China to Encourage Corporate Participation in Shale Gas Exploration

October 10, 2011 Posted by China Briefing Reading Time: 2 minutes

Oct. 10 – As the world’s second largest energy consumer, China is paying every effort to develop clean and unconventional energy in order to meet the needs of the country’s surging demand for energy. As such, the Chinese government has recently indicated that new incentives may be given to businesses so that they can participate in the exploration of the country’s potentially huge shale gas reserves.

The Chinese government is considering establishing shale gas – the source of natural gas that has become increasingly important over the past decade – as an independent resource from conventional hydrocarbons, so that “companies with strong financial standing and technology may participate in bidding,” according to Che Changbo, deputy director of oil and gas at the strategic center of the Ministry of Land and Mineral Resources. Currently, China’s shale gas exploration is still in its early stages with no commercial production.

In fact, China has already issued its first-ever shale gas tender in late June, open to six domestic companies. Sinopec Group and Henan Provincial Coal Seam Gas Development and Utilization Co., Ltd finally won the bid together.

No foreign companies were allowed to bid in the tender, but China says they are welcome to partner with the winners.

China may issue a second tender later this year, according to Reuters.

A 2011 report by the U.S. Energy Information Administration estimates that China may hold the world’s largest shale gas reserves, with the scale of recoverable resources reaching 36 trillion cubic meters. However, domestic experts worry that China still lacks the key technology for large-scale exploration. The Reuters report specifically pointed out that it remains to be seen whether or not China can completely copy the existing exploration technology utilized in the United States, since most of China’s shale gas is reserved in a continental environment, rather than in marine areas.

By treating shale gas as a separate resource, China hopes to realize technological breakthroughs and boost its total shale gas production by bringing smaller corporate players into the industry. The government says it may offer various favorable policies – including pricing incentives, subsidies and special funds – to the industry in the future.

Zhang Yuqing, director of the National Energy Administration’s Oil and Gas Department, says China aims to realize scaled commercial shale gas production by 2015 and enter a fast-developing stage for exploration between 2016 and 2020. Official sources also show that the Chinese government aims to increase the proportion of natural gas in the country’s total energy consumption from the current 4 percent to 8 percent by 2015, and 12 percent by 2020.

The remarkable shale gas development in the United States has set China a positive example and brought more motivation. Shale gas production in the United States over the past five years has surged by 20 times, accounting for 25 percent of the country’s total natural gas production. The recovery of the United States’ huge shale gas supplies has not only helped meet the country’s large appetite for energy, but may also make it a potential natural gas exporter in the near future.