Yesterday, Li Yuxi, a researcher at the Oil and Gas Resource Strategy Research Center under the Ministry of Land and Resources, announced that several key policies aimed at promoting the industrialization of shale gas are currently being developed. These policies include market-based pricing for shale gas and other measures designed to support the sector. Li shared these insights during the "2012 China International Shale Gas Conference" held in Chongqing.
The series of policies he referenced include a flexible market pricing model for shale gas, a regulatory framework emphasizing tiered oversight—where provincial governments play a role in monitoring activities directly down to the individual well level—and a tax policy that ensures most revenues remain locally, benefiting both businesses and regional authorities. Shale gas, extracted from shale formations, represents a crucial unconventional energy resource. China is believed to hold the world's largest reserves of this resource.
Academician Kang Yuzhu, speaking at the conference, highlighted that unconventional oil and gas resources mark a significant breakthrough for China, akin to the discoveries of the Daqing Oilfield in Northeast China and the Tarim Oilfield in Xinjiang. Despite its vast potential, the industry acknowledges the high technological risks and substantial investments required for shale gas extraction. Yin Xudong from Luhai Oil and Gas Group noted that current support policies are production-oriented, meaning companies face high exploration risks if they fail to yield gas.
Currently, China National Petroleum Corporation (CNPC) is among the pioneers in shale gas mining, having drilled over 20 wells. Tang Tingchuan, from CNPC’s Policy Research Office, emphasized the need for supportive policies such as exemptions on resource taxes, import duties on equipment, pricing autonomy, and financial subsidies for industry trials. To encourage shale gas development, China offers financial incentives, providing a subsidy of 0.4 yuan per cubic meter of shale gas produced between 2012 and 2015.
Additionally, the National Energy Administration recently unveiled the "12th Five-Year Shale Gas Development Plan," advocating for market-driven pricing and liberalization. However, the plan calls for detailed implementation guidelines. As of now, China's shale gas remains largely uncommercialized. The independent pricing of shale gas is central to these support policies. Unlike other forms of natural gas, which are state-regulated, the liberalization of shale gas pricing reflects the government's commitment to fostering growth in this sector.
Yin Xudong further remarked that existing policies rely heavily on production outcomes, placing a burden on companies to explore despite geological uncertainties. China's complex geology and limited data availability increase the risks for exploratory ventures. Moreover, approximately 70% of China's shale gas overlaps with conventional oil and gas fields controlled by major state-owned enterprises, limiting access to less desirable areas.
On September 10, the second round of bidding for shale gas exploration rights commenced, attracting hundreds of companies, including listed entities like Hangmin, Haiyue, Hubei Energy, and Guanghui Energy. Participants must commit to a certain level of investment within three years, with the option to either continue exploring or abandon efforts if no gas is found. Under current policies, any abandoned exploration becomes an independent venture expense. This uncertainty has caused concern among participating firms.
Li Yuxi suggested that China might implement an exit mechanism for shale gas exploration, similar to those in other countries. In contrast, suppliers of shale gas equipment and oilfield service providers stand to gain significantly from advancements in this sector.
In conclusion, while China's shale gas sector faces numerous challenges, the introduction of supportive policies signals a promising future for this emerging industry.
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