An energy investments portfolio manager told West Virginia gas and oil industry professionals that to see the role Appalachian shale gas would play in the national energy scene, look to the coalfields of China.
Daniel J. Rice III presented "Appalachian Shale's Relation to the U.S. Energy Situation" to the Independent Oil and Gas Association of West Virginia's winter meeting Feb. 22. Rice, the portfolio manager of the BlackRock Energy and Resources Fund and founder of Rice Energy, emphasized the influence international markets have on domestic energy activity.
"Everything is inter-related in the world," Rice opened. "I have a talk today that is supposed to be on Appalachia and how it relates to U.S. energy security. I'm going to tell you that particular topic, the key determinant of what is going to happen in the future, is probably in the coalfields of China."
Rice said the key to energy independence is tied less to electrical generation and more to what goes in our vehicles because most of the nation's dependence on foreign energy is related to transportation fuels such as gasoline and diesel fuel.
"When you hear politicians talk about energy independence at the same time they talk about clean tech, I don't know what they're talking about, because energy independence has got to include transportation fuels," Rice said. "If you don't have transportation fuels, you don't have energy independence as a country."
The problem, Rice explained, is that when China runs out of coal to burn, its manufacturing plants turn to burning diesel-powered generators to run manufacturing plants. Understanding the changes in Chinese electrical generation markets is key to predicting spikes in the prices of oil, and thus gasoline in the United States.
"You get spikes in oil prices because of shortages of fuels that are used to make electricity in China," Rice said.
Rice proposes the solution is to reduce dependence on foreign fuels by encouraging growth of vehicles that run on natural gas. Appalachia primarily produces coal but recently has experienced growth in natural gas with the development of shale gas extraction technologies.
"If we were to substitute 3 million barrels of day of diesel or gasoline, you save American consumers 300 to 400 billion dollars per year," Rice said.
He said the move could double the growth of the U.S. economy.
"It's not the easiest solution, but it's the single most logical conclusion in terms of your ability to impact U.S. GDP and actually have an economy that's growing," he added. "We've lost control of this situation, and we need a solution."
While China has been a heavy player in determining oil prices worldwide, India is about to take center-stage, Rice said.
"China is the driver so far. India, in the next three years, is going to double their coal consumption and be the largest importer of coal in the world, which will be a competitive threat to China," he said. "China's going to wind up having blackouts and ending up having to use diesel, and then you're going to see a nice little price spike of oil as a result."
He added, "We're hostage to what is going to be happening in China or India as far their effect on oil prices."
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