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UPDATED: May 5, 2014 NO. 19, MAY 8, 2014
Digging Deeper
China will open up energy exploitation to private and foreign investors
By Lan Xinzhen

Now, China ranks first in the world in energy output and second in energy consumption. Its endeavors to restructure energy consumption have been hampered by institutional obstacles, such as insufficient market competition, irrational pricing, decentralized management, excessive red tape and an incomplete legal system.

In order to implement institutional reforms in the energy sector, progress should be made in diversifying market players and enterprise ownership; broadening market entry; improving the pricing mechanism; giving larger play to the market; and more importantly, establishing an independent, competent and efficient modern supervision system.

Wang said that China places more value on whether or not an enterprise is qualified to produce high-standard products and complies with industrial policies than on its ownership. Top priority should be given to meeting the demands of energy development.

Shale gas first

The drive to allow various investors into the energy development sector may be easily associated with the recent promotion of mixed ownership in the field of oil and gas. Though Sinopec and CNPC started the campaign with great enthusiasm, no matured scheme has been formulated so far.

As a matter of fact, it's almost impossible for non-public capital to enter into traditional energy exploitation, for all major oil fields and coal mines have been occupied by state-owned enterprises. Even if there are newly discovered oil and coal reserves, social and private capital may be unwilling to get involved in the competition.

On the other hand, the opportunities are rife for social and private capital to participate in the development of solar power and shale gas in particular. Since all enterprises stand at the same starting line, what really matter are technology and money.

At the beginning of 2012, the Ministry of Land and Resources initially defined the five major regions with abundant shale gas, predicting that the reserve may reach 134.42 trillion cubic meters as even without counting in the Qinghai-Tibet region, 25 trillion cubic meters are exploitable, far exceeding the 18.8 trillion cubic meters possessed by the United States.

On April 21, a conference was held on the exploration and development of shale gas in Chongqing. At the conference, it was estimated that 15 billion yuan ($2.4 billion) would be required to explore the shale gas nationwide.

Jiang Kejun at the Energy Research Institute of the NDRC said China's coal consumption would fall by 100 million to 400 million tons from 2013 to 2020, for the growing demand for energy would be fulfilled by renewable energy, nuclear power, natural gas, and other options made available by technological advancement.

On April 23, the General Office of the State Council forwarded a NDRC document on the establishment of a long-term mechanism for ensuring steady supply of natural gas, which called for more policy support for the exploration and development of unconventional oil and gas resources like natural gas and shale gas and for the promotion of demonstration projects on coal gasification.

According to the NEA, diversified capital will be introduced into the development of shale gas. "Efforts will be made in multiplying the types of investors and introducing both private and overseas competent partners and technologies," said a report.

Jiang believed encouragement policies and measures adopted by the Central Government will significantly promote the development of shale gas. Such unconventional energies have huge potential, fewer conflicts of interests and diversified market players, which will fuel the restructuring of energy consumption.

Despite the abundant reserve, the work required for exploitation is far beyond the reach of domestic technology and capacity. By contrast, the United States has developed a set of advanced technologies from exploitation to commercialized production.

Haunted by frequent bouts of haze and increasing dependence on oil and gas imports, China hopes to blaze a new path by exploring shale gas and steering away from the coal-based energy structure. Now, China needs to speed up the formulation of regulations on the new mineral, and open up the upstream segment of shale gas to private and overseas capital.

At the 14th China International Petroleum and Petrochemical Technology and Equipment Exhibition held in March, many global energy giants appeared to take a fancy to the development of shale gas in China. The prospect of joint exploration of shale gas by Chinese enterprises and overseas magnates is certainly one that will arouse a lot of excitement and interest in China's energy market.

Email us at: lanxinzhen@bjreview.com

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