China's rebalancing of its energy mix to reduce carbon emissions that threaten health and economic- is moving along. But it is up to China's policy-makers to implement changes in the oil and gas sector - particularly in the pricing of natural gas - to resolve the nation's "energy dilemma".

That was an implication of a natural-gas industry study released this week by the China Energy Fund Committee. Patrick Ho, the Hong Kong organization's deputy chair and secretary general, told a Manhattan forum on the publication of the study, "CEFC China Energy Focus Natural Gas 2013", that the development of Chinese natural gas offers "golden and attractive opportunities to investors, entrepreneurs, collaborators and keen professionals."

In a post-forum interview, Ho told China Daily that recent severe smog problems - as well as water pollution and low-energy efficiency - have brought to a head China's need to rebalance its energy consumption. Although coal- and oil-generated energy powered China's decade of double-digit economic growth, "the whole country is now on alert, and there is a general cry for clean air, a cleaner sky and a better economy," Ho said.

By 2015, China's latest five-year plan projects that roughly 18 percent of the population will have natural-gas access in urban areas. Then the share of natural gas in China's primary energy mix is expected to rise to 7.5 percent from 4.4 percent, according to the study.

But coal's dominance in the Chinese economy is one reason why natural gas is unlikely ever to grab a 22 percent share of China's energy mix - the world average. "In the foreseeable future we will not be able to shake off the coal addiction," Ho said, "because there is so much of it. Right now, coal is still 70 percent of our primary energy mix. If we can get it close to 50 percent we will be very, very happy and everybody will be much better off." If the country boosts its natural gas use to close to 10 percent of its overall energy mix, "we are getting a very good head start", Ho said.

The study also found that China's short-term development goal for so-called unconventional gas sources such as shale gas and coal-bed methane will need "careful study" in view of unsatisfactory progress made in geological surveying, pipeline network development, and domestic gas price reforms.

China, the report noted, has massive shale-gas reserves - nearly twice as much as the estimated 862 trillion cubic feet of shale natural gas in the US. Under the Chinese government's latest five-year plan, China wants to produce 6.5 billion cubic meters of shale gas annually by the end of 2015. Shale gas in China accounts for just 1 percent of the country's total natural gas production. In the first half of this year, 56 shale gas wells were in the exploratory phase in China, but only 24 were producing gas.

But questions pertaining to exploration rights, pipeline infrastructure, drilling and exploration technologies as well as accurate statistics for commercial supply are hampering development of the fuel. For instance, China's shale reserves are considered more geologically complex than those in the US, according to the report. While US shale gas deposits typically are located 6,600 feet to 13,000 feet below the surface, China's shale gas deposits are deeper at around 13,000 feet. Moreover, it costs approximately $3.2 million to drill a US shale natural gas well, but in China it costs about $14.7 million, according to a recent Platts news service report.

As well, international oil and gas players currently can only become involved through non-majority joint ventures with China's state-run oil and gas giants - PetroChina, Sinopec and China National Petroleum Corp.

The report suggests that China develop more drilling technologies, pipeline networks and set a market-oriented approach for gas pricing and development rights. Pricing is a particularly sticky issue: under the existing gas pricing and on-grid tariff system, gas-fired power plants can't generate profit without government subsidies. The practice of relying on government subsidies "is considered to unsustainable and inequitable," the report said. "Due to the differing financial capabilities of Chinese provinces to afford gas power, this power source has become a luxury available only to the comparatively richer coastal provinces."

With the future of gas power generation in China at stake, the report implies that it's up to the country's leadership to show the way by launching reforms. Otherwise the fate of this crucial issue will remain uncertain.

Contact the writer at michaelbarris@chinadailyusa.com

(China Daily USA 12/19/2013 page2)