Don't burn money, use it wisely

It is time to learn from our past and put our skills and resources into positive value creation.



NEXT month will be 68 years since the Hiroshima and Nagasaki atomic bombings in Japan.

To some, it is just another month at work. Some may celebrate their birthday, some become parents and for some, it may coincide with festive celebrations. Certainly few of us are old enough to remember the impact of the devastating events.

Being an avid reader, this date reminds me that the real tragedy of war is that it uses man’s best skills to do man’s worst work.

The creativity and perseverance that led to the discovery of the power of atoms, which could light up the world and potentially solve our energy issue, was used to create hell on earth.

The discovery of neutron by James Chadwick in February 1932, Niels Bohr’s discovery of fission and ultimately, Leo Szilard’s method of producing a nuclear chain reaction or a nuclear explosion, of which he even filed a patent, would lead to the creation of what was euphemistically called Little Boy.

Hardly little at all, for the bomb had the power of more than 20,000 tonnes of TNT, which destroyed most of Hiroshima, killing an estimated 130,000 people on Aug 6, 1945. Three days later, a second bomb, nicknamed Fat Man, was dropped on Nagasaki, killing between 60,000 and 70,000 people.

Looking at the incident as a case of creative discoveries being used for war efforts, one can’t help but reflect on how much of these resources could be used if such a detonation did not take place.

Going beyond the obvious tragedy of the loss of human life, there is the immense economic cost of cleaning up contaminated areas, reconstruction of buildings, productivity lost due to the physical injuries and sickness of the casualties, loss of national income, psychological damage, etc. How does one quantify that?

To me, it’s very clear that we need to divert our military resources to build more educational and medical institutions, research facilities, provide housing or even venture capital funds for start-ups that could create a world that is different, not destructive.

The 34th US President, Dwight D. Eisenhower, said in a speech to the American Society of Newspaper Editors that “every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those whose hunger and are not fed, those who are cold and are not clothed”.

And he was a military man, the former supreme commander of the Allied Forces during World War II.

We may not be sure of how much Eisenhower’s grasp of value is, but it makes sense.

He said that the cost of a modern heavy bomber could finance a modern brick school in more than 30 cities.

It could even contribute to two electric power plants, with each serving a town of 60,000 in population. It could even construct two fully equipped hospitals.

As headlines blaring financial uncertainties continue today, it is a good time to wonder where all the money is going, and where are all the innovators and entrepreneurs to lift the standard of living and to fulfil the needs of society?

According to the Stockholm International Peace Research Institute, nearly RM6 trillion is spent annually on military, defence and armaments.

In economics, the idea of opportunity cost always arises in business. An entrepreneur will always need to consider the cost of giving up something in order to achieve a business objective.

So what is humanity giving up by laying down arms?

- Open Season by LIM WING HOOI The Star
Business writer Lim Wing Hooi believes that the human race needs to invest wisely in its own future.

China has ways to tap shale gas riches

CHINA'S aspiration for a US-style gas bonanza that will reduce its dependence on imported energy must confront three key scarcities -- water, shale gas expertise and pipelines -- before it can become a reality. 
 
As well, Chinese authorities must manage the social and environmental frictions likely to arise when drilling companies seek access to farm land and use hydraulic fracturing, or fracking -- the technique that is an integral part of shale gas exploitation.



Fracking involves injecting a mix of sand, water and chemicals into rocks deep beneath the surface to crack them open and get access to the shale.

In the US, large-scale shale gas extraction in the past five years has revolutionised its energy, transport and manufacturing landscape to the point where the US is likely to become an exporter of liquefied national gas by 2015.

Last year, for example, the US produced 220 billion cubic metres of shale gas, or more than a third of total natural gas output. Over the next two decades, shale's share is likely to rise to 50 per cent. The US Energy Information Administration estimates the country's recoverable shale gas reserves at about 14 trillion cubic metres.

Now China, with potential shale gas reserves of 25 trillion cubic metres in areas such as Sichuan province and the Tarim Basin in Xinjiang, wants to emulate the US experience, setting a goal in its latest State Council energy white paper of extracting 6.5 billion cubic metres of gas a year by 2015, and as much as 100 billion cubic metres a year by 2020.

But the US shale bonanza has been more than three decades in the making, and draws on the experience and infrastructure of a well-established oil and gas industry.

North America has thousands of kilometres of gas pipelines and receiving points, its geological survey records are extensive, its exploration companies have pioneered the key techniques of horizontal drilling and fracking, its rig crews are the best in the business and have good access to water for fracking, and there is a strong service sector covering finance, distribution, processing and marketing to support the industry. Even so, the industry has had to contend with vigorous opposition from environmental and farming groups concerned over water and land usage.

For China to achieve anything like the US success over the next decade, it will have to address these key issues. Much of its northern half is water-stressed already, while in the south, shale exploration will have to compete for water now used to grow food.

Certainly, China has the scale to be a big shale player, and state-controlled entities such as CNPC (whose listed arm is PetroChina), CNOOC, China Petrochemical Corporation (Sinopec) and Sinochem are keen to deploy domestically the shale skills that they hope to pick up from recent investments in North American shale plays and in joint ventures with oil majors ExxonMobil, Shell, ConocoPhillips, BP and Total within China.

While these technological skills are crucial, each shale gas field is unique, meaning there is no "one size fits all". That is why many of the North American fields were developed initially by smaller, independent oil and gas companies such as Devon Energy, Anadarko Petroleum and Chesapeake Energy.

When China held its first round of bidding for shale gas blocks in 2010, only six state-owned energy companies were invited to take part, and the blocks were limited to southern China, where water is more easily available than in the arid north and northwest of the country.

The second round of bidding on October 25 last year drew a much bigger field and was open to non-state players. A total of 152 bids from 83 companies were received for the 20 blocks, covering about 20,000sq km in Chongqing municipality and the provinces of Guizhou, Hubei, Hunan, Jiangxi, Zhejiang, Ahui and Henan.

Sinopec, one of the first-round invitees, began drilling China's first shale gas production wells in Sichuan province near Chongqing in June last year. Sichuan is one of China's biggest grain growing areas, and some farmers there are wary of the impact shale exploration will have on their land and water.

China is already the world's biggest energy consumer and uses a prodigious amount of domestic and imported coal and oil to run many of its power stations. It also has massive capabilities in wind, solar, hydro and nuclear power.

But it is natural gas that offers the potential to really change China's energy equation, particularly in the form of its domestic shale resources, coal-seam gas and coal-to-gas conversion. For now, much of China's gas is imported via pipeline from Central Asia or as LNG from the Middle East, Southeast Asia and Australia.

In its latest World Energy Outlook released last month, the International Energy Agency says it expects unconventional gas -- which covers shale and CSG -- to account for nearly half of the increase in global gas production out to 2035, with most of the increase coming from China, the US and Australia.

But the IEA also warns that the unconventional gas business is "still in its formative years" and that there is uncertainty in many countries about the extent and quality of the resource base, and about the environmental impact of producing this gas.

The IEA's outlook supports the view of British industry analyst Wood Mackenzie that China's shale gas development, while potentially substantial, will be a long-term story. At the World Gas Conference in Kuala Lumpur, Wood Mackenzie's head of Asia-Pacific gas research, Gavin Thompson, said the focus should be on China's gas import options to meet rapidly increasing demand. This, he said, presented opportunities for pipe suppliers in Central Asia and Russia, along with LNG suppliers.

"We remain positive that China's domestic shale gas will be a major boost to supply growth, producing approximately 150 billion cubic metres (bcm) per annum by 2030, largely accounted for by the Sichuan and Tarim basin production.

"However, shale gas growth will only accelerate after 2020, staying under 30bcm before then. Meanwhile, China's gas demand will increase from just over 150bcm to more than 600bcm from now to 2030."

Wood Mackenzie believed that both coal-to-gas projects and coal-bed methane (CBM) would each deliver more output to the Chinese gas market than shale right up to 2024.

"By 2020, we see CTG and CBM producing 27bcm and 17bcm respectively against only approximately 11bcm of shale production. These sectors are therefore far more significant through the medium-term, but are not receiving the appropriate level of attention outside of China."

Thompson said there was a need for a much deeper geological understanding of China's shale potential and the know-how to exploit it. As well, land access issues, environmental challenges, a lack of supply chain services and infrastructure, and decisions on the best allocation of capital all cloud China shale gas outlook.

China's energy white paper says the government will "actively promote" the development and use of unconventional oil and gas resources by speeding up the exploration of coal-bed gas and selecting favourable exploration target areas for shale.

By Geoff Hiscock is the author of Earth Wars: The Battle for Global Resources, published by John Wiley & Sons

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