Why China Lags Behind the U.S. in Shale Gas Development

January 15, 2013 § 2 Comments

Summary Table

China has a strong will to develop shale gas but lags behind the USA

This post is part I of a series on China vs. USA Shale Gas Development

In the new shale gas revolution, the United States has taken the lead in exploration, development, technology, production, and even the export of shale gas. The U.S. is indisputably the best in this field and best practices from the U.S. will only help other countries develop their own shale gas industries.

China, a country with the world’s highest shale gas reserves, is attempting to exponentially build its shale gas capacity in hopes that they too can achieve energy security and influence in the world’s gas pricing regimes.

Are China’s shale gas plans too optimistic? This article will compare the U.S. regulatory environment to see how far behind China is from the U.S. in developing its nascent shale gas industry.

U.S. vs. China Regulatory Environment

United States

When looking at the United States’ regulatory environment, one needs to divide the analysis into three parts.

  • Federal laws
  • State laws
  • Political stances of the government

In terms of Federal Laws, the U.S. has long-established environmental guidelines that regulate the oil and gas industries. These laws yield to state laws and are difficult for federal agencies to enforce. As a result, federal agencies play a very small role in regulating extraction industries, despite the greater concern for the environment in the U.S. than in China. Instead, this role falls to State Agencies.

US Federal Laws Chart- ENVIRO

At the state level, regulations governing the shale industry vary widely depending on the political attitudes toward the extraction industry. Texas, for example, is anti- federal state regulation and the approval of drilling permits is generally lax where no environmental review is required for a proposed project. New York, on the other hand, requires a comprehensive review of the environmental impacts, an application for drilling, and a drilling work plan. These state regulations, however, can easily be disregarded or enforced depending on the national political leadership at the time.

Dick Cheney spurred the development of the American shale industry through his Energy Policy Act of 2005

This example can perhaps be seen most clearly in the 2000s when shale gas enjoyed overwhelming political support by the “Energy Task Force” led by, then, Vice-President Dick Cheney. Under Cheney’s lead, the Energy Policy Act of 2005 was passed and was controversial for a loophole that exempted the shale gas industry from the Safe Drinking Water Act and Clean Air Act. These exemptions continued during Cheney’s time in office, and his team successfully amended the National Environmental Policy Act in 2005 to shift the “burden of proof to the public to prove that these activities were unsafe.”

Since Cheney’s time, however, the political mood toward the shale industry has soured with concerns over shale’s potential for polluting water sources and creating earthquakes. Obama’s administration, for instance, will be implementing stricter controls over drillers by requiring them to “capture emissions of certain air pollutants from new wells” starting in 2015.

As such, the combination of lax federal enforcement, varied state laws, and the political support created by Cheney’s time in office was particularly conducive toward enticing developers into the industry. The relaxed environmental regulatory system brought down the risks and justified bringing in investment, technology, and human capital for small and large firms alike. As such, these policies opened the way for competition and spurred technological improvements to hydraulic fracking.

China

In contrast to the U.S., the monitoring of shale gas is difficult in China due to the fact that the central government does not yet have a set regulatory environment. As such, understanding which of China’s government policies will impact the shale industry will be half based on regulations for other extractive fuels and half on the current government’s directives for shale gas.

China Extraction Policies

In trying to understand which policies will most likely impact shale gas, one needs to first look at the policies currently in place for other non-traditional extractive industries such as coal-based methane. If shale were to be controlled under the same policies, companies operating in China’s shale gas industries could potentially take advantage of its status as an “independent mineral” (approved December 31, 2011), as it opens shale “exploration to more participants.”

Independent mineral status encourages the exploration of shale gas by foreign companies and induces competition via “certain tax and administrative benefits.” In terms of environmental regulations, China’s control of land, water, and air are varied and controlled by different ministries. The impact of these policies will have to wait on a more firm classification of shale gas by the government.

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China’s previous Politburo, it remains to be seen what the directives of the new Politburo are

The national political climate for shale gas is seemingly positive as well, due to the National People’s Congress’s directive for  shale gas as an important resource for China’s national energy security. As such,  under the 12th Five Year Plan (2011-2015), China has put in place plans for the “assessment for shale and confirming the current reserve estimates“. A National Shale Gas Development Program has also been established during this period, where the government has placed an emphasis on R&D for technology, exploration, and development of shale gas for the 13th Five Year Plan (2016-2020). However, in late 2012, China oversaw the change of a new President, Xi Jinping, and his new politburo. It remains to be seen what this group of influence government officials will do for the shale gas industry.

Why is China’s Shale Gas Industry Lagging?

Regulatory Structure

The U.S. success with shale gas is a product of the clear boundaries in federal and state regulations, and the conducive nature of Cheney’s 2005 Energy Policy Act. These factors allowed for small and big energy firms to have equal opportunity in leasing or acquiring land, sell gas in a competitive natural gas pricing regime, and understand the environmental boundaries that they have to operate in. This transparent regulatory regime made it easy for investors to understand the risks and actively invest in new shale basins, which in turn helped smaller energy firms hone their technology in hydraulic fracking.

Once smaller firms succeeded, the shale industry saw a large flux of mergers of smaller firms with larger conglomerates, which brought in much more investment, infrastructure, and human capital. This timeline helped shale develop exponentially as the industry never saw a relaxation in funding or technological know-how.

China, on the other hand, is lagging due to the very nature of its current regulatory structure with shale gas. As previously stated, the central government’s endorsement of shale gas is particularly strong. However, due to the importance of shale gas in China’s future energy security plans, a failure of this industry could be extremely embarrassing for the Chinese Communist Party. As such, current directives have shown to be vague and inconsistent. This environment is in direct contrast to the American context as it creates a cloud of uncertainty for companies and overseas investors.

Barriers to Entry

Moreover, the barriers for entry for small and large firms into the American shale gas industry were much lower as individual companies were able to lease or acquire land to explore on their own accord.  They were only required to submit paperwork to the state government. In China, however, the central government tightly controls shale gas blocks by organizing auctions or granting exploration rights. In the first auction, held in June 2011, only state-owned companies were allowed to compete.  This auction elicited a weak response as only six companies put in bids for four blocks and only 2 blocks were awarded in the end. A second auction was finally put up in October 2012, and was deemed slightly more successful as it garnered 152 bids for 20 blocks.

Nonetheless, barriers were still high as entities had to be either Chinese companies or Chinese held joint-ventured companies. To make matters more unequal there was also a clear absence of bids from China’s top oil and natural gas companies from the 152 bids received as their vote would’ve proven redundant since they already have rights to exploration on certain blocks. This does not yet mention the minimum value the company needs to have ($48 million USD) or the minimum they are required to invest into the blocks for the next three years.

shale gas well china-sichuan

Shale Gas Extraction Site in Sichuan Province, China

Profit Disincentives

Profit incentives are also much lower in China as the status of shale gas as an “independent mining resource” is precarious. Natural gas is generally state controlled, meaning that companies do not have control over the pricing of gas, no matter how little or much they produced. This is a strong disincentive to companies looking to enter the industry as natural gas is priced below the market in China.

In the U.S., on the other hand, companies had complete control over the pricing of the output of gas and even the export of it. Since the status of shale gas has changed since the end of 2011, stakeholders will continue to doubt the nature of shale gas’s profitability until they see how the pricing of shale gas is treated once production is stronger.

Lastly, the uncertainty of environmental policies will prove to be a disadvantage to investments and entry into China’s shale gas industries.  In the U.S., when energy companies were beginning to explore and produce shale, they knew that they had to observe at a minimum federal regulations that dealt with emissions, the treatment of water, and the land. Although companies were ultimately not required to observe these regulations due to the 2005 Energy Policy Act, there were concrete lines that allowed them to make risk assessments for the future. China, on the other hand, there is no such minimum line in which they can refer to. Stakeholders cannot reasonably assume that shale gas’s environmental regulation will be similar to coal-based methane, natural gas, oil, or coal. As such, any type of risk analysis or cost-benefit analysis will be inaccurate. To make matters worse, the lack of environmental guidelines could cost stakeholders more over time as any reversal in policy could prove to be detrimental and costly to accommodate.

What other differences are there?

china_and_us_flag

The American shale gas industry took over 20 years to develop into the global leader it is today due to favorable political support, a concrete regulatory environment, and low barriers to entry. This policy environment resulted in creating competition, advancing technological development, and spurring on innovation. China, on the other hand, has the political support but lacks a reliable regulatory environment and holds one of the highest barriers to entry into the shale industry.

These differences are clear, explaining the standstill the Chinese shale industry has experienced in the last few years. But what other differences are there between these two superpowers?

In the next post I will explore the infrastructural capacity gap between the USA and China, subscribe now to get more on this topic and more at EnergyInAsia.

You can also follow me on Twitter @dianamngo.

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3 Reasons Why Shale Gas is a Pipe Dream in China- Part I

May 11, 2012 § 3 Comments

China dreams of energy independence via shale gas, but challenges abound due to geography, infrastructure, and water.

In recent years, much attention has been paid to shale gas, an unconventional natural gas that was traditionally found to be too expensive to extract. But with rising fossil fuel costs and technological innovation, the United States has made shale gas into a serious game-changer for the future trade of natural gas around the world.

Countries, such as China, are now finding ways to tap into this resource to boost their national energy security. But how accessible is Chinese shale gas and what problems does the production of this unconventional gas face in the People’s Republic of China?

Estimates and the Reality

In April 2011, the U.S. Department of Energy’s Energy Information Administration (EIA) released estimates on the world’s technically recoverable shale gas reserves. The report garnered mixed reviews as it placed China as the leading holder of shale gas reserves in the world with “36 trillion cubic meters,” while the United States followed closely behind at “23.4 trillion cubic meters.”

But can China actually dominate the shale gas market?

EIA’s claims were unfounded as China was only beginning to identify and explore domestic shale rock basins. Since then, however, Beijing has been able to suggest that 2 out of the country’s 7 shale rock basins (Tarim and Sichuan Basins) could be commercially produced. With the help of joint ventures with BP (Sinopec), Total (CNPC), and Royal Dutch Shell (PetroChina), China began exploratory drilling in Sichuan in 2010. These joint ventures have found “major shale gas reserves in… [the]western Sichuan region” and have helped Chinese energy companies practice shale gas technologies. More importantly, these initial drillings have helped the government, specifically the Ministry of Land and Resources (MLR), survey China’s actual recoverable shale gas reserves. MLR now believes China holds “25 trillion cubic meters” of exploitable onshore shale gas. This is 11 trillion cubic meters less than the estimate EIA had proposed earlier, dropping China’s abilty to meet demand (at current rate of consumption) from about 400 to 300 years.

Difficulties in Commercially Developing Shale Gas in China

Faced with criticism to reduce carbon emission and reduce dependence on foreign fossil fuels, the Chinese government is set to move ahead with shale gas exploration and production. Earlier this year, the government has set targets for “developing 6.5 bcm of shale gas per year by 2015” and moving exponentially “up to 60-100 bcm by 2020.” However, are these targets practical? More important, what difficulties does China face in making shale gas commercially available in the near future?

Difficulties in Geography

The production of shale gas is technologically challenging since “water, sand, and chemicals” are used to blast deep into wells to allow shale gas to come to the surface. This technology, also known as hydraulic fracking, is the key element that has drastically changed the unconventional natural gas industry in the U.S. However, unlike the U.S., China’s shale rock is much more geographically challenging.

Chinese shale gas is found in much rougher terrain and is found much deeper underground than American shale gas. American shale gas can be typically found within “two to six kilometers deep, whereas in China some key deposits are found six kilometers deep.” To developers, this means that experiences learned in the U.S. may not be readily applied to China as the geographical challenge will require more experienced personnel, additional equipment, technological innovation, and increased costs. This will be especially the case when exploring and developing Sichuan Province, an area prone to earthquakes.

The quality of the shale rock and gas in China is also different than the U.S. The shale rock, for instance, is “non-marine” and contains much larger amounts of clay than its North American counterpart. This means that it is “more difficult to be fractured” and will require much more energy and highly skilled human capital to produce the same amount of gas. Chinese shale gas is also inferior to American shale as it contains much more “non-hydrocarbon gasses.” The lower quality gas may be costly in the long-term as China may be forced to develop ways in which to refine the gas into a more usable state.

Lack of Infrastructure

Many of China’s shale gas reserves are located in rural areas that lack basic infrastructure such as roads, railways, electricity, and gas pipelines. Without these transportation features, each level of shale gas development will be stalled. For example, without substantial roads, developers will be unable to carry in the necessary vehicles, sand, chemicals, and steel needed to create exploratory wells. China also faces a bottleneck in transporting shale gas as the country lacks an extensive gas pipeline network. More pipelines or liquefied natural gas centers will need to be built near shale gas wells in order to make the unconventional gas more commercially viable.

In addition, China will need to adopt or develop infrastructure that can safely dispose of the contaminated material used to “frack” the shale rock. This will protect the environment, as well as help reclaim land that was used to drill into the earth. These factors are important as they will reduce costs caused by environmental damage and the chances of earthquakes occurring in the future. Moreover, these precautionary steps will also help China exponentially speed up their well development timeline (PetroChina took 11 months to complete the country’s first horizontal well).

Water Shortages and Suitability

One of the larger problems facing shale gas development in China is the shortage of water. Water is a necessary component in the process of hydraulic fracking, with no other alternative at the moment. In shale gas rich Sichuan Basin, this is of extreme concern due to the region’s agricultural heritage which provides the country with about “7 percent of China’s rice, wheat, and other grains.” Diverting water from the agricultural sector to shale gas could be devastating, especially if the contaminated water also contaminates China’s farmlands.

For other shale gas basins in Tarim, Xinjiang, and Inner Mongolia, water shortage is a real challenge due to the arid and hot climate. Shale gas development will require water to be transported from other parts of the country, a feat that is expensive as it is momentarily impossible.

Although the Chinese government places high hopes on shale gas, much more still needs to be done. In my next post, I will compare the political environment that made shale gas successful to the U.S. and what China still needs to do to compete. Subscribe now to get the latest updates.

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By Choosing Culture Over Energy Investment, Myanmar Sends A Strong Message (Part II of II)

December 12, 2011 § 1 Comment

Click here for Part I of this series: Laos Chooses Money Over Culture and Society.

Myanmar stands to win infrastructure, electricity, and economic development with completion of the Myitsone Dam, but chooses to preserve their culture and society instead.

Myanmar: Why Hydropower?

Unlike Laos, Myanmar is fortunate enough to be surrounded by the Bay of Bengal and the Andaman Sea in the Indian Ocean. This geographical location has served the country well by allowing Myanmar to conduct overseas trade and rank 78th in the world for GDP Purchasing Power Parity (well ahead of Laos at 129). Although commendable, Myanmar is far from being a developed country and still struggles with providing its population with a better life since the election of its new civilian government in 2010.

Myanmar’s economic development struggles are apparent when looking at the country’s energy use.  For instance, Myanmar’s energy mix is strongly dependent on waste energy like Laos with an increasing amount of natural gas becoming part of their primary energy use. The country’s power industry is still rudimentary and inefficient, with some estimates indicating that only 13% of the country is electrified. Myanmar’s electrification process is estimated to increasingly rely on foreign natural gas, but the government is now considering hydropower as a more attractive alternative due to its abundance in Myanmar.

The Myitsone Dam: 15.8% of Myanmar’s Potential Installed Hydroelectric Capacity

Myanmar’s low electrification rate and growing openness to the international community has prompted the government to increase living standards. However, dependence on foreign energy is not an option for the long-isolated country. Yet, at the same time, foreign investment is needed to procure the expertise, equipment, and funds needed for the country’s estimated hydroelectric potential installed capacity of 38,000 mW.

The Myitsone Dam is at the middle of this debate,  as the dam is a joint-venture between the Myanmar’s Ministry of Electric Power, Burmese company Asia World, and the China Power Investment Corporation. The project is estimated to cost $US 3.6 Billion and will have an installed capacity of 6000 mW (15.8% of Myanmar’s potential installed capacity). The dam, once completed, will be the 15th largest dam in the world and be first in a series of 6 other dams on the Irrawaddy River (Myanmar’s largest waterway, akin to Laos’ Mekong River).

The Social and Environmental Controversy

Unlike Laos, Myanmar is not held accountable by the international community for their hydroelectric projects as they are not a signee to any shared-river convention. Myanmar also does not have many domestic regulations concerning the protection of the environment or biodiversity. But, the Myitsone Dam still holds a sizable amount of environmental and social controversy for the Myanmar government to be concerned about.

In terms of environmental impacts, the Myitsone Dam is to be built at the start of the Irrawaddy River where the Mali and N’Mai Rivers meet. An impact study by the China Power Investment Corporation indicates that migratory fish species will be most likely wiped out, and the dam will affect the rice paddy ecosystems further downstream. The proposed site of the dam is also 100km away from a fault line, increasing the fears that the dam will be unable to withstand a strong earthquake in the future. In terms of societal impacts, the dam’s presence will force the direct displacement of some 15,000 individuals and 40 villages.

Society and Culture Trumps Money

Despite having similar obstacles to Laos in the construction of the Myitsone Dam, Myanmar current government has decided against the construction of the dam. But why?

1) Cradle of Burmese Civilization

The construction site of the Myitsone Dam is in a very precarious location for the Burmese people as their culture and identity is closely tied to the Irrawaddy River. This area is considered to be the cradle of Burmese civilization, and is the primary source of food and economic activity for many Burmese.

Specifically for the Kachin minority group, the area surrounding the Myitsone Dam will submerge many of their cultural and historical buildings, sites, and artifacts. This minority group has already been actively fighting the Myanmar military, and will continue to do so as they see the dam as a threat to their way of life.

2) Chinese Imperialism

A large factor in the current government’s decision against the construction of the dam is the negative image China has in Myanmar at the moment. For years, Myanmar has relied heavily on China as an ally due to the country’s isolation by developed countries for their human rights violations. This has led many Chinese firms to openly invest in Myanmar, while bringing in their own labor to support their business functions. However, to the Burmese people, this is exploitation. Chinese business are spreading all over the country and taking over local jobs. They get preferential treatment in contracts with the government and are known to discriminate against hiring local individuals. And now, they are expanding into the extraction of Myanmar’s natural resources.

This imperialism has pulled negative public views on the Chinese, with the Myitsone Dam not the exception. In this case, about 90% of the electricity generated by the Myitsone Dam will be sold to Southern State Grid and used in Southern China. Only a very with a small amount of hydroelectric power will reserved for Myanmar citizens, not enough to justify the long-term damages the dam will cause on the country’s other economic functions. The majority of the benefits for Myanmar will be based more on promises for regional development (roads, businesses, etc.) and direct investment. However, both the Myanmar government and people feel that the Chinese care little about their safety or well-being considering China Power Investment Corporation’s insistence on building the Myitsone Dam despite examples of less damaging alternatives. (China Power Investment Corporation’s impact study suggests the same amount of power can be generated through two dams on the Irrawaddy River’s tributaries to avoid harming the main river)

3) Political Legitimacy

The Myitsone Dam is an example of the power of the previous military governments, and their undying loyalty for the Chinese government. By stalling the project, however, the newly elected (2010) civilian government led by President Thein Sein is illustrating the need for the government to gain political legitimacy and differentiate themselves from the military junta.

The Myitsone Dam has garnered national attention due to the dam’s societal and environmental impacts, particularly arguments brought up by conservationists, scholars, and even political activist- Aung San Suu Kyi. By not going ahead with the Myitsone Dam, President Thein Sein and his advisers are illustrating their understanding and respect for public sentiment. This move also illustrates the President’s right to control the country’s natural resources and hope to move away from China as their only ally. These factors, combined with looser restrictions on tourists, media, and political pardons signal a very different Burmese government that wishes to receive the respect and adoration from their citizens. However, it is important to note that the current government term will end in 2015. There are still chances that the Myitsone Dam will resume construction, however, the political climate at that time will determine if this dam will ever be completed.

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Click here for the first part to this series, analyzing why Laos chose money over society and culture.

Click here for an in-depth analysis to the Spratly Islands Dispute.

Trading Your Society and Culture for Money: Laos and Myanmar Decide (Part I of II)

November 23, 2011 § 1 Comment

Laos Overlooks the Impact of Social and Environmental Damages in Moving Forward with the Xayaburi Dam

A classic dilemma for emerging economies in today’s world  is the choice between economic development and preserving the country’s socio-cultural integrity. This two part article will analyze the decisions behind Laos and Myanmar’s decisions for each country’s respective hydroelectric projects, where the former has chosen economic development and the latter has chosen to preserve their socio-cultural integrity.

Laos: Why Hydropower?

Laos is a landlocked country in Southeast Asia, that has traditionally been isolated due to its lack of sea access. This disadvantaged geographical situation has caused Laos’ GDP to depend greatly on its neighbors over the years, where in 2010 Laos’ GDP per capita was $1,208 USD due to the countries growing trade with Thailand, its largest trade partner.  In terms of GDP (purchasing power parity), Laos is ranked the 129th nation in the world- illustrating the country’s poverty and need for economic development.

Laos’ energy mix reflects the country’s poverty as illustrated on the disproportionate reliance on biomass fuels like firewood. As a result, the Laotian government wishes to grow economically by setting an electrification goal of 90% by 2020. This goal will most likely be met by coal and hydropower, the two fuel sources Laos’ has in abundance domestically.

The Xayaburi Dam: An Additional 4.5% to Laos’ Installed Hydroelectric Power Capacity

Laos’ economic situation and lack of electricity has pushed the country toward developing its hydropower, as the country’s rivers are estimated to have the capacity to produce about 28,000mW of electricity. As part of this overall plan, the Laotian government initiated the Xayaburi Dam project in order to harness power from the Lower Mekong River. It is to be the first dam project in this region, and has the ability to affect the lives and economy of downstream Mekong River countries like Myanmar, Thailand, Cambodia, and Vietnam. But more importantly, the project can help Laos reach its economic, development, and electrification goals as the Xayaburi dam is expected to have the capacity to produce 1,260 mW of power when it is completed. This will increase Laos’ current installed hydroelectric power capacity by 4.5%, from 6.6% to 11.1%.

The Social-Environmental Controversy

Although the Xayaburi Dam has the potential to improve the lives of Laotians, the project still faces tremendous objection and protests from Laos’ neighbors, conservationists, and climate change experts. As with any hydroelectric project, the concern surrounding the effect the dam will have on the Mekong River’s people and diversity is real. As a result, Laos (a signer of the 1995 Mekong River Commission) has had to answer to these concerns by conducting an Environmental Impact Assessment to adequately weigh the Xayaburi’s economic benefits with the social-environmental costs.

However, controversy has instead ensued over this impact study due to charges that Laos and its business partners used sub-standard measurements. For instance, a WWF Review asserts that Laos’ study utilized only a “light sampling” that “captured 1/3 of biodiversity” found in the Mekong River. International Rivers also criticized that the evaluation was unable to capture the impact of “sediment flows [and] dam safety.” What’s worse, is that their proposed technologies and designs for fish migration has not been previously tested on the Mekong River’s target fish species.  In addition, there may be a conflict of interest as the Swiss-firm hired for the Environmental Impact Study (Poyry Energy) is known to be a business partner of Thai company Ch. Karnchang (Xayaburi Dam’s main investor).

In other in-depth impact studies, the social and environmental costs are much worse. For instance, the Xayaburi Dam is found to potentially block  the migration of target fish which may lead to the extinction of 41 species in the future. This could also lead to the starvation or loss of fisheries and livelihood for some 200,000 people downstream. In terms of direct impact, the dam will displace an additional 2,100 people from about 40 villages all in the nearby area.

It’s All About the Money & Politics

Despite the telling signs of long-term damage to the Mekong River and Laos’ agreement to suspend the project in April, the Laotian government has recently went ahead with the construction of the Xayaburi dam. But why?

1) Increases Foreign Direct Investment in Laos

The most important reason for choosing to construct the dam, I believe, is the project’s potential to attract a lot of foreign direct investment (FDI) and revenue. If built, the Xayaburi dam will be the first in a series of 10 other dams on the Mekong River. This dam will be the start of Laos’ electricity export industry, allowing the country to exponentially grow its domestic GDP in the next few decades.

For instance, the Xayaburi dam project is estimated to take 7.5 years to construct and an investment need of 3 Billion USD. So far, 90% of this investment fund has already been met by one Thai company- CH Karnchang. There is investment interest from four other Thai Banks as well (Kasikorn Bank, Bangkok Bank, Krung Thai Bank, and Siam Commercial Bank), with more than half of Laos’ current FDI going to hydroelectric projects.

In addition, Laos’ neighbors will provide the landlocked country with demand as illustrated by Thailand’s electricity company, EGAT. EGAT has already signed to purchase 95% of the Xayaburi Dam’s electricity output in 2010 and will be one of the key purchasers of Laotian energy in the future. The region’s  growing energy demand will be a tremendous asset to Laos in the future, as it prepares to harness the country’s estimated 28,000 mW of hydroelectric power.

2) Thailand’s Political Influence

A second factor I believe has highly influenced the resumption of the Xayaburi Dam project is Thailand’s interests and influences on Laos. At the moment, Thailand is Laos’ largest trading partner and political ally. It has for years helped Laos develop its country by building roads to ease the landlocked country’s transportation problems.

In recent years, Thailand has also been aware of its energy needs and its over-dependence on natural gas in the power generation industry (66.2% in 2007). This has forced Thailand to look for other sources, making Laotian hydroelectric power ideal for the coming years. As a result, we see Thailand investing heavily in Laos as they hope to gain 7,000 mW from Laos’ total of 28,000 mW of power in the future.

3) Laos Fighting Back

The last reason I believe Laos is choosing to disregard its regional agreements to suspend the construction of the Xayaburi Dam is based on the country’s wish to fight back. As a small and landlocked country, Laos has had to deal with its fair share of bullies in the region. It has also had to rely heavily on its neighbors to export and import goods, making it hard for the Laotian government to truly assert its sovereignty.

But with hydroelectric power, Laos does not need to governed by others. Making the Xayaburi Dam as an example, Laos will be able to increase the livelihood of its citizens, while reasserting control over its territory and economic development. The total disregard of regional agreements and international criticism illustrates Laos’ rebellion, demonstrating the start of the country’s power struggle over FDI, foreign experts, and dominance in the sales of electricity in Southeast Asia.

Stay Tuned

Laos’ decision is not unusual given the country’s need to electrify, need to increase investment, and need for Thailand’s trade. However, this does not always have to be the case. Stay tuned as I analyze why Myanmar has sought to suspend the Myitsone Dam next week despite China’s influence and Myanmar’s need to develop.

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Click here for more information on Southeast Asia’s disputes in the South China Sea.

Click here to understand How Dependent Asia’s Top 4 Economies are on Foreign Oil.

5 Strategies to Make Sure Your Energy-Related Organization Gets Taken Seriously

November 16, 2011 § Leave a comment

Top10 China aims to promote the most energy efficient products to Chinese consumers, but the group needs a better brand and greater recognition before it can succeed.

Let’s imagine that you have an international organization dedicated to changing attitudes of energy consumers. This is a big task for any organization, but especially one dedicated to mass behavioral change. How do you make sure everyday citizens notice AND remember you?

Monday, earlier this week, I attended the “Top10 China Network- Develop Your Business Through Energy Efficiency” event, in which the event’s hosts talked about the importance of sustainability and increasing energy efficiency in our daily lives. The organizers believed that through the Top10 group, consumers in China will begin to understand and consciously consume energy-saving products. As a result, the organization Top10 China has adopted the characters “节能上品“ or “energy-saving products” in their logo for the Chinese audience. However, their logo leaves much to be interpreted as I kept on asking myself what products are they promoting and what does “Top10” actually mean?

From my understanding, Top10 is an organization that was started in Switzerland (now expanded throughout EU, USA, and China) to provide consumers with non-biased information on the top energy efficient products on the market (From the Top10 China website, this means home appliances, cars, light bulbs, etc). Their goal is to be transparent, while helping consumers choose products that are better for their pockets as well as for the environment. They also believe they are essentially providing free advertising for manufacturers and retailers in the near future, offering these entities an incentive to innovate and provide only the most energy efficient technology for their informed readers.

Concerns and Criticisms 

For most of the event, I struggled in understanding how Top10 was going to have a significant impact in China. For instance, even though they are noble in their objective in bringing transparent data and easily accessible information to consumers, they did not seem to know what channels they going to use to expand their information and brand in China. Moreover, their funding primarily comes from the Swiss government disallowing them any sort of extra allowance to spend on cutting-edge energy efficiency tests or expanding their marketing team. Their powers are limited, and they seemingly function as an extra appendage of the Swiss government in China.

However, there’s a wildcard in all of this: it’s possible that Top10 is so networked and has so much “guanxi” that it frankly doesn’t matter what their strategy is as their affiliated organizations will be doing most of the work for them.

Top 10 China’s Sponsors: Swiss Embassy, WWF, and SwissCham

In Top10 group’s home operations in Switzerland, guest speaker Christian Ruttimann of Euro Group Far East Ltd., suggests that they have worked their way into the everyday lives of consumers. By placing their logo alongside Swiss energy efficient logos on household appliances in advertisements, magazines, and stores the Top10 group has been able to impact consumer decisions. Perhaps suggesting that China should also follow suit.

No Signs of TopTen.ch on the Homepage of Swiss Electronics Vender- InterDiscount

However, as a graduate from a Swiss university, myself and a Swiss friend discussed among ourselves that we have never actually seen the Top10 brand in stores like COOP or InterDiscount (equivalent to Target in the U.S.A.). What was more astonishing was when I questioned Christian Ruttimann about the extent of Top10’s exposure in Switzerland, and he admitted that the impact was minimal and much more needs to be done for Top10 to be fully recognized by consumers.

Five Ways to Improve Top10 China

Bringing energy efficient products to the attention of Chinese consumers is needed, however, I should also point out that I am not alone in sharing these views. In discussing with participants at the event, I noticed that many were asking the same questions and shared the same concerns I had for the success of Top10 in the future.

Below is a compiled list of 5 strategies that Top10 needs to follow in order to succeed in China:

1) Improve Brand Image and Association to Energy Efficiency

2) Leverage Current Relationships to Expand Audience Recognition (as suggested by Taobao’s Senior Brand Marketer- Jing Shengyao)

3) Develop Partnerships with China Mobile/China Unicom (as suggested by WWF’s Country Director- Jim Grandoville)

4) Engage with More Stakeholders to Adapt Quickly to Changes in China’s Market Economy (i.e. policymakers, companies, consumers)

5) Build Top10’s Presence in the Lifestyle of the Younger Generation through Sino Weibo/RenRen/etc. (as suggested by WWF’s Country Director- Jim Grandoville)

Last Remarks

In writing this piece, I have considered whether I am being too critical of an organization that just started its operations in China last year. However, from what I saw at the event- top notch event, top notch sponsors, top notch audience- I simply expected more. And that is what we should be doing with organizations that promote a greater good- hold them to a higher standard so that they are better equipped to achieve their goals.

Click here for Top10 China’s website.

Click here for more information on the Top10 China Network Event.

Click here for more information on China’s Cautious Expansion of Nuclear Energy.

Click here for more information on what China Needs to Do to Market Electric Vehicles.

With Nuclear Energy, China Chooses Dependence Over Independence (Part II of II)

November 11, 2011 § 3 Comments

China’s nuclear industry increases dependence on another set of foreign countries due to technology, nuclear safety, and uranium trade.

China is now at a cross-roads that requires it to be increasingly accountable for its energy use, carbon emissions, environmental impact, and public health. Due to this nuclear energy has become one of the lauded fuels of choice for the future. However, if China steps in this direction the country might be dependent on another set of foreign countries, leaving them in another cycle of energy dependence and vulnerability.

Technology: Safety vs. Self-Reliance

Before the Fukushima-Daiichi nuclear disaster, China has always been keen on developing home-grown nuclear reactors with the help of older Russian, Canadian, and French nuclear reactor models. To the Chinese, the creation of a “Chinese” nuclear reactor would help them become less reliant, while its success would also pave the way for a Chinese revolution in the nuclear industry allowing them to make reactors cheaper to export to emerging partners in Africa or Southeast Asia.

However, this strategy has always concerned the international community, since the Chinese has not always been known for their attention to quality. This, however, was never a barrier as illustrated in the current construction of 27 nuclear reactors, in which 21 of them are second generation models (China currently has the CPR-1000 second-generation model). Third generation models were not granted as many projects despite their advanced safety features because only the U.S. and France own the technology at the moment.

Nuclear Safety: Need for Foreign-Trained Staff

Another concern in the leap towards greater nuclear power are the safety protocols needed for the operational safety of the plant, as well as action plans needed to guide government officials and the international community at times of emergency.

At the moment, China has 14 nuclear reactors that account for less than 2% in 2010. This number is small and has enabled China the ability to adequately employ enough operational staff to check the safety of nuclear power production. When needed, China has even gone so far as employing foreign operators, advisers, and engineers. China has also engaged with over 20 countries in nuclear cooperation agreements to help provide China with the expertise necessary to build its nuclear program. This has enabled China the ability to increase the safety of their nuclear program, while enabling them to respond rapidly to emergencies.

Uranium: Domestic Supply

Uranium is a crucial component in the creation of nuclear power and is similar to fossil fuels in that they are non-recoverable. At the moment, China has 171,000 Tonnes of Uranium, placing it 10th in the world’s top ten proven recoverable uranium reserves. This is beneficial for China, as they will be able to domestically supply part of the material to their nuclear reactors.

The Unforeseen Impact

Despite the usefulness of advanced technology, adequate safety training, international cooperation, and the use of uranium (instead of oil, coal, or natural gas), China has opened itself to an array of vulnerabilities and dependencies unforeseen by the current government.

Technology: Reliance on the United States and France

In terms of technology, China’s heavy dependence on second-generation nuclear reactor models is a disadvantage to the growing country on the security and energy efficiency front. However, a move into third-generation models (due to the Fukushima nuclear disaster, China is considering not approving anymore second-generation reactors) would put Chinese nuclear reactor models out of the market. It would also force the communist government to rely primarily the U.S.’s Westinghouse AP1000 and France’s Areva (EPR), while falling behind as they try to duplicate the technology they acquired through technology transfer agreements.

Nuclear Safety: Forced Engagement

In terms of safety training and international cooperation, China is unequipped to deal with the rapid expansion of nuclear power because of the need for many more engineers and trained personnel. Although the government has recognized this problem and has begun training nuclear operational staff, many of these individuals are new graduates and do not have actual experience. Thus, I foresee China to be much more dependent on learning best practices from both foreign countries and international organization.

This aspect of nuclear energy will significantly impact the government, as the communist party will be forced to reach out to foreign entities when they would rather develop their own indigenous techniques, experts, or technology. This can already be seen through China’s multilateral discussions with Japan and South Korea on nuclear safety. Moreover, China’s Deputy Representative to the United Nations recently urged for increased support from the International Atomic Energy Agency (IAEA) in nuclear safety and the promotion of international cooperation. I believe the success of this strategy will depend on China’s ability to navigate through the interests of even more stakeholders, while avoiding any additional influence on their domestic energy policies.

Uranium: Susceptible to Price and Politics

Lastly, the largest impact on the Chinese government that I foresee will be the trade on uranium. In the coming years, nuclear power and uranium will be much sought after as oil, coal, and gas become scarce and expensive. The supply and demand of global uranium will be of extreme importance to China, as it is predicted that it will need up to 60% of its uranium from overseas for the slew of nuclear reactors it is planning to have online by 2020. This is because China has been mining uranium since the 1950s and has already been importing the mineral for awhile.

This will force China to be increasingly reliant on the world’s top uranium producers, as they vie for increased control over concessions and preferential treatment of mining blocks. China will also be dependent on the international market as well, spurring the PRC to lobby for lower prices and more access. However, I believe an even more dangerous situation would be if China were to be still dependent on the Middle East for its oil use, as the communist country would need to manage its investments, businesses, and diplomatic relationships with another set of energy fuel providers. This would not only make China susceptible to the whims of future market supply, but also increasingly complicate its diplomatic ties and ability to appease its exporters.

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Click here for part I analyzing China’s Cautious Expansion of Nuclear Power.

Click here for more information on China’s Dependency on Foreign Oil.

China’s Cautious Expansion of Nuclear Power (Part I of II)

November 7, 2011 § 1 Comment

China uncharacteristically expands nuclear power at a slower than expected speed due to the Fukushima-Daiichi nuclear disaster in March 2011.

When China opened its economy to the world in the early 1980s, the communist country was heavily reliant on oil and coal. These two fossil fuels were relatively abundant domestically and helped secure China’s national security at a time when the country was cautious of foreign influence. However, this energy policy set the pattern for China’s energy needs over the next three decades despite China’s net importation of oil since the early 1990s and coal in 2009

As a result, nuclear energy has played a minor role in China’s electricity generation, where in 2010 China’s 10 gW of installed nuclear capacity accounted for less than 2% of the country’s power generation.

However, recently China has been undergoing a clean and green technology revolution where government officials have been emphasizing the need for low carbon and energy efficient technologies and fuels. In China’s recent 12th Five Year Plan (2011-2015), the government set targets to reduce carbon intensity by 17% and energy intensity by 16%. This has made government officials much more keen on incorporating non-fossil fuel sources like hydro, nuclear, solar, wind, biomass, and biofuel into their energy mix. These non-fossil fuel sources are to account for 11.4% of China’s primary energy consumption by 2015, with a greater goal of 15% by 2020. (In 2010, non-fossil fuel energy accounted for 8.3% of total primary energy consumption)

The majority of this goal will probably be met by wind and hydro power, however, an increasing share will be taken over by China’s nuclear sector. In the beginning of 2011, Chinese government officials have already set goals to increase their domestic capacity to over 40 gW by 2015 and a supposed 80 gW by 2020. This means that in addition to their current 14 units and 27 units under construction, the nuclear power sector will petition and plan to build an additional 50 reactors by 2020.

Effects of Recent Events on China’s Nuclear Energy Policy

The 12th Five Year Plan and nuclear targets were set in early 2011. The Chinese were confident in their ability to fulfill these goals, but were dumbstruck when they witnessed the devastation of the Fukushima- Daiichi nuclear power plant in March 2011 forcing them to rethink their nuclear policy.

Many analysts have argued that recent events have done little to change China’s overall plan. Although I agree with this general statement, I must assert that the Chinese government seldom entertains changes in their targets and national plans. But because of the Fukushima-Daiichi incident, we can see that China does not have 100% confidence in their nuclear policy. For instance, when the Fukushima-Daiichi disaster occurred China uncharacteristically ordered a safety review of all their operating plants and nuclear reactors under construction. The Chinese government also increased safety protocols around nuclear reactors and failed to accept or consider any new petitions for reactors.These reactions to the Fukushima-Daiichi nuclear disaster illustrate China’s trepidation at launching full-speed ahead into their nuclear targets, illustrated by their 10% reduction in targets for 2020 earlier this month (target to now be 60-70 gW by 2020, not 80 gW).

Although I do not expect China to abandon their nuclear goals completely, I do expect the Chinese government to be wary of safety protocols and environmental concerns. But without a doubt nuclear power will be on the agenda as the energy sector has already seen diminishing returns on energy efficiency based on the results of their 11th Five Year Plan (2006-2010), where the country managed to reduce their energy intensity to 19.1% instead of the target of 20%. The added goal of reducing carbon intensity also places pressure on the Chinese government to rely more on nuclear power’s low carbon profile than other non-fossil energy sources like hydro power. This creates a unique nexus for China as nuclear power becomes not only vital in diversifying their energy mix, but also necessary to meet their global commitments to reducing the effects of climate change and environmental damage.

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Click here for background information on China’s naval energy security.

Click here for background information on China’s foreign oil dependence.