The United States is currently experiencing a post-pandemic boom in foreign direct investment (FDI), thanks in large part to new industrial policies that boost investment in US manufacturing, such as the Inflation Reduction Act (IRA) and the CHIPS Act, as well as overall resilience of the US economy. FDI in the United States increased by $216.8 billion to $5.25 trillion at the end of 2022 from $5.04 trillion at the end of 2021, with Europe accounting for the lion’s share of investment inflows.
Unfortunately, the same cannot be said for investment from China.
Annual investment from the world’s second-largest economy has fallen from $46 billion in 2016 to less than $5 billion in 2022, with China relinquishing its previous position as one of the top five US investors per player from the second tier, surpassed by countries such as Norway, Qatar and Spain.
Well, maybe the US energy sector is no worse for wear. Usha Haley, a professor of management at Wichita State University’s Barton School of Business, undertook a comprehensive assessment of the implications of Chinese foreign investment in the US shale gas sector. She notes that the US is the largest producer of shale gas, with nearly 80% of the country’s average production of 125.0 Bcf/d in 2023 coming from shale formations. Haley, meanwhile, notes that China produces only about half of the natural gas it consumes, with a lack of technological expertise as well as economic factors leading it to choose to invest heavily in U.S. shale production rather than as a source of imports. Haley and her team found that while foreign direct investment can generally bring many benefits, including promoting international trade as well as the transfer of technology between countries, investment from less technologically advanced state-capitalist economies like China can ultimately likely to do more harm than good.
The researchers examined a wealth of data from the upstream (exploration and production), midstream (transportation and storage) and downstream (end product delivery) segments of the vast US shale gas sector. They then compare the impacts associated with the pre-China (2000-2008) and post-China (2009-2018) investment periods to determine how Chinese state-capitalist investment has changed technology development in the sector. Researchers have found unequivocal evidence that Chinese investment in US shale gas has changed green technology trajectories in ways that are harmful to the US. According to the team, this is because Chinese investors more often prioritize the immediate production of shale gas using established technology before investing in the development of environmentally friendly shale gas extraction technologies. Haley notes that Chinese investment in US shale gas has had no impact on emissions reductions despite a large increase in regulatory pressure to reduce the sector’s greenhouse emissions. For example, last year the U.S. pipeline regulator unveiled new rules aimed at reducing methane leaks from the nation’s vast network of 2.7 million miles of natural gas pipelines. The new rules could potentially eliminate 1 million metric tons of methane emissions by 2030, the equivalent of emissions from 5.6 million cars.
A study published in Nature Energy revealed that there are tens of thousands of inactive and uncapped offshore oil and gas wells flooding the US Shale Patch, posing a risk of possible methane leaks into the ocean. In fact, in the coastal waters of the Gulf of Mexico in Louisiana, Texas and Alabama, there are more inactive and unplugged non-productive wells than there are currently operating wells. The study estimates that plugging and abandoning these wells will cost the industry a whopping $30 billion.
China’s shale gas bet is paying off
For its part, Beijing is hardly complaining as years of investment and cooperation with the US energy sector are beginning to pay off. Last December, analysts at BMI, a Fitch Solutions company, told Rigzone that China’s state-owned companies are stepping up exploration and production of unconventional gas resources, using experience gained from Western oil and gas companies.
“State-owned companies PetroChina and Sinopec are seeing some success in unconventional gas production as they ramp up exploration activities. The two largest producers, Sinopec and PetroChina, have considerable experience and are technically capable of producing shale and tight gas, having worked with major oil companies such as Shell, Chevron and TotalEnergies.“, they said in the report.
Analysts note that since 2018, Beijing has maintained strong support for shale gas exploration and production as the country tries to become less dependent on imports. China’s Ministry of Land and Resources estimates technically recoverable shale gas reserves at 883 trillion cubic feet.
By Alex Kimani for Oilprice.com
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