Policy challenges to China's shale gas industry

As a result of China’s significant position in the petroleum market, contributions to greenhouse gas emissions, and domestic pollution, Chinese policy makers and industry leaders are increasingly highlighting China’s vast reserves of shale gas. Although there is growing production of shale gas in China’s Sichuan Basin, China’s state targets for shale gas development are still unmet. Thus, this work analyzes China’s shale gas policy, which is implemented through tools such as the petroleum sharing agreement, tax regimes, pipeline access, pricing system, regulatory structures, and international programs. Data in this paper is derived from published reports by industry experts. In addition, I carried out 10 expert interviews for this project, with interviews in Houston and by telephone. This paper evaluates specific qualities that attract shale gas investment and reinforce a mutualistic relationship between petroleum companies and the government, and judges the qualities that harm this relationship and are hindering shale gas development. For example, China’s use of the sliding scale royalty, support for joint ventures, and research and development programs contribute to shale gas development. However, possible hindrances to China’s shale gas revolution include the production sharing agreement structure, the monopolization of conventional reserves by China’s national oil companies, the lack of competitive pipeline access, the unclear and excessive overlap of regulatory agencies, and several environmental concerns related to hydraulic fracturing. As a result, China’s shale gas revolution will likely be led by its National Oil Companies for the near future.