The National Energy Administration
("NEA") issued the Shale Gas Industry
Policy ("Policy") on October 22, 2013,
which was made public on October 30, 2013. The Policy recommends
certain reforms to encourage shale gas development in China. The
key points are set out below.
Qualifications for shale gas companies
According to the Policy, shale gas exploration companies should
be financially sound, have well-established accounting procedures,
and be legal entities capable of independently assuming civil
liabilities. Further, they should have properly qualified personnel
for construction, project management, and safety evaluation. The
Policy also states that shale gas exploration companies should be
subject to the Ministry of Land and Resources' technical
specifications relating to shale gas, including the calculation of
reserves, geological surveys, seismic prospecting, and drilling,
etc. However, if no relevant specifications exist, the companies
should be subject to oil and gas regulations. The NEA also suggests
that foreign partners seeking access to China should have advanced
shale gas technologies.
"Exhibition / Demonstration
The NEA recommends the establishment of additional shale gas
"exhibition / demonstration areas" (???). The purpose of
these areas is to develop and demonstrate China's shale gas
technology, and to lower development costs. Already existing
examples include CNPC's exploitation exhibition / demonstration
areas in Sichuan and Yunnan, which have been hailed as a major
breakthrough in China's shale gas industry. It is not clear
what incentives will be provided to encourage companies to develop
exhibition / demonstration areas.
Regarding technology, the NEA encourages companies to adopt
international standards, invent new technologies and exploration
methods, and accelerate the research and manufacture of key
equipment, in order to develop China's shale gas industry. The
NEA also proposes to formulate standards, procedures, and
specifications for shale gas exploration and development
Marketing and transportation
The NEA suggests that the sale of shale gas should be open to
all investors, the market should determine prices for direct
purchases from manufacturers, and all gas sales transactions should
be conducted on an arm's length basis. The NEA also states that
investment in certain types of infrastructure should be encouraged,
such as natural gas pipelines and CNG / LNG facilities,
particularly in areas which lack such infrastructure. Ultimately,
all shale gas production and sales companies should have access to
Energy efficiency and environmental
Regarding environmental matters, the NEA has a number of
recommendations, including stronger enforcement of environmental
regulations, a ban on direct emissions of waste gas, more efficient
use of water and energy, and timely rehabilitation of land.
Subsidies and incentives
The NEA calls for more financial support from the State for
shale gas development and exploration. In particular, subsidies
should be given directly to a shale gas production company
according to the amount of its shale gas development and
utilization, provided that certain conditions are met (such as the
company submitting an annual report for approval). Local
governments are also encouraged to provide subsidies to shale gas
production companies, with the subsidy amount to be determined by
local financial authorities (e.g. a local finance bureau /
Mineral resource compensation fees
mineral rights use fees (矿权使用费)
should be reduced or waived for shale gas exploitation enterprises,
and new incentive policies should be worked out in terms of VAT
(增值税), resources tax
(资源税), and CIT
(企业所得税). Customs duties should
be waived for equipment that cannot yet be produced within
The suggested incentives / reforms set out in the Policy are
aimed at improving the shale gas industry in China. Implementation
would require the issuing of regulations by other government
authorities such as NDRC, MLR and the State Taxation
Administration. We will keep you updated as to any future
developments and official interpretations of this policy.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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