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Chinese Government proposes financial support as part of shale gas policy

Out-Law News | 07 Nov 2013 | 10:47 am | 1 min. read

The Chinese Government plans to "accelerate" the development of the country's shale gas industry, including by offering financial support to qualifying developments, according to the country's National Energy Administration (NEA).

According to an automated translation of the policy, published on the NEA's website, a range of subsidies and tax incentives will be made available based on the amount of shale gas produced by the development and how the gas produced is used. Local governments will also be able to set their own levels of subsidy.

"Introducing a policy on shale gas is an important development towards its commercialisation, particularly given the extraction challenges China faces in terms of availability of water and accessibility of the gas," said John Yeap of Pinsent Masons, the law firm behind Out-Law.com, an energy law expert based in Hong Kong. "These are issues that will have to be addressed in order to commercially extract the gas."

"China intends to reduce its carbon emissions, and the increased use of gas will have to be part of the solution," he said.

Sinopec, the state-owned Chinese oil company, has recently begun pumping shale gas in commercial quantities from test wells, according to Reuters. China could potentially have the largest shale gas reserves in the world, according to the US Energy Information Administration, but has struggled to commercialise the fuel due to the cost of drilling and complexity of accessing the supplies. Gas is extracted from shale rock using a process called hydraulic fracturing, or 'fracking'.

According to the automated translation of its new shale policy, the NEA intends to "strengthen independent research and development" surrounding shale, including investigating ways to use less water and recycle water already used in the fracking process. It will also encourage investors, including "financially sound" private enterprises, to accelerate shale gas exploration and exploitation within a standard industry framework.

The policy also requires a "sound regulatory mechanism" to be established for both shale gas development and production. Any exploration, development and production activities will be expected to comply with current technical standards used generally in the oil and gas industries where no specific shale-related management standards apply.

Any shale exploration and exploitation projects must also meet national energy efficiency standards, according to the policy. Environmental concerns are given "equal protection" to any drilling or fracturing work, while developers must take steps to prevent groundwater and soil contamination during extraction and processing.