this year to reach the projected 400,000 bpd capacity. (See Kazakhstan deepens China link, Asia Times Online, March 4, 2011.)

This continuing demand goes hand-in-hand with increased consumption of natural gas, and record-setting imports of the fuel, discussed here two weeks ago. (See China’s gas imports jump, Asia Times Online, June 23, 2011.) Foreign dependence extends throughout the spectrum of energy sources, including coal – the country became a net coal importer in 2009.

Coal made up 71% of China’s total energy consumption in 2009, the latest year for which complete statistics are available. The 3.5 billion short tons consumed that year represents nearly half of global coal consumption, and nearly double the domestic consumption level at the turn of the century.

As a part of a bundle of energy agreements signed with Russia in 2009 including the ESPO oil pipeline, Beijing has lent $6 billion to Moscow as part of a deal to import between 15 million and 20 million tons of coal per year over a period stretching into the mid-2030s.

As a result, China is taking geopolitical precautions. It has sought to reinvigorate an agreement with Myanmar signed in 2009. But that pipeline would not carry oil from Myanmar, which does not produce significant quantities; it would be an alternative route for crude oil from Africa and the Middle East intended to bypass the chokepoint at the Strait of Malacca.

No date has been set for the re-animated Myanmar project to open, with an initial capacity set for 244,000 bpd, later increasing to 400,000 bpd.

The International Energy Agency still estimates the growth of Chinese demand for oil from 2010 to 2012 at over one-third of total global demand growth.

Consequently, efforts are being made to develop domestic energy sources in China, the country will increase its dependence on foreign sources of gas, coal and oil. This geo-economic situation helps to underline the importance of potential sources of oil and gas in the region, including the Spratly Islands, claimed by China and other country’s bordering the South China Sea.

Dr Robert M Cutler (http://www.robertcutler.org), educated at the Massachusetts Institute of Technology and The University of Michigan, has researched and taught at universities in the United States, Canada, France, Switzerland, and Russia. Now senior research fellow in the Institute of European, Russian and Eurasian Studies, Carleton University, Canada, he also consults privately in a variety of fields.

Original Article