Block circulation includes the transfer of
exited and existing blocks and circulation
between businesses. First, measures to restrict
block exit should be developed to improve the
exit mechanism, including: (i) economic means
to raise the charges for holding exploration
rights; and (ii) administrative means to force
mandatory exit of a proportion of the same basin
whenever an exploration right is extended. It is
suggested that differentiation be applied according to the difficulty of exploring in different
regions. For example, the lower limit of exploration rights investment for the Tarim and
Sichuan Basins, which have complex geological
conditions and a long drilling period, should be
different from other basins or regions. The years
in which such blocks are under assessment
should be extended appropriately. Second, the
measures to administer transfer of existing blocks
should be improved. Such measures exist
already, but there are no relevant assessment
agencies or detailed rules of implementation and
no precedent for oil and gas block transfer. It is
suggested that rules on the paid use of reserves
and valuation methods that are fair, reasonable
and consistent with international practice should
be studied and developed, and that world-class
reserve assessment agencies should be cultivated
to create conditions for mining rights circulation
and reserves trading. Third, circulation of existing blocks should be accelerated. After analysing
successful circulation cases, such as that of
Daqing Oil Field entering the Tadong Block, the
four major oil and gas companies (Sinopec,
CNPC, CNOOC and Sinochem) should be
allowed to transfer blocks and trade reserves
among themselves using market-oriented
approaches to revitalise mining rights resources.
To encourage businesses to exit idle blocks
and make room for other investors, the initial
investment of those exiting businesses should be
compensated. If a licence holder exits and the
exploration right is taken by another company,
that company should provide compensation for
the previous investment of the licence holder.
Compensation criteria could be investment in
seismic exploration, research or drilling.
China will cancel the franchise of the three
major state-owned oil and gas enterprises for
onshore cooperation with foreign businesses and
allow other Chinese companies to cooperate with
foreign businesses under government regulations. Companies should be motivated—and
capital, advanced technologies and management
experience leveraged—to improve China’s ability to supply oil and gas, especially unconventional resources. The franchise for offshore
cooperation should also be steadily deregulated.
Pilot reforms could be carried out, initially with
CNPC and Sinopec. After which the criteria for
awarding offshore oil and gas mining rights
should be researched by examining these pilot
reforms. Subsequent laws and regulations should
be introduced step by step.
While granting access to upstream resources,
China should improve management and share
geological data. It is suggested that the government should form a national geological data
organisation, giving it the right to set up an oil
and gas geological data submission system and
empowering it to require businesses (including
national oil companies) to submit geological
data. Non-confidential geological data should be
made available to all companies to facilitate data
and information sharing.
(2) Accelerate reform of the oil and gas
pipeline network and build an independent and diversified system of oil and gas
infrastructure
The guiding principle behind the reform of the
oil and gas pipeline network is: “drive the independence of trunk pipelines of large state-owned
oil and gas companies step by step to unbundle
pipeline transmission and sales; improve the
mechanism for fair access to the oil and gas
pipeline network to make trunk pipelines and
intra- and inter-provincial pipeline networks
open to third-party market participants”. China
will focus on addressing the main factors constraining the development of its natural gas
industry: infrastructure construction, undiversified construction companies and operators, low
466
S. Yaodong and A. Gillespie
exited and existing blocks and circulation
between businesses. First, measures to restrict
block exit should be developed to improve the
exit mechanism, including: (i) economic means
to raise the charges for holding exploration
rights; and (ii) administrative means to force
mandatory exit of a proportion of the same basin
whenever an exploration right is extended. It is
suggested that differentiation be applied according to the difficulty of exploring in different
regions. For example, the lower limit of exploration rights investment for the Tarim and
Sichuan Basins, which have complex geological
conditions and a long drilling period, should be
different from other basins or regions. The years
in which such blocks are under assessment
should be extended appropriately. Second, the
measures to administer transfer of existing blocks
should be improved. Such measures exist
already, but there are no relevant assessment
agencies or detailed rules of implementation and
no precedent for oil and gas block transfer. It is
suggested that rules on the paid use of reserves
and valuation methods that are fair, reasonable
and consistent with international practice should
be studied and developed, and that world-class
reserve assessment agencies should be cultivated
to create conditions for mining rights circulation
and reserves trading. Third, circulation of existing blocks should be accelerated. After analysing
successful circulation cases, such as that of
Daqing Oil Field entering the Tadong Block, the
four major oil and gas companies (Sinopec,
CNPC, CNOOC and Sinochem) should be
allowed to transfer blocks and trade reserves
among themselves using market-oriented
approaches to revitalise mining rights resources.
To encourage businesses to exit idle blocks
and make room for other investors, the initial
investment of those exiting businesses should be
compensated. If a licence holder exits and the
exploration right is taken by another company,
that company should provide compensation for
the previous investment of the licence holder.
Compensation criteria could be investment in
seismic exploration, research or drilling.
China will cancel the franchise of the three
major state-owned oil and gas enterprises for
onshore cooperation with foreign businesses and
allow other Chinese companies to cooperate with
foreign businesses under government regulations. Companies should be motivated—and
capital, advanced technologies and management
experience leveraged—to improve China’s ability to supply oil and gas, especially unconventional resources. The franchise for offshore
cooperation should also be steadily deregulated.
Pilot reforms could be carried out, initially with
CNPC and Sinopec. After which the criteria for
awarding offshore oil and gas mining rights
should be researched by examining these pilot
reforms. Subsequent laws and regulations should
be introduced step by step.
While granting access to upstream resources,
China should improve management and share
geological data. It is suggested that the government should form a national geological data
organisation, giving it the right to set up an oil
and gas geological data submission system and
empowering it to require businesses (including
national oil companies) to submit geological
data. Non-confidential geological data should be
made available to all companies to facilitate data
and information sharing.
(2) Accelerate reform of the oil and gas
pipeline network and build an independent and diversified system of oil and gas
infrastructure
The guiding principle behind the reform of the
oil and gas pipeline network is: “drive the independence of trunk pipelines of large state-owned
oil and gas companies step by step to unbundle
pipeline transmission and sales; improve the
mechanism for fair access to the oil and gas
pipeline network to make trunk pipelines and
intra- and inter-provincial pipeline networks
open to third-party market participants”. China
will focus on addressing the main factors constraining the development of its natural gas
industry: infrastructure construction, undiversified construction companies and operators, low
466
S. Yaodong and A. Gillespie