other regional gas exchanges should form China’s gas spot price index. First, unconventional
gas (coalbed methane and shale gas), whose
pricing is completely market-oriented, should
compete with one another through platform
trading. Companies should be encouraged to
trade surplus capacity in pipelines, LNG terminals and gas storage facilities at the exchanges to
increase the economic benefits for infrastructure
operators and reflect the value of peak-shaving.
Second, market trading participants—including
gas suppliers, independent traders, large users
and local gas companies—should be fostered to
drive trading growth stably. Third, nonresidential gas should be traded at the exchanges to ensure openness and transparency within
two to three years. Fourth, regional exchanges
should be established in an orderly manner, while
accelerating the development of the Shanghai and
Chongqing petroleum and gas exchanges. These
regional gas exchanges should be developed in
accordance with the principle of “different focus,
mutual support, moderate competition and coordinated development”. They should be located in
the main consumption centres and infrastructure
hubs, including Xinjiang, Shenzhen, Beijing,
Tianjin, Hebei, Zhongwei and Hubei. Fifth, spot
and medium- and long-term trading should be
encouraged through listing and competitive bidding. This will promote competition between
different types of gas and allow price to reflect
fully the following: market demand and supply;
price fluctuations in alternative energy sources;
seasonal, peak and off-peak price differences; and
other market factors—enabling China to create a
gas spot price index as soon as possible. In the
long term, the Shanghai Petroleum & Gas
Exchange should become an international gas
exchange open to the Asia-Pacific region and
even the world. Gas futures, gas options and other
financial products should be launched once the
spot gas market is large enough and market participants in upstream and downstream oil and gas
are diversified and compete, and infrastructure is
interconnected and open. Later, an integrated
natural gas exchange—where financial transactions and spot trading complement each other and
develop hand in hand—should be built to shape
Chinese and even Asia-Pacific gas spot and
futures price indexes and to influence the global
gas market.
(4) Fiscal and taxation policies for the oil and
gas sector need to be improved
The aim of fiscal and taxation reform includes
clarifying the interests of different stakeholders,
supporting and guiding the development of
unconventional and deep-water oil and gas
resources, adjusting the distribution of tax revenues between central and local government,
promoting the development and use of green
resources, and building a fiscal and taxation
system that balances the interests of different
stakeholders.
Tight gas subsidy policies should be introduced as soon as possible. The geological reserve
of China’s tight gas resources is 25–30 trillion
cubic metres, equivalent to 45–50% of China’s
conventional gas reserves. Moreover, 50% of
these tight gas resources can be exploited, so it is
the most practical available natural gas resource
and has great development potential. However,
tight gas development relies on hydraulic fracturing technology to deliver industrial capacity,
and its development costs are two to four times
that of conventional gas. Moreover, its single
well production is low and steady production is
for a short time only. The government has suggested that it grant a subsidy of RMB 0.2 per
cubic metre for newly opened tight gas wells.
Shale gas will remain a key contributor to
China’s gas output growth in the future. Given
this, subsidies for shale gas exploitation are
important for China’s development of shale gas.
It is suggested that differentiated subsidies for
shale gas resources should be researched. For
instance, subsidies for shale gas resources in
marine facies in south China should differ,
depending on whether they are efficiently or
inefficiently extractable at a depth above or
below 3,500 m.
To reduce China’s increasing reliance on
imported oil and gas and enhance domestic
Special Report 4: China’s Energy System Revolution
471
gas (coalbed methane and shale gas), whose
pricing is completely market-oriented, should
compete with one another through platform
trading. Companies should be encouraged to
trade surplus capacity in pipelines, LNG terminals and gas storage facilities at the exchanges to
increase the economic benefits for infrastructure
operators and reflect the value of peak-shaving.
Second, market trading participants—including
gas suppliers, independent traders, large users
and local gas companies—should be fostered to
drive trading growth stably. Third, nonresidential gas should be traded at the exchanges to ensure openness and transparency within
two to three years. Fourth, regional exchanges
should be established in an orderly manner, while
accelerating the development of the Shanghai and
Chongqing petroleum and gas exchanges. These
regional gas exchanges should be developed in
accordance with the principle of “different focus,
mutual support, moderate competition and coordinated development”. They should be located in
the main consumption centres and infrastructure
hubs, including Xinjiang, Shenzhen, Beijing,
Tianjin, Hebei, Zhongwei and Hubei. Fifth, spot
and medium- and long-term trading should be
encouraged through listing and competitive bidding. This will promote competition between
different types of gas and allow price to reflect
fully the following: market demand and supply;
price fluctuations in alternative energy sources;
seasonal, peak and off-peak price differences; and
other market factors—enabling China to create a
gas spot price index as soon as possible. In the
long term, the Shanghai Petroleum & Gas
Exchange should become an international gas
exchange open to the Asia-Pacific region and
even the world. Gas futures, gas options and other
financial products should be launched once the
spot gas market is large enough and market participants in upstream and downstream oil and gas
are diversified and compete, and infrastructure is
interconnected and open. Later, an integrated
natural gas exchange—where financial transactions and spot trading complement each other and
develop hand in hand—should be built to shape
Chinese and even Asia-Pacific gas spot and
futures price indexes and to influence the global
gas market.
(4) Fiscal and taxation policies for the oil and
gas sector need to be improved
The aim of fiscal and taxation reform includes
clarifying the interests of different stakeholders,
supporting and guiding the development of
unconventional and deep-water oil and gas
resources, adjusting the distribution of tax revenues between central and local government,
promoting the development and use of green
resources, and building a fiscal and taxation
system that balances the interests of different
stakeholders.
Tight gas subsidy policies should be introduced as soon as possible. The geological reserve
of China’s tight gas resources is 25–30 trillion
cubic metres, equivalent to 45–50% of China’s
conventional gas reserves. Moreover, 50% of
these tight gas resources can be exploited, so it is
the most practical available natural gas resource
and has great development potential. However,
tight gas development relies on hydraulic fracturing technology to deliver industrial capacity,
and its development costs are two to four times
that of conventional gas. Moreover, its single
well production is low and steady production is
for a short time only. The government has suggested that it grant a subsidy of RMB 0.2 per
cubic metre for newly opened tight gas wells.
Shale gas will remain a key contributor to
China’s gas output growth in the future. Given
this, subsidies for shale gas exploitation are
important for China’s development of shale gas.
It is suggested that differentiated subsidies for
shale gas resources should be researched. For
instance, subsidies for shale gas resources in
marine facies in south China should differ,
depending on whether they are efficiently or
inefficiently extractable at a depth above or
below 3,500 m.
To reduce China’s increasing reliance on
imported oil and gas and enhance domestic
Special Report 4: China’s Energy System Revolution
471