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China may treat shale gas as separate from conventional hydrocarbons to encourage companies outside of state-owned industry to invest, government officials said on Sunday. It may also offer pricing and other incentives across the industry to further to tap the potentially huge resource.

A handful of state-run energy majors now dominate the sector in China as private and foreign firms face hurdles such as securing mining rights for onshore drilling activities or the ability to bid in tenders.

“We are working to establish shale gas as an independent resource. Companies with strong financial standing and technology may participate in bidding, “said Che Changbo, deputy director of Oil, Gas at the strategic center of the Ministry of Land and Mineral Resources.

China is at an early stage of shale gas exploration with no commercial production yet.

But the world’s second-largest oil consumer may hold the world’s largest shale gas supplies at 26 trillion cubic meters, according to Chinese industry estimates, larger than the 24.4 trillion cubic meters in the United States.

China issued its first-ever shale gas tender in July and a second tender could come in the second half of the year.

But the first tender was only open to six domestic firms.

Companies like Sinochem, CITIC Resource, Xinjiang Guanghui and Zhenhua Oil were not yet allowed to participate.

However foreign firms are welcome to partner with the winners.

By making shale gas a separate resource, the government hopes to bring in smaller companies, believing a key for the huge success of shale gas development in the United States was the number of independent explorers.

But the government wants to avoid a repeat of its experience in the coal sector, which was opened to many local miners which led to safety and environmental problems.

“The government will want to see shale gas being developed in an orderly manner,” said Zhang Yuqing, director of Oil & Gas Department of the National Energy Administration, the country’s top energy agency.

“What we’ve learned from the American experience is that the U.S. government gave a lot of policy incentives. China is also studying pricing policies as well as subsidies – issues that the top government officials have already been paying a lot of attention to,” Zhang told Reuters.

Reuters, 25 September 2011