Subsidy offered for shale development

The National Energy Administration (NEA) announced a national shale gas development guideline Wednesday covering subsidies for enterprises that are involved in alternative fuel exploration, in an attempt to commercialize the production of cleaner energy.

In addition to receiving subsidies from the central and local governments, enterprises will also be exempted from customs duties when importing equipment for shale gas production, the energy authority said.

"The guideline showed the central government's firm determination to reduce China's reliance on carbon-intensive energy resources," Zhu Fang, deputy director of the information and marketing department at the China Petroleum and Chemical Industry Federation, told the Global Times Wednesday.

The Ministry of Finance announced in November 2012 a subsidy of 0.4 yuan ($0.065) per cubic meter for enterprises involved in shale gas development during the 2012-15 period.

Since the cost of shale gas exploration and production is currently estimated at much higher than the cost in the US, a 0.4 yuan subsidy will still not be enough to eliminate the risk of making zero profits for the Chinese enterprises, Yann Cohen, Senior partner and Asia/China Energy and Chemical leader of Monitor Deloitte, a global consulting firm, told the Global Times Wednesday.

But Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University, said Wednesday the current slow progress of shale gas exploitation in China was mainly due to the immature pricing system and national energy structure, rather than the subsidy, which he thought is already very high.

"A lack of an independent nationwide gas pipe network is one of the drawbacks for the country's energy structure," Lin told the Global Times.

The NEA stressed in the guideline that pricing for shale gas produced by the enterprises will be fully market-oriented, which Zhu said should be a -development trend in the energy sector.

Currently in China, power prices are fixed or adjusted by the National Development and Reform Commission, which is always hesitant to raise power prices due to inflation.

Those enterprises, which have won projects in the first and second round of auctions for the country's shale gas -exploration rights since 2011, have made little progress in pushing forward gas exploration so far.

Deng Jianling, deputy general manager of State-owned power generator China -Huadian Corporation, said at a forum in Beijing earlier this month that the company "did not dare invest a lot in gas exploration for the projects," which the company won during an auction in December 2012, "due to the potential capital risks."

"In the second round of auction, some players have taken a speculative approach to take a position in the shale gas play, and they may possibly postpone developments or even sell the blocks," Cohen said.

Boosted by the release of the guideline, shares of shale gas-related firms saw an obvious rise Wednesday. Shandong Polymer Biochemicals Co hit its daily price upper limit of 7.58 yuan per share.