By John Richardson
FIVE years ago everybody had written-off the US petrochemicals industry, but now the industry is incredibly gung-ho, thanks to shale gas - even if the issue of demand is somewhat more problematic.
In five years time, might the world once again look a very different place as a result of shale gas in China?
China's main motive for exploiting shale-gas reserves would be for power generation, and perhaps even for gassifying its transportation system. But the resulting natural-gas liquids could also feed big new petrochemical capacities.
Some experts believe it will be well beyond 2017 before we see a shale-gas revolution in China because of the issues we discussed last month.
Others constraints, according to this article in the Financial Times, include:
*Shale deposits in China that contain more clay than the brittle "marine" shales of the US, making them harder to frack and less productive.
*A lack of the infrastructure that has made the shale revolution possible in the US, including an extensive gas pipeline network and oil workers trained in fracking.
But never underestimate the role of the central government in China to make things happen faster than most people expect.
Shell's Chief Financial Officer Simon Henry concedes that geology is harder in China than in the US.
But he adds that the government could overcome these geological difficulties to bring the cost of producing shale gas in China down to $2-6 per million British thermal units.
This would be well below the current cost of importing liquefied natural gas (LNG) - $16 per million British thermal units.
Another option could be to, perhaps, wait for the world to be flooded by new LNG production, pushing prices well below $16 a thermal unit. This may happen if the US becomes a major exporter of LNG as a result of its shale-gas revolution.
However, for China, energy security is the main priority.
Several countries in Western Europe, along with the US, have big shale-gas reserves. This is likely to give them more geopolitical influence as they become less dependent on the Middle East, and on Russia, for energy supplies.
Why would China want to see its geopolitical influence diminish in this new world order?
China has a fifth of global shale resources, and has the world's largest technically recoverable shale gas resources, according to the US Energy Information Administration (EIA).
Thus it has the potential to greatly improve its energy independence - and, as a result, increase its global influence.
In the past, China has been very good at learning from foreign expertise, which, in the initial stages of development, has involved inviting-in foreign investors.
We have seen this in petrochemicals where some overseas companies have been allowed to build one joint-venture cracker complex and one joint venture only. The Chinese can now build their own crackers and downstream plants, have their own petrochemical technologies and have the necessary sales and marketing skills.
The pattern is being repeated in shale gas.
"China's drive to develop shale gas has also helped fund shale projects around the world," says Leslie Hook in the same Financial Times article we linked to above.
"As Chinese companies seek to master the techniques of extracting gas from sources, such as shale gas and coal bed methane, they have invested billions in unconventional oil and gas projects overseas, particularly in the US."
He adds that China has made shale a cornerstone of its energy policy, resulting in incentives which include liberalising investment rules to allow private investment and plans to remove government controls on gas prices.
The Ministry of Land and Resources is also, reportedly, drafting rules that would allow it to seize blocks from companies that fail to invest at least 30,000 yuan ($4,758) per square kilometre annually. This would be three times the minimum per-kilometre investment floor set for crude oil.
Failure to read the direction of Chinese government policy has been a big mistake in estimating 2012 demand growth.
It would be unwise to repeat the same mistake when it comes to shale gas.