China will soon release new policies to support the development of its nascent shale gas sector, local media reported Tuesday, citing officials from the Ministry of Land and Resources.
Policies formulated by the National Energy Administration and the MLR have been finalized and are likely to be unveiled soon, according to a report in the 21st Century Business Herald on Tuesday.
These include guidelines regulating the award of mineral rights and bids for acreage, the report said, citing Yang Lei, an official from the NEA who was at a conference on Monday.
The new policies will address technology, research and infrastructure aspects of shale gas development to support continued investment.
The next step of development is to open the market and increase competition among players, said Che Changbo, deputy head of the MLR’s geological exploration division, who was also at the conference.
“The next step … has to involve continued improvement in the guidelines for shale gas in terms of players involved and technology, both to attract funding and to avoid overheated investment,” he said.
The new policies would likely set stricter thresholds for market entry and impose tightened environmental regulations, he said.
China’s Ministry of Finance had in November announced a subsidy of Yuan 0.40/cubic meter (6 cents/cu m) of shale gas production to producers in China from 2012 to 2015 in a bid to promote exploration and incentivize production.
Che said following the introduction of the subsidy, the MLR and other relevant departments are studying more incentives and measures.
The shale gas sector in China faces numerous challenges, including geological difficulties, a lack of drilling technology and a shortage of midstream pipeline infrastructure to bring gas to the market. The expected high costs of development and production are also a deterrent to potential entrants, particularly when natural gas prices are currently controlled by the government.
“The lack of natural gas pipeline infrastructure and high investment required are considered to be major barriers to shale gas development, considering that the current subsidy for shale gas does not even cover the early stage investigation,” investment bank North Square Blue Oak said in a report on Tuesday. “Greater fiscal support is therefore needed to offset this.”
Anxious to retain control of a vital domestic resource, the government has also restricted foreign participation in the sector. Foreign companies could not directly participate in China’s latest shale gas bid round in December last year and 19 blocks were ultimately awarded to 16 domestic companies, none of which had any oil and gas experience.
Given the existing factors, China will likely not meet its official target to produce 6.5 billion cu m/year (628,600 Mcf/day) of shale gas by 2015, from zero currently, analysts have said.
(platts.com Mar 21,2013)