China, India should mutually develop unconventional energy value chain

The dependence of China and India on hydrocarbon imports is well known. Projections by the Energy Information Administration (EIA) reveal that the consumption of natural gas in China is expected to grow from 0.5 billion to 1.6 billion cubic meters per day between 2015 and 2040. Natural gas consumption in India has almost doubled since 2004, and was estimated to be more than 100 billion cubic meters in the year 2015. As China tries to decrease its dependence on coal to curb pollution, its imports of gas have drastically increased. At the same time, in line with its obligations under the Paris Agreement on climate change, India is also attempting to reduce its dependence on coal and focus on cleaner sources of energy.

Two workers inspect equipments at a newly-operated dehydration station of Fuling shale gas project in southwest China's Chongqing Municipality, May 24, 2016. [Photo: Xinhua]

The political economy of unconventional energy is therefore evolving in both China and India. Some unconventional sources both countries will need to focus on include shale gas, coal bed methane, and flammable ice. Though both countries identify their own opportunities and prospects in leveraging these energy resources, mutual participation in their value chains can help create win-win solutions for both sides. This will create opportunities for mutual engagement to sustain this synergy for the generations to come.

China's Energy Production and Consumption Revolution Strategy (2016-30) aptly formulated its vision to increase the share of natural gas in its energy basket to 15 percent by 2030. The 12th Plan made significant strides to set the ball rolling for the shale gas sector. And even the 13th Plan on innovation-driven development and President Xi Jinping's Thoughts on Socialism have, in their own way, given a boost to capacity building for energy conservation. India is also looking forward to market-friendly reforms in the natural gas sector and to create a trading hub.

The urge for mutual cooperation in the value chain becomes even more important because of the presence of all these three resources in both countries and their geo-economic interests in them.

Shale gas is natural gas trapped in shale formations found below the earth's surface. Its exploration is carried out through the scientific methods of horizontal drilling and fracking. Fracking means hydraulic fracturing, in which a large volume of water and sand under high pressure is used to create fissures in shale rock formations. This process is also carried out for exploration of so-called 'tight gas', which is natural gas produced from reservoir rocks that are least permeable.

As per the EIA estimates, China has the world's largest reserves of recoverable shale gas. The 2012 survey of shale gas resources conducted by China's Ministry of Land and Resources revealed that onshore reserve are 134.42 trillion cubic meters, while its estimated recoverable shale gas resource 31.57 trillion cubic meters. As per the 2017 estimates, China's proven reserve of shale gas will surpass 1.5 trillion cubic meters by 2020. One reason why China has been able to increase its shale gas development is its focus on reducing the cost of drilling gas wells to almost one-fourth of what it was a few years ago. The potential regions for shale gas exploration are spread across its northern and eastern regions including the Tarim basin, Junggar basin, Tuha basin, Sichuan basin, Ordos basin, Songliao basin, and also those in the South Yellow Sea and East China Sea basins. Also, in India, the shale gas is estimated to be 5.31 trillion cubic meters, and the potential basins for shale gas exploration include Cambay, Krishna-Godavari, Gondwana, Cauvery, and the Assam-Arakan.

Both China and India have been engaging in foreign collaborations to improve productivity and output in this sector. However, it is now imperative that they collaborate with each other to address systemic gaps and to secure mutual cost advantages. Some of the potential areas of joint cooperation in the shale gas value chain include joint investments in the development of pipelines, and developing regional storage hubs and markets for natural gas liquids, ethane, butane etc. Natural gas liquids can be used to make substances like polymers and gasoline, and have commercial value to be used in household and industries. Also, the two countries can work toward establishing a Sino-India bilateral institutional framework for developing shale gas value chain.

On the other hand, coal bed methane, which is extracted from coal beds, is found across several fields in China, primarily the ones in Qinshui and Ordos. China has an estimated 28.32 trillion cubic meters of coal bed methane reserves. The government also formulated a coal bed methane policy and is working toward market access and technological upgrades.

Also, India's coal bed methane production has also been growing and is estimated to be 565 million cubic meters in 2016-17. In India, coal bed methane is produced at Jharia, Raniganj and Sohagpur, though some of the challenges that it faces are largely infrastructure gaps and statutory issues like those related to land clearances. There are also challenges in China related to coal bed methane production. These include geological issues and low investment. Therefore, both China and India can strengthen their coal bed methane value chain through jointly focusing on exploration, research and innovation, investments, and development of related infrastructural.

Finally, flammable ice, which is a natural gas hydrate, is also an emerging unconventional energy source. It is in fact a compound in which methane gas is trapped in the ice crystals. A potential region for extracting the flammable ice is the South China Sea with more than 100 billion cubic meters of reserves.

China has produced more than 300,000 cubic meters of gas from its drilling platform in Zhuhai. Natural gas hydrate production is in fact a pro-active agenda as envisaged under the ongoing five-year plan of China. Similarly, NGHs has also been explored in the Bay of Bengal. Moreover, India's natural gas hydrate deposits are estimated to be 1,894 trillion cubic meters and can be explored in potential continental shelves in the Arabian Sea, Indian Ocean, and the Bay of Bengal.

However, there are technical challenges in exploring natural gas hydrate, especially regarding the type of occurrence and its formation. Since both China and India are looking to flammable ice as a future fuel, and that it is present in both South China Sea as well as the Bay of Bengal, it is again imperative that the two countries engage in joint exploration, knowledge sharing, and mutual capacity building in harnessing natural gas hydrates.

A focus on developing such value chains and jointly collaborating on it would help both countries in leveraging their unconventional energy resources more sustainably and of course with a cost advantage.

(Faisal Ahmed is a geopolitical expert and an associate professor of international business at FORE School of Management, New Delhi,India.)