SINGAPORE – North American natural gas companies, in the midst of tapping vast new reserves from underground shale rock, are looking to energy-hungry Asia as the main future market for the cleanest burning fossil fuel.
But even as a study commissioned by the U.S. government and published recently concluded that shipping some of the abundant U.S. shale gas overseas would benefit the economy far more than keeping it at home, critics raised objections to exports.
Japan and other Asian importers buy liquefied natural gas (LNG), super-cooled for transport in special tankers by sea, mainly from Australia and the Middle East. They have to pay four or five times as much for their supplies as buyers of gas in the United States, where shale production has surged and prices have plummeted in recent years.
The main criticism of shale LNG export plans in the U.S. and Canada — also a giant energy source — is that it will raise costs for local consumers and industry while aiding foreign economic competitors accused of undercutting growth and jobs in North America.
Only one shale LNG export terminal has so far been approved in the U.S. There are 15 more in line. They have an export capacity of somewhat more than one-third of today’s U.S. gas consumption.
Several export terminals are also planned in Canada. The government hopes that they will be operational by 2020. Unlike the U.S. projects, which are mostly on the Gulf of Mexico coast and would have to ship to Asia via the Panama Canal, Canadian facilities are on the Pacific coast, offering quicker shipping times and lower freight costs to Asia.
The U.S. Department of Energy had said that it would not issue permits for shale gas exports to countries lacking a free trade agreement with the U.S. until the study published on Dec. 5 was completed and it could be assured that exports were in the national interest, as required by law.
Japan and South Korea are the world’s two top buyers of LNG. But China and India are expected to have by the far the biggest future demand for gas in Asia. Of the four, only South Korea has a free-trade deal with the U.S. There is now a comment period lasting 75 days and opponents of shale LNG exports are expected to be vocal, with geopolitical critics focussing particularly on China.
Beijing has been increasingly assertive in advancing its claims to ownership of valuable offshore seabed energy resources that are also claimed by its neighbors including two U.S. allies: Japan in the East China Sea, and the Philippines in the South China Sea.
Some Chinese analysts view the seas off China’s coast as a key energy frontier close to home that could help ease China’s growing dependence on imports of oil and gas from politically volatile suppliers in the Persian Gulf and elsewhere.
China claims control over undersea oil-and gas-producing wells, in addition to reserves, in disputed offshore areas. It evidently regards the South China Sea as a major new gas province.
China’s National Energy Administration said on Dec. 3 that Chinese state-owned energy firms aimed to produce 150 billion cubic meters (bcm) of gas from the South China Sea by 2014, a quantum leap on the 20 billion bcm produced so far.
If achieved, this target would slightly surpass China’s 2012 gas consumption and amount to nearly one-third more than its 2012 gas output from both onshore and offshore areas.
Existing South China Sea energy producers operating in waters claimed by Indonesia, Malaysia, Vietnam, the Philippines and Brunei that are also claimed by China worry that they may be forced to shut down and face confiscation of their assets as Chinese military power and reach grow.
If shale LNG exports go ahead on a large scale, they could be used by the U.S. to bolster Japan, South Korea, India and other geopolitical allies and friends by helping lessen their reliance on gas imports from unstable regions or from countries like Iran that faces increasingly harsh sanctions imposed by the U.S. and other Western nations concerned that it is trying to develop nuclear weapons.
Meanwhile, China appears to have decided not to look to the U.S. for future gas supplies but instead to develop domestic reserves, including those disputed with other countries in the East and South China seas.
China also aims to expand gas imports by pipeline from Central Asia and possibly Russia, and by sea as LNG from the Middle East, Africa and Australia. Gas use has been rising rapidly in China as the government tries to reduce expensive oil imports and pollution from coal burning.
China appears to be in a good position to emulate the North American shale gas boom. Its shale gas reserves are estimated to surpass those of the U.S. and Canada combined.
However, substantial production may be years away because China lacks skills and technology to exploit the shale rock reserves by hydraulic fracturing. It is also short of water for the process. In addition, low gas prices mandated by the government to keep costs for consumers and industry affordable act as a disincentive to exploit remote and expensive shale reserves.
Wary of being hit by Western sanctions on Iran, China has reduced its imports of Iranian oil. Instead it has been cultivating closer energy ties with Iraq, Saudi Arabia and other gulf producers.
But this may prove to be a high-risk and controversial strategy. As China’s energy and other investments in the gulf expand, Beijing may find it has to protect them with its own military forces as the U.S. pulls back from the region.
To guard its energy shipments by sea from the Middle East and Africa, China may also try to extend its power-projection capabilities from the South China Sea into the Strait of Malacca and Singapore, the Andaman Sea and the Indian Ocean — a move that could cause alarm and hostility in both Southeast Asia and India.
Michael Richardson is a visiting senior research fellow at the Institute of South East Asian Studies in Singapore.