strategies for 2050 should be developed. The
positioning of unconventional gas as a key driver
of gas output growth, and the strategic goals and
means of delivery, should be clearly defined.
Generating huge monopoly profits by virtue of
large-scale investment and the relative scarcity of
resources is the traditional pathway for the
international oil and gas sector. Faced with
increasingly fierce competition from renewable
energy sources, the oil and gas industry must be
transformed and revolutionised. Low-cost, green
development should be the main strategy of the
oil and gas revolution.
Second, the oil and gas industry requires deep
reform. The Ministry of Land and Resources of
China listed shale gas as an independent mineral
energy resource and invited bids for the exploration rights. Allowing non-oil and gas companies and private enterprises to bid for rights
breaks the upstream monopoly of the major
state-owned oil companies, which is a big step
towards oil and gas reform. However, more than
70% of unconventional oil and gas resources
overlap with conventional deposits. The blocks
with the highest-quality resources are still being
explored by the three major oil companies and
Yanchang Petroleum, because bidding has not
yet been introduced. The next step should be to
reform the administration of mining rights for
existing oil and gas blocks. It is suggested that
exploration and mining rights be awarded by
tender, auction or listing. In addition, a mining
rights evaluation system, competitive pricing
system and mining rights transfer system should
be introduced to create an orderly mining rights
market. This would attract more businesses to
invest in and exploit oil and gas resources,
thereby increasing China’s oil and gas
production.
Third, technology and equipment innovation
should be improved. Strong technology innovation and advanced equipment are prerequisites
for the oil and gas production revolution. It is
suggested that exploration and production technologies suitable for the characteristics of
China’s unconventional oil and gas resources
should be improved by importing, absorbing and
innovating advanced technologies through joint
R&D and foreign cooperation. A key technology
and equipment system with Chinese characteristics should be developed and deployed at large
scale. Local equipment manufacturing should be
improved to generate independent intellectual
property rights. Specifically, in terms of exploration and production technologies, breakthroughs should be made in drilling and
completion, reservoir stimulation, micro-seismic
monitoring and other key unconventional gas
development technologies. Focus should be
directed on research on exploration and production technologies adapted for deep and ultra-deep
quasi-continuous tight sandstone and viscous oil
in the East China Sea and deep-water oil and gas
in the South China Sea. In terms of equipment,
priority should be given to the development of
unconventional and marine oil and gas resources.
R&D of large acidification and fracturing
equipment, semi-submersible rigs and production
platforms, drilling ships, jack-up drilling platforms, floating production, storage and offloading vessels, geophysical prospecting ships,
underwater production systems and other key
systems and equipment should be supported.
Fourth, the gas pricing mechanism should be
reformed to speed up the development of natural
gas in China. Those parts of the value chain
where price can be shaped by market competition
should be deregulated to unlock market vitality.
Pipeline transmission is a natural monopoly that
should be priced under government regulation to
ensure market fairness. Wellhead and end-user
(excluding residential users) gas prices should be
deregulated steadily and determined by the
market. The gas transmission tariff and distribution fee should be regulated by the government,
and tiered residential gas prices established to
adjust the residential gas price reasonably. In
addition, interruptible gas pricing and peak and
off-peak prices should be introduced, and
peak-shaving pricing applied to gas-fired power.
Fifth, fiscal and taxation policies should be
standardised and improved as soon as possible.
Because of resource constraints, the best way to
reflect resource value and scarcity is by implementing a system whereby mineral resources are
procured, and mining rights awarded, through the
Special Report 3: A Study of China’s Technology Revolution
385
positioning of unconventional gas as a key driver
of gas output growth, and the strategic goals and
means of delivery, should be clearly defined.
Generating huge monopoly profits by virtue of
large-scale investment and the relative scarcity of
resources is the traditional pathway for the
international oil and gas sector. Faced with
increasingly fierce competition from renewable
energy sources, the oil and gas industry must be
transformed and revolutionised. Low-cost, green
development should be the main strategy of the
oil and gas revolution.
Second, the oil and gas industry requires deep
reform. The Ministry of Land and Resources of
China listed shale gas as an independent mineral
energy resource and invited bids for the exploration rights. Allowing non-oil and gas companies and private enterprises to bid for rights
breaks the upstream monopoly of the major
state-owned oil companies, which is a big step
towards oil and gas reform. However, more than
70% of unconventional oil and gas resources
overlap with conventional deposits. The blocks
with the highest-quality resources are still being
explored by the three major oil companies and
Yanchang Petroleum, because bidding has not
yet been introduced. The next step should be to
reform the administration of mining rights for
existing oil and gas blocks. It is suggested that
exploration and mining rights be awarded by
tender, auction or listing. In addition, a mining
rights evaluation system, competitive pricing
system and mining rights transfer system should
be introduced to create an orderly mining rights
market. This would attract more businesses to
invest in and exploit oil and gas resources,
thereby increasing China’s oil and gas
production.
Third, technology and equipment innovation
should be improved. Strong technology innovation and advanced equipment are prerequisites
for the oil and gas production revolution. It is
suggested that exploration and production technologies suitable for the characteristics of
China’s unconventional oil and gas resources
should be improved by importing, absorbing and
innovating advanced technologies through joint
R&D and foreign cooperation. A key technology
and equipment system with Chinese characteristics should be developed and deployed at large
scale. Local equipment manufacturing should be
improved to generate independent intellectual
property rights. Specifically, in terms of exploration and production technologies, breakthroughs should be made in drilling and
completion, reservoir stimulation, micro-seismic
monitoring and other key unconventional gas
development technologies. Focus should be
directed on research on exploration and production technologies adapted for deep and ultra-deep
quasi-continuous tight sandstone and viscous oil
in the East China Sea and deep-water oil and gas
in the South China Sea. In terms of equipment,
priority should be given to the development of
unconventional and marine oil and gas resources.
R&D of large acidification and fracturing
equipment, semi-submersible rigs and production
platforms, drilling ships, jack-up drilling platforms, floating production, storage and offloading vessels, geophysical prospecting ships,
underwater production systems and other key
systems and equipment should be supported.
Fourth, the gas pricing mechanism should be
reformed to speed up the development of natural
gas in China. Those parts of the value chain
where price can be shaped by market competition
should be deregulated to unlock market vitality.
Pipeline transmission is a natural monopoly that
should be priced under government regulation to
ensure market fairness. Wellhead and end-user
(excluding residential users) gas prices should be
deregulated steadily and determined by the
market. The gas transmission tariff and distribution fee should be regulated by the government,
and tiered residential gas prices established to
adjust the residential gas price reasonably. In
addition, interruptible gas pricing and peak and
off-peak prices should be introduced, and
peak-shaving pricing applied to gas-fired power.
Fifth, fiscal and taxation policies should be
standardised and improved as soon as possible.
Because of resource constraints, the best way to
reflect resource value and scarcity is by implementing a system whereby mineral resources are
procured, and mining rights awarded, through the
Special Report 3: A Study of China’s Technology Revolution
385