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Discovery of Shale Gas in China Presents Possibilities for U.S. Trade

The International Business News recently published a story asking a question that’s been percolating since Royal Dutch Shell announced two weeks ago that it had found shale gas in China.

Does the discovery of shale gas in China mark the end of the shale gas boom in the U.S.?

Since the discovery of shale gas plays in the U.S., for the first time, U.S. producers are considering the possibility that domestic natural gas could be a viable commodity in the global market. It’s being found in such abundance that the 20-year-old expectation that the U.S. would have to import natural gas is being turned upside down so that companies, such as Houston-based Cheniere Energy Inc.    .Cheniere Energy Inc. Latest from The Business Journals Cheniere nets 0M from public offeringCheniere to sell 33M sharesCheniere subsidiary inks 20-year LNG sale agreement Follow this company .(AMEX: LNG), are spending billions of dollars to convert their import terminals into export facilities.

But if China starts producing natural gas, is it too late for the U.S. to change course?

Stephen Arbogast, University of Houston    .University of Houston Latest from The Business Journals No line for Penn State bowl game ticketsIs Obama becoming pro-energy?Houston energy sector sees limited threat from possible demise of euro Follow this company .executive professor of finance in the C.T. Bauer College of Business    .C.T. Bauer College of Business Latest from The Business Journals Houston energy sector sees limited threat from possible demise of euroNew Century dawns for Woodlands bankFace To Face With... Follow this company ., said maybe not.

He explained that while China certainly has the demand for natural gas, the nation doesn’t have the expertise to extract it, nor does the country have the infrastructure to support the industry.

“The geology, as I understand it, is there are very large areas where shale gas exists in China, but shale gas extraction is a tricky business,” he said. “Not all formations are equally prolific, and it’s not until you drill them that you find out if it’s sustainable production.

“The point is, we’re at the very beginning of finding out what China has, and lot of the questions only the drill bit is going to be able to answer.”

An abundant supply in China could substitute natural gas for much of the coal that’s currently being used to power that nation.

What it means for western companies, he said, is that the service companies that have become experts in hydraulic fracturing would have significant business opportunities. Arbogast said the question would then become whether China would invite those companies in on a larger scale to help with the natural gas development.

Over at Mergermarket    .Mergermarket Latest from The Business Journals Slideshow: Top 10 M&A deals in Tampa BayTampa has dubious distinction in M&A reportFor international buyers, ‘It’s all about the shale’ Follow this company ., folks are also speculating that Shell’s shale gas find will mean export opportunities, not for U.S. natural gas, but for the American-produced equipment and chemicals that will be crucial to tapping Chinese shale gas reserves.

In a Financial Times story, analyst Anthony Kim said that prominent players in the field expect a 50-year American manufacturing boom in oilfield services that will boost companies such as Houston’s Baker Hughes Inc.    .Baker Hughes Inc. Latest from The Business Journals Energy operations lead corruption prosecutionsTexas Business Journals Roundup 12-21Baker Hughes picks up 0M Iraqi contract Follow this company .(NYSE: BHI), Halliburton Co.    .Halliburton Co. Latest from The Business Journals Read HBJ’s top web stories of 2011BP America executive subpoenaed to testify at spill trialEnergy operations lead corruption prosecutions Follow this company .(NYSE: HAL) and National Oilwell Varco Inc.    .National Oilwell Varco Inc. Latest from The Business Journals Houston oil and gas professionals invited to recruiting fair27 Houston firms recognized for sexual diversity effortsNorthwest Houston hotel to receive LEED Gold certification Follow this company .(NYSE: NOV). U.S. companies could add up to $10 billion in shale gas-related equipment production during the next year.

So while the discovery of shale gas in China may mean a decline in demand for U.S. natural gas supplies, it could equate to a significant increase in that nation’s need for American ingenuity and production.

What do you think will be the net impact of the discovery of shale gas in China? Will it be a boon to U.S. exports of equipment and chemicals at the expense of domestic natural gas supplies, or is China’s infrastructure so far behind the curve that it will be the chief trading partner for U.S. natural gas?

(bizjournals.com, Edited by Topco)