China shale gas boom will hit poor African exporters hard, finds study

China’s fracking revolution could see the superpower reduce its gas imports by up to 40 percent by 2020  — a move that would significantly affect some of the world’s poorest exporters in much the same way the U.S. energy revolution has previously done, a new report said Wednesday.

The report, “The Development Implications of the Fracking Revolution,” released by the U.K. think tank Overseas Development Institute (ODI), looks at the likely ripple effect of China’s energy independence.

The country currently produces very little shale gas but is on its way to reducing its international dependence, authors of the report suggest.

"Shale gas has been identified and listed as a priority in China's 12th Five-Year Plan (2011-2015). By 2015, the Chinese government aims to produce 6.5bcm (billion cubic meters) of shale gas production, rising to 60-100bcm by 2020," the report said.

Shale gas is natural gas trapped within rock formations known as shale, and is different from conventional gas in that it doesn’t easily flow from the earth.

It is recovered through hydraulic fracturing, or fracking — a process by which a mixture of water, sand and chemicals is pumped at high pressure into shale formations to loosen gas reserves.

The U.S. and China are ranked first and second, respectively, in terms of recoverable shale gas reserves, the report said.

“China has run a very successful shale gas pilot scheme,” Zhenbo Hou, a researcher at ODI, said in a statement. “Combined with the increase in shale gas production from the USA it will hit the economy of small exporters in the developing world.”

China’s increased gas production could also have widespread geopolitical effects. Russia, the Middle East and OPEC stand to lose the most politically from U.S. and Chinese energy independence, according to the study. Europe is already looking to reduce its dependence on Russian gas.

If Chinese shale gas production increases as predicted, African countries that provide its current supply could suffer greatly.

Angola and the Republic of Congo would incur the greatest losses — an estimated 13 percent drop in national earnings from energy exports. Guinea and Sudan could lose as much as 5 percent and Yemen 4 percent, according to the study.

Africa experienced similar decreases when the U.S. took to fracking. In the five to 10 years it took the U.S. to develop its infrastructure, African exporters lost $1.5 billion in gas and $32 billion in oil revenues.

Angola’s reliance on energy exports leaves its economy uniquely exposed to external shocks, the report said — making it an important case study in the global impact of fracking. Oil exports account for almost half of the country’s annual GDP and 96 percent of all exports. Eighty percent of Angola’s public revenue comes from the oil sector.

“Any reduction in [Angolan] exports which adversely affects GDP could result in reductions in employment … The lack of effective social protection measures means that negative effects are more likely to be transmitted immediately,” the study said.

Shale oil exports to the U.S. from OPEC's African members Angola, Algeria and Nigeria fell to their lowest in decades from 2011–12 — dropping 41 percent — largely because of the U.S. fracking revolution, the U.S. Department of Energy said.

In May 2013, Nigerian Oil Minister Diezani Alison-Madueke called U.S. shale oil a "grave concern." African OPEC countries produce oil of a similar grade to shale oil and therefore suffer some of the worst economic effects as a result of North America's fracking boom.

Countries like Yemen, Mozambique, Ghana, Congo, Trinidad and Tobago, and Mauritania could also experience losses and lower incomes as a result of China’s increased production, the report said.

China's energy revolution will also have negative effects domestically, according to the study. In order to frack, China will likely have to divert some of its already dwindling water supplies from agriculture and human consumption. Hydraulic fracturing also poses the risk of severe water contamination in the case of any accidents or spills.

“I think China’s government needs to be extremely careful of fracking’s environmental impacts, as water is a very scarce commodity in the country and large quantities of water are required for fracking,” said Hou of ODI. “Moreover, well-thought-out regulations need to be in place to minimize contaminating the water resources.”

The report warned that the environmental implications of fracking in China would be complex. Under certain circumstances, using gas as opposed to oil or coal could reduce the country’s overall greenhouse gas emissions. Currently, coal accounts for 70 percent of China's energy consumption.

But recovering China’s reserves requires higher energy intensity, since the bulk of its gas reserves are located in the mountainous southwestern region. The resulting increased levels of trucking and transport will raise the overall emissions per unit of recovered gas, the report said. This could exacerbate local air pollution problems, while at the same time reducing overall pollution in urban centers.