Alternate Fossil Fuels: China’s Newest White Elephant 过度追求替代性化石燃料或给中国留下大量沉重“鸡肋”

By newsdoug on March 8, 2012

Propose almost any project that includes the words “alternate energy” these days, and China will throw millions of dollars your way in the form of low interest loans, tax breaks and other government incentives to promote the latest green initiative. But one can’t help wonder if most of the huge flood of alternate and green energy projects coming out of China these days are bound to end up as white elephants, leaving the country with scores of factories, technology and other assets that died before they ever really got off the starting block. First there was the solar panel and wind power craze that began around 5 years ago, and then there was electric and hybrid vehicles, neither of which has produced companies that can turn profits without strong government support despite billions of dollars in investment. Now the latest fad has China’s energy majors snapping up assets with names like oil shale and oil sands, in what seems like a return to the 1970s when such uneconomical energy sources were also popular after another even bigger jump in oil prices than the one we’ve seen in recent years. China’s energy majors and even some smaller players have been on a drive to tap these energy sources in the last year, no doubt encouraged by Beijing which is letting them spend big dollars to pursue projects that are far more costly than traditional oil exploration. In the latest of these moves, the Ministry of Land and Resources said last week it will auction off blocks of land this month for development of shale gas exploration, with another possible auction to come later this year. That development comes just a week after another China-funded alternate fossil fuel developer, Sunshine Oilsands (HKEx: 2012) listed in Hong Kong. (previous post). And just last month, PetroChina (HKEx: 857; Shanghai: 601857; NYSE: PTR), the nation’s top oil producer, announced it was strengthening its ties with Royal Dutch Shell by buying a 20 percent stake in a Canadian oil shale gas project being developed by the European giant. I know that China is clearly worried about securing future energy supplies to feed its hungry economy, and these alternate fossil fuel projects complement other more traditional energy sources also being pursued by PetroChina and its peers. Furthermore, technology has improved significantly since the 1970s, when these kinds of alternate fossil fuel projects were widely discussed but most were ultimately abandoned after oil prices came down. Still, this latest drive into alternate fossil fuels looks like just the latest display of Beijing’s recent tendency to throw billions of dollars at any kind of new energy project, partly to find sustainable energy alternatives but also in its hopes of creating new technology leaders in some of these emerging areas. The country has made similar drives in solar energy, now producing more than half of the world’s solar panels, and is making another drive in electric and hybrid vehicles. But if history is any indicator, simply throwing money at a new area like alternate energy won’t work without other key elements like supporting infrastructure, long-term economics that don’t require government support, and market demand. Many of these elements are lacking in this growing crop of Chinese alternate energy initiatives, with no signs that the country has the power to change those fundamental issues. If those situations don’t rapidly change in the next couple of years, traditional energy companies like PetroChina, along with solar panel makers and firms that have invested heavily in green vehicles, could easily find themselves holding interesting but worthless technologies several years from now, leaving investors to pay for this promising but ultimately unsuccessful herd of Chinese white elephants.

Bottom line: China’s push into alternate fossil fuels reflects its overheated desire to be a leader in alternate energy, which could easily end up producing a herd of white elephants instead.

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