beyondbrics

In China’s endless drive to find new energy sources, the big overseas oil deals have won most of the deadlines, but the news today that PetroChina is ramping up investment in coal-bed methane is a reminder of the potential boom in natural gas in China.

According to Reuters, PetroChina said today that it would spend more than $1.5bn over the next three years to develop 4.5 billion cubic metres of production capacity of coal-bed methane – almost double the country’s entire capacity at the moment.

“We aim to complete capacity building by 2013 and boost actual output to that level by 2015,” Jie Mingxun, general manager of PetroChina Coalbed Methane Gas, was quoted as saying.

At the moment, natural gas is relatively underdeveloped in China – it accounts for 3.5 per cent of energy production, against 23 per cent in the US. But the promise is huge.

As analysts at Macquarie noted  this year: “Indigenous gas production could reach 250bcm by 2020 (i.e., be 80% self-sufficient)… Combined with LNG and pipeline gas contracts already signed, gas supply in China could reach 300bcm, more than enough to meet our base-case demand forecast. We believe the risk to domestic gas production is firmly on the upside, with many unexplored opportunities such as coal-bed methane and shale gas.”

In a later note, Macquarie added: “If things go well, this has the potential to alter the world energy picture. China and Europe probably have large coal-bed and shale natural gas deposits. It could be a major change.”

As the FT has reported, China has been trying to develop its coal-bed methane resources for the best part of a decade and while current capacity is only around 2.5bcm, the government wants production in 2020 to be 16 times higher. PetroChina, which is at the forefront of trying to develop domestic supplies, has joined with Shell in a $3.2bn takeover bid for Arrow Energy, an Australian company that specializes in coal seam gas.

Shale gas development is also beginning to take off and Beijing has signed a technology transfer agreement with the Obama administration.

It is not just a potential game-changer in terms of energy supplies, but as the FT’sGideon Rachman wrote this week, the potential surge in shale gas and other new gas sources in places such as China also has huge geopolitical ramifications. Or as Hillary Clinton put it at a press conference in Beijing this week: “Imagine what it would mean for China if China unleashed its own natural gas resources so you are not dependent on foreign oil, particularly from such a difficult area as Iran.”