On March 01, 2012, China’s Ministry of Land and Resources announced in a statement on its website that the country has updated its estimate of exploitable onshore shale gas reserves to 25.1 trillion cubic meters (886 trillion cubic feet), theoretically enough to satisfy China’s gas needs for the next two centuries . This is far ahead of the 13.6 trillion cubic meters estimated to be in the US, according to the Washington, D.C.-based Energy Information Administration . While China has yet to produce shale gas commercially, its planned shale-gas output of 6.5 billion cubic meters a year by 2015 is expected to rise to 80 billion by 2020 .
China has overtaken the United States as the largest consumer of energy in the world, and as the world’s second-largest oil consumer, it is also a heavy importer of crude from nations such as Saudi Arabia, Angola, and Iran. In fact, the country imported a record amount of crude this past January, increasing 7.4 percent from a year ago to 23.41 million metric tons last month, according to preliminary data today on the website of the Beijing-based General Administration of Custom . Thus, China’s investment into shale gas exploration has huge implications for its future energy needs, which continue to increase yearly.
However, China’s own state-owned oil companies have very little experience with shale gas exploration. While they are familiar with horizontal wells from coal-bed methane drilling, they lack confidence in the hydraulic fracturing process. “China is rich in shale-gas resources, which are suitable for scaled development,” Yu Haifeng, deputy director of the ministry’s geological exploration department said in the statement. “But the geological conditions are complex and our exploration technology, which lags behind advanced countries, requires innovation” .
Thus, China is looking towards collaborating with foreign oil companies to gain this innovation. Chinese domestic companies won exclusive exploration rights in the country’s first auction of shale gas blocks back in July 2011. In the next shale gas auction, slated for sometime this March, China plans to offer over 20 blocks up for auction, an increase from the original 10 blocks planned. “All domestic companies and foreign joint venture firms are welcome to participate in the bidding,” stated Zhang Dawei, deputy director of oil and gas research at The Ministry of Land and Resources .
After attending a recent shale gas conference held in China, Toshi Yoshida, corporate and energy partner at the law firm of Mayer Brown LLP, stated that Chinese state-owned oil companies “need to learn the technology of fracturing shale formations. It’s a good chance for US independents to form joint ventures with companies in China… US independents, if they are serious about expanding globally, have very good leverage in negotiating with Chinese companies developing shale gas” . Several foreign oil companies have already begun working with Chinese counterparts in shale gas exploration. China Petroleum Corporation has already found shale gas at 20 sites and has launched a joint venture with Chevron. And meanwhile, Royal Dutch Shell has been developing shale projects in China for the past two years, describing the potential as “very powerful” .
China’s interest in shale gas exploration also extends beyond its domestic sites. The country has invested in and sought collaboration with foreign oil companies working on shale gas sites outside of China. In June of 2010, the state-owned China National Petroleum Corp. announced a new joint venture with Encana, Canada’s largest producer of natural gas, to develop some of Encana’s holdings in the Montney and Horn River Shales. Although this joint venture unfortunately fell through, it revealed China’s growing interest in North America’s unconventional oil and gas reserves. This collaboration is mutually beneficial to both parties, since “major oil and gas companies gain access to the technology and expertise they need to develop unconventional gas, and smaller independent gas companies get access to the sizeable amounts of capital that many have needed in recent years” 
Thus, it is evident that in China’s plans to become less dependent on energy imports in the future, the country is still dependent (for now) on the expertise and knowledge of western independent oil companies, particularly US independents. There is strong growth potential for western companies to expand into shale gas exploration in China, and these western independents will be able to leverage their expertise in negotiations with the energy-thirsty country.