Wood Mackenzie has issued the following comment on policy developments in China's upstream sector:Yesterday [30 June], China’s National Development and Reform Commission issued the Special Management Measures for Foreign Investment Access (Negative List) (2019 Edition). This removes restrictions on foreign companies to joint-venture and/or cooperate with Chinese enterprises when investing in new oil and gas exploration and development activities.
Wood Mackenzie believes more regulatory changes that will specify how these rules will work in practice are on the way.
Further incentives and/or acreage to be released to attract new, non-NOC investment in the upstream sector are also to be expected. The two main goals for the Chinese government are to increase domestic production and diversify sources of upstream investment, and these changes are just a first step in the right direction.
How will NOCs benefit China’s new unconventional subsidy scheme?
On another note, China’s Ministry of Finance (MOF) recently announced a revised unconventional gas subsidy scheme, effective until 2023.
The new scheme creates a subsidy pool to be shared by all unconventional gas producers based on their subsidy-eligible volumes. And for the first time, tight gas is included in addition to shale gas, coal bed methane (CBM) and coal mine methane (CMM).The new subsidy scheme bodes well for Chinese national oil companies (NOCs) and will see concerted efforts to boost their unconventional portfolios.
“PetroChina will benefit more in the near term than Sinopec and CNOOC, partially due to higher anticipated unconventional ramp-up over the next few years. Higher CBM output and better tight gas acreages should also increase PetroChina's share in the subsidy pool,” said research analyst Xianhui Zhang.
“We expect Sinopec to shift its focus towards tight gas projects in the Ordos basin, and away from its shale gas operations, including its mature Fuling project, and the newer but challenging Weirong development,” added Zhang. “On the other hand, CNOOC has invested in CBM projects onshore China through its acquisition of China United Coal Bed Methane Company. The potentially lower subsidy per unit of production could put it in a dilemma."
Overall, the new scheme will incentivise higher unconventional gas output over the next few years. However, operators will still face challenges in bringing unconventional costs down, accessing infrastructure and realising commercial returns on investment.
“With the new revisions, the government has higher flexibility to adjust the subsidy pool based on unconventional gas development and the MOF’s budget. We expect the 2019 subsidy pool to be larger than 2018's RMB4.9 billion (US$753 million) grant, given the inclusion of tight gas,” concluded Zhang.
Read the article online at: https://www.oilfieldtechnology.com/special-reports/02072019/wood-mackenzie-comments-on-policy-developments-in-chinas-upstream-sector/