China has extended a tax break that encourages shale gas development as the nation aims to reduce its reliance on other fossil fuels with higher emissions.

ENERGY EXPLORED: SUBSCRIBE TO ACCELERATE

Gain valuable insight into the global oil and gas industry's energy transition from ACCELERATE, the free weekly newsletter from Upstream and Recharge. Sign up here today.

This week, China's Ministry of Finance and the State Administration of Taxation decided to extend its resource tax preferential policy on shale gas production for more than two years until 31 December 2023.

That continues a 30% shale gas resource deduction from the normal 6% shale gas resource tax rate, to a tax rate of 4.2%.

The extended tax deduction is vital for Chinese shale gas players, particularly Sinopec and PetroChina, which are investing more in costly and technically challenging projects to tap shale reservoirs below 3500 metres.

In China, about 80% of new shale discoveries are trapped in reservoirs deeper than 3500 metres, which pose serious challenges for China to develop. Its shale reservoirs are more fractured than those elsewhere, creating challenges for maintaining well integrity while drilling.

Meanwhile, the government will also continue its current policy of subsidising additional incremental shale production above the levels produced in the previous year — a policy in practice since 2019.

Sinopec milestone

China’s largest shale gas producer, Sinopec, has achieved first gas at its latest discovery in the southwestern Sichuan basin — the first shale gas production in the country from a reservoir below 3500 metres.

It now has annual shale gas production capacity of 1 billion cubic metres at the Weirong field, with current daily production of 3.5 million cubic metres from reservoir depths averaging 3750 metres.

Aggressive target set

China only produced 20 Bcm of shale gas last year, missing its 2020 shale gas output target of 30 Bcm — partly due to the challenges of producing shale gas from deeper reservoirs.

Industry officials remain upbeat, however, and have set an even more aggressive production target for 2025.

The country is looking to boost shale gas output to between 50 Bcm and 80 Bcm per year by 2025 as part of China's 14th five-year economic-development plan, which starts this year, said Ministry of Natural Resources official Zhang Dawei, at the recent 10th Asia Pacific Shale Gas & Oil Summit, held by Energy China Forum in Shanghai.

In the first two months of this year, Sinopec brought on stream 25 new shale gas wells at its largest shale gas field, Fuling, in the Sichuan basin.

That brought the number of shale gas production wells to 554, which together are producing 20 million cubic metres per day of shale gas.