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FAQ about Shale Gas

Q1. What is Shale Gas?


A1. Shale gas is natural gas that is found trapped within shale formations. Nowadays, shale gas has become an increasingly important source of natural gas.

Q2. Which country has the largest reserve of the Shale Gas? What is the current production status of the Shale Gas?


A2. China is deemed to have the largest reserve. According to China’s Ministry of Land and Resources (MLR), in March 2012, a nationwide shale gas resources survey had found exploitable shale reserves of an estimated 25.08 trillion cubic meters, and the country’s shale gas output could reach 6.5 billion cubic meters per annum by 2015 and increase more than tenfold by 2020. In the United States, Shale Gas provided over 20% of natural gas production, and by 2035, it is predicted by U. S. Government’s Energy Information Administration that 46% of the United States’ natural gas supply will come from Shale Gas.

Q3. Since China has large reserve of Shale Gas, is China copying the United Sates’ way of extracting Shale Gas?


A3. Although China is known as the owner of the largest reserve of Shale Gas, the exploration plan has been postponed. It is due to problems faced by current licensees in accessing reserves for exploration purposes. Besides, China’s reserve is deep underground, thus it needs the advanced technology for extraction.

Q4. Due to the importance of the Shale Gas resource, is there any regulation issued in China to protect the exploration environment?


A4. China’s National Energy Administration (NEA) has issued the Shale Gas Industrial Policy for focusing on providing the framework for the regulation of extraction.

Q5. How many rounds of bidding for exploration rights had taken place in China


A5. Two rounds had successfully launched. One was in 2011, two State-owned enterprises (SOEs) won the bidding and got the exploration rights to a single Shale Gas block. The other was in 2012, fourteen SOEs and two private Chinese enterprises were successfully awarded the exploration rights. The third round of tenders had been planned by MLR at the end of 2013, but it has been delayed into 2014 due to the inactivity of the successful second round tenders, and this round is expected to offer only less than 10 shale fields for auction.

Q6. Who is the controller of the Shale Gas market in China and why?


A6. China National Petroleum Corporation (CNPC) and China Petroleum Chemical Corporation (SINOPEC) are well positioned to be the controllers for two main reasons. One is because the most lucrative shale gas fields in China are located within existing oil and gas fields already held by CNPC and SINOPEC. The other reason is that both enterprises own substantial monopolies over existing pipelines in China.

Q7. What is the most needed for exploration?


A7. CNPC and SINOPEC acquired lands, assets and technology from other countries and applied lessons learned in other countries to boost expertise in Shale Gas extraction and transportation in China. China is keen to obtain and improve its own Shale Gas technology.

Q8. Who is the regulator or supervisor for Shale Gas Industry in China?


A8. There are at least seven authorities supervising the Shale Gas industry, and there is considerable overlap in their functions. MLR is the most important department which is responsible for granting exploration rights, ensuring the utilization and forming the Shale Gas development policies. Exploration licenses or rights are registered and issued by MLR to licensees in the form of three-year leases on a case-by-case basis, and it can be extended due to certain reasons and applications. The National Development and Reform Commission (NDRC) is another key department. In January 2012, NDRC announced that foreign direct investment into the shale gas industry in China fell into the “encouraged” category of the Foreign Investment Industry Guidance Catalogue. As such, foreign investors may invest in China’s shale gas industry and enjoy relief from customs duty on imported equipment.

Q9. What are the existing regulations for Shale Gas?

A9. In March 2012, the NDRC, Ministry of Finance, MLR and NEA jointly issued a development plan designated for China’s shale gas development. Also, the NEA under the NDRC released the Shale Gas Industry Policy, which contains detailed rules and procedures relating to shale gas exploration and external cooperation, in October 2013. However, there is still no single set of detailed rules to regulate shale gas activity. Issues relating to exploration and utilization are regulated under laws applicable to mineral resources and environmental protection (Mineral Resources Law and Environmental Protection Law). 

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