Digging Deeper

By+lan+Xinzhen

The new National Energy Commission convened its first meeting on April 18 presided over by Premier Li Keqiang， signifying great reforms of Chinas energy system. At the meeting， Li proposed encouraging investors of all kinds to participate in energy exploitation.

In recent years， China has been intensifying its efforts to open up its energy sector. As early as 2005， the State Council released Several Opinions on Encouraging， Supporting and Guiding the Development of Individual and Private Economy and Other Non-Public Sectors of the Economy， which gave the green light for non-public capital to enter the energy sector， including oil exploitation.

On June 20， 2012， the National Energy Administration （NEA） issued an implementing opinion of further encouraging and guiding private capital to expand investment in the energy industry. They stated plainly that all the projects included in the national energy plan， except those prohibited by the law， are open to private capital， and that qualified private enterprises should be encouraged to participate in the construction and operation of national key energy projects in many ways. Moreover， eligible private enterprises should be allowed to take the lead in the exploitation of large coal mines and unconventional oil and gas， such as coal bed gas， shale gas and kerogen shale.

Despite relentless promotion by the government， non-public capital has been frustrated in its attempts to get a piece of the energy exploitation pie. Official data show that new energy industries like solar and wind power have championed a new level of openness， in stark contrast to traditional energy sectors.

Take petroleum for example. Its exploitation has been monopolized by three major state- owned enterprises—China National Petroleum Corp. （CNPC）， China Petroleum and Chemical Corp. （Sinopec） and China National Offshore Oil Corp.， leaving only midstream and downstream segments to non-public capital， in particular the sales of oil products and the storage of crude oil.

Wang Zhen， a professor at the China University of Petroleum， argued the state monopoly would be broken up only when non-public capital is admitted into upstream segment， and that Premier Lis proposal may represent a breakthrough point.

Real efforts

At the energy commissions meeting， the premier suggested that a total of 80 demonstration projects—which are open to public bidding—will be pushed forward， and then social capital of various kinds be encouraged to dabble in clean energy projects including hydropower， wind power and photovoltaic power， in the form of joint venture， full ownership and franchise.endprint

Wang noted that since the Third Plenary Session of the 18th Central Committee of the Communist Party of China held last November， the Central Government has been resolutely reinforcing efforts in carrying out reforms. Due to resistance from state-owned sectors， the opening up of the energy exploitation market has made little progress in the past few years. Premier Lis reiteration gave people reason to believe that breakthroughs may be made on this front.

The move has a lot to do with the countrys determination to adjust its energy structure. At the meeting， Li said that it was essential to advance institutional reforms， propel competition， and ensure all investors compete on the basis of fair play.

China abounds in coal， but lacks petroleum and gas. According to the National Development and Reform Commission （NDRC）， coal consumption in 2013 accounted for 65.7 percent of primary energy consumption， while natural gas and non-fossil energy made up a mere 5.7 percent and 9.8 percent， respectively. Since the presence of haze， acid rain and the contamination of groundwater resources have aggravated pressures on the natural environment， China has been trying hard to transform its energy consumption model.

Now， China ranks first in the world in energy output and second in energy consumption. Its endeavors to restructure energy consumption have been hampered by institutional obstacles， such as insufficient market competition， irrational pricing， decentralized management， excessive red tape and an incomplete legal system.

In order to implement institutional reforms in the energy sector， progress should be made in diversifying market players and enterprise ownership； broadening market entry； improving the pricing mechanism； giving larger play to the market； and more importantly， establishing an independent， competent and efficient modern supervision system.

Wang said that China places more value on whether or not an enterprise is qualified to produce high-standard products and complies with industrial policies than on its ownership. Top priority should be given to meeting the demands of energy development.

Shale gas first

The drive to allow various investors into the energy development sector may be easily associated with the recent promotion of mixed ownership in the field of oil and gas. Though Sinopec and CNPC started the campaign with great enthusiasm， no matured scheme has been formulated so far.endprint

As a matter of fact， its almost impossible for non-public capital to enter into traditional energy exploitation， for all major oil fields and coal mines have been occupied by state-owned enterprises. Even if there are newly discovered oil and coal reserves， social and private capital may be unwilling to get involved in the competition.

On the other hand， the opportunities are rife for social and private capital to participate in the development of solar power and shale gas in particular. Since all enterprises stand at the same starting line， what really matter are technology and money.

At the beginning of 2012， the Ministry of Land and Resources initially defined the five major regions with abundant shale gas， predicting that the reserve may reach 134.42 trillion cubic meters as even without counting in the Qinghai-Tibet region， 25 trillion cubic meters are exploitable， far exceeding the 18.8 trillion cubic meters possessed by the United States.

On April 21， a conference was held on the exploration and development of shale gas in Chongqing. At the conference， it was estimated that 15 billion yuan （$2.4 billion） would be required to explore the shale gas nationwide.

Jiang Kejun at the Energy Research Institute of the NDRC said Chinas coal consumption would fall by 100 million to 400 million tons from 2013 to 2020， for the growing demand for energy would be fulfilled by renewable energy， nuclear power， natural gas， and other options made avail- able by technological advancement.

On April 23， the General Office of the State Council forwarded a NDRC document on the establishment of a long-term mechanism for ensuring steady supply of natural gas， which called for more policy support for the exploration and development of unconventional oil and gas resources like natural gas and shale gas and for the promotion of demonstration projects on coal gasification.

According to the NEA， diversified capital will be introduced into the development of shale gas. “Efforts will be made in multiplying the types of investors and introducing both private and overseas competent partners and technologies，” said a report.

Jiang believed encouragement policies and measures adopted by the Central Government will significantly promote the development of shale gas. Such unconventional energies have huge potential， fewer conflicts of interests and diversified market players， which will fuel the restructuring of energy consumption.endprint

Despite the abundant reserve， the work required for exploitation is far beyond the reach of domestic technology and capacity. By contrast， the United States has developed a set of advanced technologies from exploitation to commercialized production.

Haunted by frequent bouts of haze and increasing dependence on oil and gas imports， China hopes to blaze a new path by exploring shale gas and steering away from the coal-based energy structure. Now， China needs to speed up the formulation of regulations on the new mineral， and open up the upstream segment of shale gas to private and overseas capital.

At the 14th China International Petroleum and Petrochemical Technology and Equipment Exhibition held in March， many global energy giants appeared to take a fancy to the development of shale gas in China. The prospect of joint exploration of shale gas by Chinese enterprises and overseas magnates is certainly one that will arouse a lot of excitement and interest in Chinas energy market.endprint