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China Announces Shale-Gas Subsidy

Brian Hicks

Written By Brian Hicks

Posted November 6, 2012

The Chinese government has just announced a subsidy of 0.4 yuan ($0.06) per cubic meter for energy companies developing the country’s shale-gas resources.

The U.S. Energy Information Administration previously estimated that China may indeed have the world’s largest shale-gas reserves, but high startup and development costs have hindered real progress. This new move could jumpstart that.

Key blocks in China’s five-year plan that would normally command costs as high as 300 to 500 million yuan ($48 million to $80 million) could see production costs reduced by as much as 30 percent.

According to the U.S. EIA, China could have as much as 1,275 trillion cubic feet of technically recoverable shale gas, and the country has had its eye on fracking for quite some time. So far, the government has targeted 19 blocks as critical areas for exploration.

The government has a goal of producing 6.5 billion cubic meters of gas per year by 2015 and 60 billion to 100 billion cubic meters by 2020.

China held a first-round auction of shale-gas assets in June 2011. It ended up offering just 4 blocks to six state-owned companies and awarded two of those.

Last month, the government received 152 bids from 83 companies in the second round of auctions. Even if heavy initial costs and bureaucracy warded off investors at first, things are starting to gather steam.

Major names like Royal Dutch Shell (LON: RDSA, RDSB), China National Petroleum Corp., and China Petroleum & Chemical Corp. (Sinopec Corp.) (NYSE: SNP) have demonstrated clear interest. French oil giant Total S.A. (NYSE: TOT) has also reached a preliminary agreement with Sinopec to search for and develop shale gas, but no great progress has emerged so far.

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