Wood Mackenzie Comments on Policy Improvements In China's Upstream Industry

Wood Mackenzie believes more administrative modifications that will specify how these guidelines will work in practice are on the way.

Additional incentives and property to be released to draw new, non-NOC investment within the upstream sector are additionally to be expected. The two main objectives for the Chinese government are to extend home production and diversify sources of upstream funding, and these modifications are just a first step in the proper direction.

On one other note, China’s Ministry of Finance (MOF) recently declared a revamped unconventional gas subsidy scheme, in effect until 2023.

The brand 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, fast gas is included in addition to shale gasoline, coal ground methane and coal mine methane (CMM).

The new grant scheme bodes nicely for Chinese national oil firms and can see combined efforts to elevate their unconventional portfolios.

“PetroChina will benefit more within the near interval than Sinopec and CNOOC, partially on account of higher expected unconventional ramp-up over the next few years. Higher CBM production and better tight gas lands must also increase PetroChina’s share in the grant pool,” stated research analyst Xianhui Zhang.

Total, the new scheme will incentivize more significant unconventional gas production over the next few years. Nonetheless, operators will still struggle to bring unconventional prices down, accessing infrastructure, and realizing business returns on funding.

“With the new revisions, the federal government has greater flexibility to regulate the subsidy pool based on unconventional gas improvement and the MOF’s budget. We count on the 2019 subsidy pool to be bigger than 2018’s RMB4.9 billion (US$753 million) in subsidy, given the addition of tight gas,” concluded Zhang.