In China Every Square Meter Counts

20120601-204944.jpg

XINXIANG — The fields of Henan Province, one of the important centers of global wheat production, spread beyond this city’s high-rises, a prairie of dusky grain in every direction to the horizon. Every meter, every mu, a Chinese measurement of land expanse — 15 mu fit into an acre — is taken with ripening wheat.

The harvest has begun. Workers cut stalks with long blades and haul the wheat out of the fields on their backs. Farmers spread the straw and seed heads on the broad boulevards, just built and reach far from the city. They rely on trucks and cars to roll over the piles, the streets serving as long linear threshing tables. Then, with pitchforks, men and women stab hard at the crumbled piles and toss the grain high in the air, the wind carrying the bits of straw away from the seeds. The streets at this time of year are an inch deep in drying wheat the color of a dull yellow sun.

China confounds this visitor from the West. Service in restaurants in Chengdu is distinguished by such indifference to detail that the only prompt response comes with a request for the check. Checking in and out of a hotel in Gansu Province takes 25 minutes. It grinds up so much time you have to build the checkout into your travel schedule. Taxi drivers in Beijing are surly and difficult, like mood-swinging teens. Flagging a taxi in China’s capitol reminds me of the hit and miss uncertainty of junior-high dating.

Yet China’s stunning airports are so well dsigned that even with the crowds, moving from the dropoff curb to the gate — through seat assignment, bag check, and security — took 12 minutes this morning in Zhengzhou. The high-speed train from Beijing to Xin Xiang, a 660-kilometer trip, cost $25, took five hours at a top speed of 155 kilometers per hour, or nearly 100 mph. Almost every seat on the 15-car, 1,500-passenger train was taken. Bathrooms were clean, even near the last stop. In the United States we have a political party that views high-speed trains in the same dimension as gay marriage — an aberration in the human condition.

And here in Henan, farmers work so hard and efficiently at raising enough grain for a nation whose appetitie for noodles and rice steadily grows larger that every available square meter is planted, even the space between the headstones in a graveyard. (See pix below)

The average Henan farm, according to experts I talked to at the Institute of Agriculture here, measures about one mu. That makes western style mechanization with big tractors, big planters, big harvesters impractical. But China also hasn’t experienced the rural depopulation that drove farm families and workers from the American countryside from 1960 to 1985, and essentially drowned one stoplight towns in a sea of business bankruptcies and empty storefronts.

There are no such empty spaces in rural China. Men and women scrub the fields clean of weeds by hand. They toss wheat to the wind by hand. They pull vegetables from the fields, stack greens and tomatoes and corn and squash in the back of three-wheeled electric carts. With their pre-school children standing beside on the seats beside them, they transport the harvest at dawn to big street markets that by 6:00 a.m. are jammed with buyers. The outdoor markets hum with the same high-amp crowd noise that accompanies high school football games in the United States.

I am here for three weeks to study how the Chinese economy can sustain the high growth rates that have marked its rise to global prominence in the last two decades. Demand for energy and food confronts this nation’s declining reserves of fresh water. The choke point, which we reported on last year for Circle of Blue, is tightest in Henan and provinces north and west of here.

China’s central government asserts that the nation, already the world’s largest grain producer and energy consumer, can solve its water supply dilemma and simultaneously grow with the immense speed and scale that Chinese citizens and world markets have grown used to.

How to execute that trick is very much a subject of serious consideration and research in Beijing and provincial governments. The U.S. economy, as we’ll see in future posts from here in ModeShift, depends on China’s succeeding to an extent that most Americans will find revealing.

I like China’s chances. All that grain, tossed to the sky, little brown clouds that for a brief moment look like a swarm of bees scattering from a broken hive, are evidence of a determined and hard-working people that know what it takes to thrive.

— Keith Schneider

20120601-205117.jpg

Beijing Blues Festival

20120531-142516.jpg

BEIJING — On Saturday evening here in China’s capital and second largest city, the music of Wilson Pickett and B.B. King, Muddy Waters and Sam and Dave, poured from the arts district in a new area of town. In a city this big it’s easy to expect excellent musicians. But the Chinese lead singers, sweating out the lyrics in English — “Ride Sally Ride!” — was a surprise.

Beijing will do that to Americans. Surprise them with talent, and scale and class, and the managed frenzy of so many people so driven to get there, somewhere, anywhere.

Yesterday, I was surprised again. The sky was blue. Authentic blue. Blue like it gets in Michigan and Chicago and New York. On a warm and bright day Beijing was aflame in colors most Beijing residents only see episodically, when the smog clears and the light of the sun has a Mediterranean intensity. Beijing is a striking city on those days, full of architecturally distinguished glass and steel buildings fronted by big flower gardens and 12-lane boulevards just paved black.

This is my fifth trip to China in 20 months and my fourth to Beijing. Yesterday the sky here was bluer than I’ve seen in all the days and in all the provinces (9 so far) that I’ve visited here. When the Chinese figure out, as we did in the United States, how to limit emissions and clear the skies, they’re going to discover how beautiful their biggest cities really are, and how scenic their countryside can be.

Right now the cities and rural areas exist in a haze that obscures, a veil of dust and pollution that most days treats the sun as a dull orange disk and keeps the mountains hidden. But on a beautiful blue sky day the full measure of a city that is Beijing, and a modernizing nation that is China is more fully revealed.

— Keith Schneider

20120531-144705.jpg

China Demand For Food and Energy Is Raising Prices and Consumer Ire in U.S.

One of the world's largest open pit coal mines, Daqing Shan, east of Baotou, Inner Mongolia. Photo/Keith Schneider

Dude! What’s up with the law of supply and demand?

The United States Department of Agriculture projected earlier this month that national harvests of wheat, corn, and soybeans — the foundation ingredients of the have-it-your-way American diet — will be strong this year. But prices for bread, meat, and milk at my local Glen’s store here in Frankfort, Michigan are going up by the week.

Meanwhile, the Energy Information Administration reports that U.S. oil consumption is 10 percent lower than it was seven years ago. Net oil imports now make up less than 45 percent of the nation’s petroleum consumption, the lowest level in nearly 20 years. In other words we’re using less, and importing much less. But the BP station in town is selling gasoline for nearly $4 a gallon.

Guess what? Without some very sharp departures in our strategy of feeding and fueling ourselves, there ain’t a lot we can do about it. Reason. Rising commodity and energy prices are more prima facie evidence of America’s diminishing influence in global markets, and the rise of — guess who? — China.

Though we clearly don’t like it, the hard truth is that China is writing the new law of American supply and demand.

Going to China, Again
Next month, along with colleagues at Circle of Blue, I make my fifth extended trip in 20 months to report on the confrontation between energy, food, and water in the world’s largest nation, largest energy consumer, largest grain producer, and second largest economy. With each trip it becomes steadily clearer that China has no intention other than serving the goal of its rocket-ride economic growth. And that means reaching deep into its own resource base, and the markets of every other nation on Earth, including the United States. Result: Americans complain about rising prices and national drift, and seriously consider electing candidates for president who are anti-science and anti-education.

Meanwhile China constructs a sophisticated 21st century powerhouse economy.

Here’s what some of that looks like in numbers. Two years ago, driven by China’s demand for petroleum, Asia passed North America as the world’s biggest oil consumer, according to the EIA.  Consumption in Asia grew by 146 percent from 1980 to 2010. Asia now consumes 29 percent of the world’s petroleum as opposed to 27 percent in North America. In 2000, North American demand was 31 percent of world consumption, Asia 26 percent.

Here’s what it looks like in oil, gas, and coal export projects to serve China’s energy demand:  Kinder Morgan Energy Partners LP, a big energy transport company, said earlier this year that it wanted to spend $5 billion to double the size of its Trans Mountain pipeline that carries tar sands oil from northern Alberta, Canada to Vancouver and Washington’s Puget Sound. Enbridge, a Canadian transport company, wants to build another pipeline of similar size to carry tar sands oil to a Pacific loading facility in Kitmat, British Columbia.

Both projects are essentially meant to serve China, which invested $15.7 billion from April 2010 to January 2012 in tar sands oil projects, part of a huge industrial landscape where tar sands mining and processing now yields 1.6 billion barrels of synthetic petroleum a day. Production is expected to nearly double to 3 million barrels a day by 2020.

Similarly in the United States, according to the EIA, China has invested more than $4 billion in companies developing and transporting oil and natural gas from North Dakota, Pennsylvania, Colorado, and other states developing deep oil and gas-bearing shales.

Meanwhile, Oregon’s Governor John Kitzhaber asked the federal government earlier this month to conduct an environmental study of projects to ship strip-mined coal from Montana and Wyoming to China through ports in Oregon and Washington. Burlington Northern would be a big beneficiary of any contracts that transport 150 million tons of western coal to be burned for electricity in coastal Chinese cities.

China, by the way, also is sponsoring the same kind of coal mining and transport project in Australia, which is building new port facilities to ship over 100 million tons of coal a year, according to a new report from Circle of Blue.

Behind the big plans for coal imports lies China’s overwhelming demand, which is expected to reach over 4 billion metric tons a year by the end of the decade. In 2010, the country produced 3 billion metric tons of coal annually, more than three times higher than U.S. production, which is falling due to competition from lower priced and cleaner natural gas.

China’s concerns about water supply and its increasing demand for grain also has helped to prompt a huge trade in farmland around the world. According to GRAIN, a respected Barcelona-based research organization that tracks global land sales, two of the largest companies involved in buying farmland are Chinese, the Chongqing Grain Group and the Beidahuang Group.  Last year, for instance, Beidahuang spent $1.5 billion for control of 330,000 hectares in Patagonia to supply China with soybeans and corn. GRAIN also reported that in 2010 Chongqing spent $300 million for 100,000 hectares of Brazil’s farmland to produce soybeans.

An Eyewitness View of China’s Energy Thirst
Here’s what China’s energy demand looks like on the ground:

In all of China, there are few places where the extravagance of the confrontation between rising demand for energy and food, and the country’s steadily diminishing reserves of freshwater are more visible than Baotou, Inner Mongolia. The fast growing industrial city of 1.5 million, which sits on the northern bank of the Yellow River, owes its existence to the close ties between ample coal reserves, access to water, and thousands of farmers who ensure there is enough to eat.

There is no randomness to these relationships. Coal, produced in the nearby mountains, powers the Baotou Steel Group’s 49-square-kilometer plant, which employs 50,000 people and manufactures 10 million metric tons of steel products a year. New water-saving technology enables the plant to recycle 98 percent of its process water in a region that receives mere millimeters of rain a year.

One of six blast furnaces at the Baotou steel works. Photo/Keith Schneider

More water-efficient farm practices, due to the competition for water that farmers are steadily losing to energy producers, keep food production high enough in the Yellow River basin.

But while these ties are not random, neither are they firm and secure. Baotou’s population growth, and its surging economy are putting enormous pressure on energy supplies and farm production – the largest consumers of water – in a region that is steadily losing moisture.

Coal producers and utilities, the most politically powerful industrial sectors in the Yellow River basin, negotiate agreements that assure they have adequate water from the river for mining, processing, and cooling.

Steel company executives, mindful of the persistent drought in the region and the river’s declining flow, keep a close eye on the Yellow River water gauges to assure themselves they have enough to run the plant. Farmers plant and sow their crops in irrigated fields that year by year receive less water.  And the Yellow River itself transports much less water than it did in 2000. In short, the converging trend lines – rising demand for energy and food, declining quantities of fresh water – are challenging the durability of Baotou’s new prosperity and undermining China’s economic security as well.

The question for China and the rest of the world is how aggressively China will continue to pursue its rapid economic growth, and thus its rapacious national and global campaign for resources? One answer lies east of Baotou, past thousands of plastic-sheeted vegetable greenhouses and kilometer after kilometer of brittle-brown farm fields,  where hundreds of coal trucks swarm the entrance to the Daqing Shan open-pit coal mine, one of the largest in the world.

 A Huge Open Pit Mine
On one side of a row of booths, manned day and night by young inspectors, a crush of empty coal-hauling trucks, black and belching diesel fumes, inch steadily forward like a pod of Emperor penguins shifting to a new feeding ground.

On the other side of the booths an even larger pack of loaded trucks, each carrying 80 metric tons of coal, lurch and squeal in a formation so tight that front and rear bumpers nearly touch.

One by one, in a frenzy of honking horns and growling diesel engines, trucks pass through the gates. Some head empty, single file, up a menacing narrow road to the mine. The others, so fully loaded that chunks of coal tumble to the ground, make their way to a processing station that is reachable on a two-lane highway so blasted by their weight that the pavement is all pitted buckles and cracked swales.

Pushing men and machines in the Daqing Shan coal mine. Photo/Keith Schneider

More than 1,000 fully-loaded trucks pass the weigh station daily, 82,000 metric tons every 24 hours, more than 30 million metric tons a year. Along with the truck drivers, hundreds of other men work in the mine, which is so deep that the yellow-painted mining equipment at the bottom looks like grubs digging in the dirt.  Along the route up and beside the coal-dust roads in the mine, broken down trucks lie like dead beasts—tipped over, collapsed from fractured axles, charred from brake fires.

By one measure, Daqing Shan is a stunning display of China’s determination to fuel its modernization. By another measure, the mine—which stretches miles in every direction—is a grim tableau of just how torturous fueling China’s surge to global economic influence has become.

In 2010, China produced more than three billion metric tons of coal from existing mines that are nearing capacity. More than 80,000 coal trains a day haul a total of 1.8 billion metric tons of coal annually on China’s railways, according to national records. The railways are choked with coal now.

Trucks, as a result, now carry much of the rest of the country’s coal—more than one billion metric tons—from northern mines, causing traffic snarls that take hours to clear and turning paved roads to deeply rutted and barely passable trails. Even though Daqing Shan contains hundreds of millions of tons, the limit of how much coal can be transported to market each year is close to being reached.

— Keith Schneider

 

The Global Fossil Energy Boom: Perspective From China

China's energy demand is soaring to support massive new development, like this apartment complex under construction in Xi'an, a city of 8.5 million and the capital of Shaanxi Province. Photo/Keith Schneider

All those natural gas wells that are popping up by the thousands across the United States — they’re starting to appear in China, too. The global fossil energy boom, which in China has mostly meant soaring production of coal, is now beginning to include natural gas. And American and European multinationals are providing financing, equipment, and technical assistance.

The U.S. Energy Information Administration projects that China’s recoverable shale gas resources total 36 trillion cubic meters, or all but 9.5 percent of the shale gas reserves in Asia. China’s Ministry of Land Resources puts the reserves at 25 trillion cubic meters.

Given those resources, and the capacity to develop them, Chinese authorities are intent on doubling natural gas production over the next three years, boosting the fuel from 4 percent of China’s energy to 8 percent, according to the central government’s most recent five-year plan.

According to Ksenia Kushkina, a researcher at the Russian Academy of Sciences who made a presentation in Washington earlier this month, Shell and PetroChina completed the first horizontal well in Sichuan Province, in southwest China, in April 2011. The two companies drilled a dozen more since then, and plan 20 to 25 more wells in the field outside Chengdu. Exxon/Mobil and Sinopec completed a well in Hunan Province in January. Hess and Sinochem are working in Anhui Province. Dart Energy and CBM Henan have a joint agreement to explore for gas reserves in Henan Province.

Pete Marsters in Chengdu in April 2011. Photo/Keith Schneider

Pete Marsters, a colleague and friend who’s studying in Chengdu, is closely following the development of shale gas resources in Sichuan. He sent this assessment yesterday: “What is going on now in shale is a test phase. China is setting up a lot of test wells in a lot of shale blocks (Sichuan, Anhui, Jiangsu, Zhejiang, among others) to, in my opinion, see which will be the easiest to bring to scale commercially.

“There are still a lot of questions to be answered before the large-scale feasibility of shale in China is determined. The first of which is economics.  So far,  wells here cost more than double those in the U.S. due to supply chain issues, newness of the industry in China, and the difficult nature of geology here (much deeper and more complex shales). Additionally, the ultimate productivity of Chinese shales is still up in the air.

“Then there are the water issues. At this stage and specifically in Sichuan, water doesn’t seem to be the main hurdle as resources are relatively plentiful. A large portion of China’s shale, though, is in extremely dry areas. This will be a future issue once the “easier” shales have been successfully tapped.  There is a lot of money for foreign firms to come here, share technology, and help assess China’s shale potential. They are going gangbusters to do it (Chevron,Shell, Dart, Total, EOG, etc.).”

— Keith Schneider

Global Shale Gas Reserves Are Huge Says Energy Department

Next to North America, Asia has the largest shale gas resources in the world, led by China's apparently immense reserves.

A year ago, while touring and speaking in China, I landed for a day in Chengdu to meet with a young official at the U.S. Consulate and tour one of China’s rare organic farms. At breakfast in one of the city’s newest hotels I noticed a group of young American men, tall and robust in a Midwestern sort of way, and invited myself to their table. They were members of an executive team, dispatched from Caterpillar’s corporate headquarters in Peoria, Illinois to sell American-made construction and mining equipment to the first generation developers of China’s deep shale gas resources. Outside Chengdu, in Sichuan Province, said one of the men, Royal Dutch Shell is working with U.S. Energy Department technical experts to show the Chinese how to tap the shale gas reserves in an 81,000-square-mile basin. Exxon is working with provincial authorities to tap reserves in regions in central and western China.

I already knew that bit of information. And I didn’t learn much more. After introducing myself as a journalist from Circle of Blue, a Michigan-based news and science organization specializing in coverage of water, food, and energy issues, the table quickly emptied.

In the months since, though, new data is making it into the public realm that describes just how much natural gas — and oil — is contained in shale in China and in other nations, and just how intently the world’s developing and industrialized nations are going after it. One measure of the new riches is Caterpillar’s bottom line. Last year the company had record revenues of $60.13 billion, 41 percent higher than sales in 2010. Profits were $4.93 billion, up 83 percent from 2010. This year, the company projects its total revenue could reach $72 billion.

Caterpillar’s prospects for serving the energy industry are likely to remain keen for decades. In its latest assessment, the Energy Information Administration, a research unit of the U.S. Energy Department, projects that Asia’s shale gas reserves total 39.8 trillion cubic meters, second only to the 45.7 trillion cubic meters that the EIA says are contained in North American shale reserves. In all, the agency says, nearly 180 trillion cubic meters of recoverable shale gas reserves exist around the world, or a 60-year supply at current levels of use. In 2010, the world consumed about 3.1 trillion cubic feet of natural gas, about 20 percent of that in the U.S.

Whether all of that gas can be tapped is a big issue. The biggest impediment for the time being is water. Just as in the U.S. and Canada, the centers of shale gas development, each of the wells must be hydrofracked using millions of gallons of water treated with an alphabet soup of chemicals. Moreover, much of the water used to pulverize the shale to open the gas-bearing cracks must be brought to the surface. That water is substantially contaminated and poses a serious pollution threat. In the U.S., wastewater from fracked wells is generally disposed in deepwater injection wells. In China, engineers are considering treating and recycling fracked wastewater because much of China’s shale gas reserves lie beneath the desert provinces of the north and west, where water already is scarce and confrontations for the available supply already exist between the country’s coal sector, farmers, and cities.

Still, China is intent on pursuing its own “all of the above” energy strategy to fuel rapid economic growth. It’s the global leader in wind, solar, and hydro development. It’s the world leader in coal production for power and chemicals. And it is planning to more than double its natural gas production by 2035, principally from developing the country’s shale gas reserves.

China also is gathering its financial might to invest in U.S. shale gas and shale oil plays, where it is learning the production practices that have produced a fossil energy boom in North America. Since 2008, and with increasing focus in recent years, China and other foreign investors have poured almost $25 billion into American shale oil and gas development, according to the Energy Information Administration.

— Keith Schneider

Major foreign investors in U.S. shale gas and oil development.