China's 12th Five-Year Plan for Shale Gas

March 2012

Contacts

Following the issue of China’s 12th Five-Year Plan in 2011, which signals the Government’s initiatives for the development and utilization of shale gas and other types of unconventional gasses, on 16 March 2012, four government authorities of the People’s Republic of China, namely the National Development and Reform Commission (NDRC), the Ministry of Finance, the Ministry of Land and Resources (MLR) and the National Energy Administration, jointly issued a development plan designated for China’s shale gas development (the Plan). The Plan applies to shale gas development activities and initiatives in China from 2011 to 2015 (inclusive).

In addition to setting out background information on the current status of China’s shale gas prospects, the Plan lays out an overall target and four milestones to be achieved by China from 2011 to 2015, including (i) completion of a nationwide shale gas survey and appraisal; (ii) production output to reach 6.5 billion cubic metres by 2015; (iii) development of suitable methods, technologies and equipment for China’s shale gas survey, appraisal, exploration and production; and (iv) establishment of technical standards, rules and policies regulating the following activities in relation to China’s shale gas development, such as reserve survey, appraisal and certification, test and analysis, exploration and production, and environmental measurements.

The Government will adopt five steps to achieve the target and milestones set out in the Plan:

1. Increasing Government investment in shale gas survey and appraisal

The Government will set up designated funds to support shale gas survey and appraisal; selection of shale gas trail areas and exploration technology demonstration projects; shale gas geology study; and international co-operation.

2. Developing shale gas technology

The Government will increase its support of the innovation and improvement of shale gas technology, classify shale gas technology research and development as a significant national project, promote the shale gas exploration demonstration project, encourage the establishment of a shale gas research and development centre and international co-operation and exchanges.

3. Developing new shale gas exploration and production systems

The Government will accelerate the process of permitting quality investors of various backgrounds to participate in China’s shale gas development, and will set up the relevant qualification standards, and tender regulations for shale gas mineral rights auctions. The existing mechanism and contract management system are also required to ensure that holders of oil and gas and coal mineral rights and/or exploration licences will invest and develop shale gas reserves within the same blocks which they were awarded originally, for the exploration and production of oil and gas or coal.

4. Introducing incentive policies

The Government will study and introduce shale gas subsidies following the example of the subsidy policy for coal-bed-methane projects. Legitimate holders of shale gas exploration and development licenses can apply for reduction or waiver of the relevant licence fees. In respect of any imported shale gas equipment (including the associated technologies) that are not available or cannot be produced in China, the importer may apply for the customs duties to be exempted. The wellhead price for shale gas will be the market price. The shale gas developer will be given priority when applying for a land use permit.

5. Improving shale gas infrastructure

Solutions for improving shale gas infrastructure will depend on the location of the reserves. For reserves close to the existing natural gas pipeline network, the Government will encourage construction of transportation pipelines at the shale gas production field and connection of these pipelines to the existing natural gas pipeline network. For reserves far from existing natural gas pipeline networks, or new wells, (production output of which is ramping up), the Government will encourage the construction of small-scale LNG or CNG facilities to capture the gas produced to avoid flaring the gas. The construction of transmission pipelines will take into account the production phase of the relevant shale gas wells.

The Plan is intended to build a solid foundation for the 13th five-year plan for China’s shale gas development. Building on the results of the Plan (including completion of a nationwide survey of the shale gas reserves and development of suitable shale gas technology), the Government will increase or encourage greater investments in shale gas reserves from 2016 to 2020, including expanding the production scale in 19 exploration blocks so the total shale gas output by 2020 could reach to 60 to 100 billion cubic metres.

For more information on China’s shale gas development, please refer to our previous briefing on Shale Gas: A Game Changer for China’s Energy Consumption Pattern?.