N A HAZY MORNING LAST SEPTEMBER, 144 American and Chinese government officials and high-ranking oil executives filed into a vaulted meeting room in a cloistered campus in south Xi’an, a city famous for its terra-cotta warriors and lethal smog. The Communist Party built this compound, called the Shaanxi Guesthouse, in 1958. It was part of the lead-up to Chairman Mao’s Great Leap Forward, in which, to surpass the industrial achievements of the West, the government built steelworks, coal mines, power stations, and cement factories—displacing hundreds of thousands and clearcutting a tenth of China’s forests in the process. Despite its quaint name, the guesthouse is a cluster of immense concrete structures jutting out of expansive, manicured lawns and man-made lakes dotted with stone bridges and pagodas. It also features a karaoke lounge, spa, tennis stadium, shopping center, and beauty salon.
The guests at the compound that week were gearing up for another great leap: a push to export the United States’ fracking boom to China’s vast shale fields—and beyond. Attendees slid into black leather chairs behind glossy rosewood tables, facing a stage flanked by large projector screens. Chinese businessmen wore high-waist slacks with belts clasped over their bellies. I watched as one thumbed through business cards bearing the logos of Chevron, ConocoPhillips, Exxon Mobil, and Halliburton. Behind closed doors, a select group of Chinese and American officials and executives held a “senior VIP meeting.” Outside, a troop of People’s Liberation Army guards marched in tight formation.
The US-China Oil and Gas Industry Forum, sponsored by the US departments of Commerce and Energy, as well as China’s National Energy Administration, has convened for the last 13 years. But the focus turned to shale gas in 2009, when President Obama and then-President Hu Jintao announced an agreement to develop China’s immense resources. The partnership set the stage for companies in both countries to forge deals worth tens of billions of dollars.
Here at the 2013 conference, the first American to take the podium was Gary Locke, the US ambassador to China at the time. He wore a dark suit and a striped red-and-purple tie; his slick black hair glistened in the fluorescent light. “From Sichuan to Eagle Ford, Texas, from Bohai Bay to the Marcellus Shale in Pennsylvania and Ohio, US and Chinese companies are investing and working together to increase energy production in both countries,” he proclaimed. US and Chinese companies were so tightly knit, Air China had recently started offering nonstop flights between Beijing and Houston, “making business trips much quicker for many of you gathered here.”
The soft, static voice of a Chinese interpreter seeped from the headphones as young women in red vests quietly passed through each row, pausing to pour hot tea, their strides almost synchronized. Tiny plumes of steam arose from the teacups lining each table, like miniature smokestacks. It seemed fitting, because underlying all the talk of new energy was an urgency to wean China from its decades-long addiction to coal. Locke promised that shale gas would do just that: “We can make further strides to improve energy efficiency, produce cleaner energy, increase renewables, and increase supply,” he asserted. “Unconventional gas, especially shale gas, is just the start.”
THERE ARE TWO MAIN REASONS behind China’s newfound zeal for gas. As Michael Liebreich, the founder of New Energy Finance, an energy market analytics firm now owned by Bloomberg LP, put it, “One is to feed the growth. There has to be energy and it has to be affordable in order to continue the growth machine. But the other one is that they’ve got to get off this coal.”
Constituting a whopping 70 percent of China’s energy supply, coal has allowed the country to become the world’s second-largest economy in just a few decades. But burning coal has also caused irreparable damage to the environment and the health of China’s citizens. City officials have been forced to shut down roads because drivers are blinded by soot and smog. China’s Civil Aviation Administration ordered pilots to learn to land planes in low-visibility conditions to avoid flight delays and cancellations. Scientists wrote in the medical journal The Lancet that ambient particulate matter, generated mostly by cars and the country’s 3,000 coal-fired power plants, killed 1.2 million Chinese people in 2010. In late 2013, an eight-year-old girl in Jiangsu Province was diagnosed with lung cancer; her doctor attributed it to air pollution. And earlier this year, scientists found that up to 24 percent of sulfate air pollutants—which contribute to smog and acid rain—in the western United States originated from Chinese factories manufacturing for export.
“The air quality in China has reached a kind of tipping point in the public consciousness.”
“The air quality in China has reached a kind of tipping point in the public consciousness,” says Evan Osnos, The New Yorker’s former China correspondent and author of Age of Ambition: Chasing Fortune, Truth, and Faith in the New China. “The entire Chinese political enterprise is founded on a bargain: We will make your lives better, if you’ll allow us to stay in power.” As more Chinese citizens demand clean air and water, China’s leaders and foreign businessmen have taken drastic measures to get rid of pollution. Some local officials have tried to wash away soot by cloud seeding, a process in which chemicals are rocket-launched into clouds to make it rain. One company is developing a column of copper coils that will use electric charges to suck soot out of the air like a Hoover. Environmental officials in the northern city of Lanzhou attempted to level its surrounding mountains to let the wind blow the soot away—not to be confused with the city’s actual plan to demolish 700 mountains in order to expand its footprint by roughly the area of Los Angeles.
More: The Atlantic’s James Fallows on the politics of China’s environmental crisis
But China’s push to wean itself from coal has also triggered a rush to develop alternative power sources. The natural gas that lies deep within its shale formations is now a top contender. By current estimates from the US Energy Information Administration, China’s shale gas resources are the largest in the world, 1.7 times those in the United States. So far, fewer than 200 wells have been drilled, but another 800 are expected by next year. By then, China aims to pump 230 billion cubic feet of natural gas annually from underground shale—enough to power every home in Chicago for two years. By 2020, the country expects to produce as much as 4.6 times that amount. It’s moving at “Chinese speed,” as one energy investment adviser put it—the United States took roughly twice as long to reach that volume.
Yet just as fracking technology has crossed over from the fields of Pennsylvania and Texas to the mountains of Sichuan, so have the questions about its risks and consequences. If fracking regulations in the United States are too weak, then in China the rules are practically nonexistent. Tian Qinghua, an environmental researcher at the Sichuan Academy of Environmental Sciences, fears that fracking operations in China will repeat a pattern he’s seen before. “There’s a phenomenon of ‘pollute first, clean up later,'” he says. “History is repeating itself.”
When my colleague James West and I traveled to China last September, it didn’t take long to see the toll of the country’s coal addiction: James had a burning cough by our second day. On a bullet train from Beijing to Xi’an (roughly the distance between San Francisco and Phoenix), we whizzed along at 150 miles per hour through some of China’s most polluted pockets, including the northeastern city of Shijiazhuang, where the smog registers at emergency levels for a third of the year—twice as often as in Beijing. A thick miasma hung heavy, clinging so low to fields of corn that it was hard to see where the earth met the dark, gray sky. Every few minutes we passed another giant coal-fired power plant, its chimneys spewing a continual billow of thick, white smoke.
By the time of our trip, villagers living near fracking wells had already complained about the deafening noise of drilling machinery, the smell of gas fumes, and strange substances in their water. One night last April, in a small southwestern town called Jiaoshi, an explosion at a shale gas drilling rig rattled residents awake, triggering a huge fire and reportedly killing eight workers. In the wake of the accident, an official from the Ministry of Environmental Protection said, “The areas where shale gas is abundant in China are already ecologically fragile, crowded, and have sensitive groundwater. The impact cannot yet be estimated.”
“WE CALL THIS SHALE COUNTY,” the driver shouted to us in the backseat as he steered the four-wheel-drive SUV up a steep mountain in Sichuan Province. The clouds faded as we climbed, revealing a quilt of farmland dotted with pingfang, or flattop houses. We drove down a road lined with new hotels, small restaurants, and hardware stores—the markings of a boomtown. Roughly the size of Minnesota, the Sichuan Basin—where many of China’s experimental fracking wells are located—is home to some 100 million people, many of them farmers. It’s not the only part of China with shale gas, but fracking requires a lot of water, and with a subtropical climate and proximity to the mighty Yangtze River, Sichuan has that, too, making it the nation’s first fracking frontier.
With each turn, the road became narrower and muddier, until we stopped at a gate behind which a tall red-and-white drilling rig shot up as high as the lush mountains surrounding it. We were at a shale gas well owned by China National Petroleum Corporation (CNPC), one of the nation’s largest energy companies and its leading oil producer. Most of China was on holiday that week to commemorate 64 years since Mao declared the founding of the People’s Republic, but out here there was no sign of rest. Workers in red jumpsuits drove by in bulky trucks. A drill spiraled 3,280 feet underground in search of shale gas, screeching as it churned around the clock.
An engineer whom we’ll call Li Wei greeted us, peering out from under a hard hat. In his mid-20s, with a brand new degree, Li worked for a Chinese energy firm partly owned by Schlumberger, the Houston-based oil service company. Last July, Schlumberger opened a 32,000-square-foot laboratory in the region devoted to extracting hydrocarbons from shale gas resources. Like many other engineers at China’s new wells, Li had never worked on a fracking operation before. We watched as he shooed away neighborhood kids playing by a brick structure straddling a pool marked “hazard” as though it were their tree house.
At first, Li said, drilling here didn’t go so smoothly: “We had leaks, things falling into the well.” They had to slow down operations as a result. Still, the team planned to drill and frack about eight other new wells in the area in the coming months.
China’s early fracking operations face many risks, but the incentives to keep drilling are too good to pass up. Based on early sampling, Bloomberg New Energy Finance’s Liebreich estimates that China is currently extracting shale gas at roughly twice the cost of the United States. Analysts expect those costs to fall as China gains experience, but even at current levels, shale gas production has been up to 40 percent cheaper—and geopolitically more desirable—than importing gas. As China’s demand for natural gas continues to grow—between 2012 and 2013 it grew at 15 times the rate of the rest of the world’s—domestic reserves will become increasingly important, says Liebreich: If China can continue to extract shale gas at the current cost, that “would be a game-changer.” The “golden age” of natural gas that took root in North America, the International Energy Agency declared in June, is now spreading to China.
All that growth comes with a steep learning curve. Fracking requires highly trained engineers who use specialized equipment to mix vast quantities of water with chemicals and sand and shoot it into the ground at high pressures, cracking the dense shale bed and releasing a mix of gas, water, and other sediments to the surface. That’s why service companies like Schlumberger and Halliburton have much to gain: China needs technology and know-how—and is willing to pay handsomely. “Selling the picks and shovels for the gold rush would be the analogy,” Liebreich says.
No wonder, then, that multinational oil and gas giants have pounced. In 2012, Royal Dutch Shell inked a contract with CNPC. A company executive pledged to invest around $1 billion a year for the next several years in shale gas. BP, Chevron, Exxon Mobil, and Hess also have signed joint ventures to explore shale prospects with Chinese energy companies. In return, Chinese companies have invested in US fracking operations. Since 2010 the Chinese energy company Sinopec, the China National Offshore Oil Corporation (CNOOC), and the state-owned Sinochem spent at least $8.7 billion to buy stakes in shale gas operations in Alabama, Colorado, Michigan, Mississippi, Ohio, Oklahoma, Texas, and Wyoming. Chesapeake Energy alone got $4.52 billion out of its deals with CNOOC.
“The reason Chinese oil companies have gone after Chesapeake in the past year was because they wanted to apply the technology to tap the world’s No. 1 shale gas reserves in China,” Laban Yu, a Hong Kong investment analyst, told Bloomberg News. Whether or not China will be able to replicate the American shale gas revolution, it is clearly determined to try.
Passing Through . . . . 