The Chinese government is subsidising costs and relaxing regulations surrounding shale gas exploration in the country in a bid to boost development of the sector. But it remains unclear if the latest move will attract much interest from state-owned or foreign firms.
The Guizhou province in China has offered six shale gas exploration blocks ranging from 56.8-159.2sq km in a government auction. The bidding prices for exploration rights of the blocks ranged between Yn290,000-800,000 ($44,334-122,301). This price range is far lower than the starting bid of Yn42.36mn for a 695sq km block offered in a bidding round by Guizhou authorities in 2017.
Companies are now allowed five years to explore the blocks before relinquishing them, compared with the three years mandated previously. Local and foreign firms can participate if they have a China-registered entity with a minimum capital of Yn300mn. Beijing further expanded its upstream sector since May this year to allow foreign firms to directly explore and develop acreage released by the government, as long as they have a China-registered office and meet other standard requirements.
It is unclear if the new regulations will attract much foreign interest after all as shale gas geology remains challenging in China. China has seen a significant exit of foreign firms from its major shale gas projects in the past few years. BP last year pulled out of the Neijiang-Dazu and Rongchangbei shale gas projects, in which it had partnered with China's biggest state-owned upstream firm CNPC, after Shell exited from its shale gas cooperation with CNPC a year prior to that.
Chinese unconventional gas output is playing an increasingly important role in boosting overall gas output as conventional reserves have showed signs of depletion. The government changed its subsidy system last year to include tight gas and rewarded incremental growth based on production levels in a bid to boost the sector.
China reached 15.4bn m³ in shale gas output last year, up by 41pc from the previous year, according to government figures. But it is unlikely to hit its target to produce 30bn m³ this year.
PetroChina, the largest beneficiary of subsidies given to unconventional gas development, may add up to 4bn m³ of shale gas output this year to reach 12bn m³ in its total yearly output. Sinopec produced 6.3bn m³ of shale gas last year, mainly from its Fuling project in Chongqing, and analysts forecast the firm's output to reach 7.5bn m³ this year.
While it is unclear if it will eliminate shale gas subsidies eventually, the Chinese government is expected to continue to provide "some form of policy support" to aid the development of the shale gas sector, according to an official from a state oil firm.
