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Shale gas could ease China energy shortfall - PwC

05.14.2012  | 

China's conventional gas production is stretched to the limit, a new report says. However, vast reserves of shale gas and coal-bed methane might ease the shortfall. The industry then needs to overcome major pricing, regulatory, distribution and water challenges.

Keywords:

China is seeking to establish a leadership position in ‘green’ technology despite continued global economic volatility and slowing domestic growth, according to a new industry report.

The China Greentech Initiative (CGTI), of which professional services firm PricewaterhouseCoopers (PwC) is the strategic advisor, offered those findings in its analysis The China Greentech Report 2012.

Officials say that while the sector faces macroeconomic challenges, China’s overwhelming need for energy and environmental technology will continue to propel rapid growth in greentech markets.

The report cites China’s “urgent” needs in energy and environment driving developments. The country now imports over half of its oil, in addition to its overreliance on coal, producing high emissions of carbon and other air and water pollutants.

China’s domestic conventional gas production is described as “stretched to the limit”. 

However, vast unconventional domestic gas reserves, including shale gas and coal-bed methane, could ease China’s gas shortfall, which is expected to grow nine-fold by 2015.

The industry would then need to overcome major pricing, regulatory, distribution and water challenges.

“The basic fact is that to ensure energy security and supply, China has no choice but to develop and use new forms of energy to meet the growing and seemingly insatiable demand,” said Allan Zhang, director of sustainability and climate change for PwC and a specialist in environmental policy and economics in China.

“Technological advances over the years have made wider use of unconventional gases possible, and opened up new sources of energy supply, although many technical hurdles still exist,” he continued.

“Companies with experience of advanced technologies, or management skills in exploring coalbed methane projects on a large commercial scale will be in a great position in the market.

“The lack of experience and know-how of the Chinese companies in dealing with unconventional energy such as shale gas offer the European and American companies the chance of riding on China's rapid development.”


Other findings from the report include
:

-- Private equity and venture capital investments in China’s private water sector increased from $50 million in 2010 to $400 million in just the first four months of 2011.

-- Wind and solar farms costs have fallen dramatically: onshore wind farms in China can now be completed for around RMB 7000/kW and photovoltaic (PV) system costs have decreased from RMB 74,000/kW in 2007 to less than RMB 13,000/kW in late 2011, with costs continuing to drop.

-- Though China’s green building market is small, building energy efficiency policies will likely lead to rapid industry expansion over the next five years.

-- China in 2011 began the construction phase its 2009-2020 Strong and Smart Grid Plan, initiating the world’s largest effort to build a reliable, efficient and smart grid.


Conclusions

Given the scale and rapid growth of China’s energy needs, to secure its energy supply, China has continued an earlier trend of overseas expansion, with companies looking abroad for energy deals in the areas of oil and renewable energy, the report says.

The deals in 2011 also highlighted a new push for investing in basic infrastructure, such as European water and power grid utilities, to achieve asset diversification and financial returns.

“Chinese large State Owned Enterprises (SOEs) have accelerated the pace of diversification in overseas expansion,” said Mr. Zhang. “From a European point of view, their expansion overseas into infrastructure investment has opened up more opportunities through M&A, for European and American companies to work with Chinese companies.

“Even with significant growth in the past five years, the China greentech marketing is only in its initial phase, and uncertainties remain. Ambitious targets were set in the 12th Five Year Plan for greentech development with billions of government investment earmarked.

“Foreign companies will need to develop sound partnering strategies with major Chinese players and to be flexible enough to cope with changes in policy or economics.”

“While the road ahead may be rocky, the long-term outlook remains positive,” added Gavin Chui, Greentech leader of PwC China and CGTI strategic partner.

“China’s greentech sectors continue to grow and to positively impact energy and the environment in both domestic and international markets.”

For more details on the report, read the PwC release by clicking here.



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