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TheStreet Open House

Watch Oil Prices Drop as China Focuses on Natural Gas

Stock quotes in this article: F, XLE, UNG, USO, GM

NEW YORK ( TheStreet) -- As the top two populated countries in the world, China and India are often included in any debate about the future of energy prices. The growth rates experienced in both economies have astounded the world while stretching natural resources thin.

The Middle Kingdom's appetite for oil and natural gas has led China on a commodity search through Africa and the Middle East. China has not found difficulties securing large sources of all the commodities needed to keep its economy humming along smoothly.

Securing China's energy needs is no easy challenge. At one time, China's domestic supply of natural gas provided enough output to meet demand. For the last few years, however, China has imported natural gas right along with oil.

China's natural gas consumption remained relatively stable from 1980 until 1992 near 500 billion cubic feet per year. After Deng Xiaoping took control of China and directed parts of China to allow free-market enterprises, growth in GDP and energy consumption moved higher. By 2004, consumption of natural gas more than doubled to about 1300 billion cubic feet. In the last year data is available, consumption reached 3.768 trillion cubic feet.

China's natural gas production largely kept up with demand, an amazing feat in light of the difficulties faced with increasing production by almost seven fold from 1996 to 2010. Production for 2010 was 3.334 trillion cubic feet.

Because demand is greater than production, China now imports natural gas to meet demand. Oil demand and production largely mimic natural gas leaving China a net importer of petroleum also. China imported about three million barrels a day in 2011.

The United States, also an importer of oil, has recently updated the amount of proven oil and natural gas as a result of new extraction method technology. A method known as hydraulic fracturing, or "fracking," allows greater amounts of oil and natural gas production in areas that until recently were out of reach.

Fracking is a game-changer for energy production. As a result, the U.S. has the greatest amount of proven natural gas reserves in the world, even greater than Saudi Arabia...

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