China's political fracking in earthquake prone Sichuan

By Rakesh Neelakandan
US has virtually seen a production renaissance in the energy front and is witnessing its competency in other sectors of manufacturing going up on cheap energy prices.

This has once again kick-started cheap consumption cycles in US. The US Current Account Deficit, previously worth trillions of Dollars has come down substantially riding the domestic consumption wave. This has also caused US' non-energy imports to decline in value.

?America?s shale revolution may turn out to be rather deflationary for the world economy on a number of accounts. First, it puts a cap on US energy prices by pushing supply sharply higher. Second, it frees America from the global oligopoly in energy markets, making its industry very competitive. Third, it is helping spur a US economic recovery driven by domestic aggregate demand,? Bank of America Merrill Lynch noted in a recent report.

Now, for a nation that consumes humongous figures of crude oil in barrel terms, desperate to reorient its economy?s moorings to consumption led growth, finicky about inflation and a growing population that accounts for almost one-sixth of the world, should not this translate into a shale oil/gas exploration boom? Even if it means fracking in an earth-quake prone area?

For China, the reasons are political. The slump in manufacturing in China has resulted in the nation losing its double digit growth steam. This means loss of jobs and associated potential social unrest in a political system which lacks safety valves. Unless China grows, Communist Party of China will not be able to maintain the hold on political power.

The Sichuan region has seen an earth quake in 2008 which claimed 70000 lives. But the region is reserve rich and in partnership with Royal Dutch Shell, China National Petroleum has begun fracking there.

This makes good business sense, because China accounts for double the shale gas reserves in US at 1115 trillion cubic feet.

Reports suggest that shale industry boom in US $690 billion to US GDP and also create 1.7 million in jobs by the time this decade ends.

By undertaking fracking, China, is taking a leaf out of the book of US.

However, it comes with its own unique challenges. The first problem is that of earth quakes and the second problem is that of contamination of water tables in China; fracking needs millions of gallons of water and toxic chemicals to be injected into shale formation.?US Geological Survey has noted that ?at some locations the increase in seismicity coincides with the injection of wastewater in deep disposal wells,? rt.com said in a report, though the report adds that fracking and earth quakes are not directly related.

A nation with a record of lax environmental law implementation, China also may face water scarcity as the chemicals contaminate the water table altering the ?drinking water status? of this universal solvent.

In short, the sustainability of China shale oil boom is under question. After all, Royal Dutch Shell has decided to pump $1 billion a year into China shale reserves extraction.

(Story image courtesy of renjith krishnan/www.FreeDigitalPhotos.net)

Source: http://www.commodityonline.com/news/chinas-political-fracking-in-earthquake-prone-sichuan-55762-3-55763.html

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