China's skies are filled with smog from coal-belching power plants, steel mills, and other industrial users. That's why China is making cleaner-burning natural gas a bigger piece of the equation. The only problem is that China doesn't have much experience with drilling, and that could make this natural gas experiment worse for China--and the world--than burning coal.
It makes sense
On the surface, China making a shift from coal to natural gas makes complete sense. The U.S Environmental Protection Agency explains why: "Compared to the average air emissions from coal-fired generation, natural gas produces half as much carbon dioxide, less than a third as much nitrogen oxides, and one percent as much sulfur oxides at the power plant." The benefits of shifting industrial customers to gas would be similar.
That sounds like a big win all around. Coal makes up around 70% of China's energy pie, providing cheap power to a growing nation. But the side effect that burning this dirty fossil fuel has had on the environment is, literally, suffocating. China is now the largest emitter of carbon dioxide in the world.
The only problem with this picture is that China is relatively new to the natural gas game, even though the U.S. Energy Information Administration estimates the country's shale gas riches to be nearly twice the size of what's under the United States. Tian Qinghua, an environmental researcher in China, recently summed up the risk when he told The Guardian that he's worried about history repeating itself: "There's a phenomenon of 'pollute first, clean up later.'"
Indeed, fracking opponents complain about lax U.S. regulations... just imagine how weak fracking regulations are in a country that's only just starting to ramp up use of the technique. For example, on a trip to a Chinese well site, The Guardian's Jaeah Lee and James West spoke to an employee of a Schlumberger (NYSE:SLB) joint venture who had recently graduated from college. He explained that at first they had "leaks, things falling into the well." Not to mention that kids were playing by a nearby pond labeled "hazard."
Schlumberger's experience can only do so much to help shorten the learning curve for an industry that's essentially just starting out. And with China's huge growth plans for natural gas, the country hopes to produce nearly five times as much gas by 2020 as it does today, there's likely to be a lot more inexperienced employees to come.
That's why it really is good that China is reaching out to companies like Schlumberger and Halliburton (NYSE:HAL). The latter recently inked a deal with China's STP Energy Group to drill in Xinjiang, China. Halliburton will own 49% of the newly formed Xinjiang HDTD Oilfield Services Company and STP Energy Group will own the rest.
One of the key benefits that Halliburton brings to the table is water management, which is yet another big issue to watch. Fracking uses a huge amount of water, between three and five million gallons per well, and China is already facing water issues from basic water availability to pollution. And don't forget the chemical mix and sand that goes down the well with that water.
Although companies like Halliburton, Schlumberger, and others will make natural gas' growth safer than might otherwise have been, an inexperienced country, inexperienced employees, and China's often blind push toward growth make natural gas a big environmental risk.
There are options
And while this is a huge opportunity for foreign companies to get in on the ground floor of a potentially large Chinese industry, the other option for cleaning the skies is to simply use the technology already in existence to clean up coal. For example, Peabody Energy (NYSE:BTU) likes to point out that since 1970 the United States has increased its use of coal by 170% and still decreased the regulated emissions from the fuel by 90%.
There's no reason why China can't follow that same path and slow down a little on the fracking front. That probably won't happen, even though China is working to clean up coal. Chinese fracking is a big opportunity for foreign companies and investors, but it may turn out to be just as bad for the country's environment as was the rush into coal.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Halliburton. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.