China shale gas tantalizing for private firms

As China's reserves are often concentrated in mountainous or arid regions, it might take extra time and manpower to build roads and other infrastructure. This is obviously included in the three years.

However, from past experience of the pioneering State-owned oil companies, three years does not sound incomprehensible.

"Two or three years is enough to decide whether to continue with the work," a senior geologist with PetroChina said, adding that risk exploration is about accumulating information and making decisions in the course of exploring.

PetroChina, one of China's top oil and gas producer, has been working with Shell in Southwest China since early this year and their first well successfully extracted shale gas in October.

For foreign oil firms eager to join China's game, Sino-foreign cooperation, especially that with big State-controlled companies, has long been a good solution to securing mineral rights.

China's Law of Mineral Resources stipulates that enterprises with exploration rights will be given privileged access to mining rights in the area they have explored, but private and foreign companies are usually daunted by lengthy administrative approval procedures.

"Wording like 'privileged access' does not suffice to protect the rights of the investors," said Zhang Libin, an energy consultant and partner at the Chinese law firm Broad and Bright.

The divorce of "obligatory" exploration rights from "profitable" mining rights has to be addressed via lawmaking before the sector becomes truly marketized, Zhang said.

China sets itself a goal of pumping 6.5 billion cubic meters of shale gas annually by 2015 and commercializing the production by the end of the decade. Authorities are working to fill the regulatory blanks as they fuel the development of the sector.

In November, the MLR also vowed to establish an exit mechanism to make sure that oil firms, who have shale gas reserves in their mining areas but fail to explore fully or at all, give away their exploration rights to other competitors.

This is good news for small and medium-sized companies who wish for a slice of the emerging business but are overshadowed by State-owned oil giants, although with limited resources and uneven playing field, they might find it harder to duplicate the success of their US counterparts.

 

Related readings:

Private companies win two blocks in shale gas auction

China approves foreign firms in growing sector

China to increase development of natural gas sources

China sets natural gas development targets

Shale gas boom takes time to spark