China has decided to provide further incentives to promote its shale gas sector in a bid to boost development of unconventional gas and help bridge the nation's supply gap.

The Ministry of Finance & State Administration of Taxation had previously been levying a resources tax covering 6% of sales revenue for shale gas, but that is set to be reduced by 30% for a three-year period.

The latest tax policy is being made as Chinese national oil companies try to increase gas production from domestic fields in order to cushion losses brought by high-priced gas imports.

Sinopec and PetroChina, which produced more than 90% of China’s shale gas output last year from the Fuling and Weiyuan-Changning blocks, could easily slip into the red without government subsidies of 0.3 yuan ($0.048) per cubic metres between 2016 and 2018, though that grant will be lowered to 0.2 yuan for the 2019 to 2020 period.

The government aims to boost shale gas production to 30 billion cubic metres by 2020 and further to between 80 Bcm and 100 Bcm by 2030, up from last year’s 10 Bcm.

PetroChina alone aims to produce 10 Bcm in 2020 and 20 Bcm in 2025.

Last week, China’s top shale gas producer Sinopec embarked on a new expansion phase at its flagship Fuling shale gas field at Chongqing, in southwest China.

The 2.1 billion yuan ($333 million) expansion will involve drilling 58 production wells at 58 well pads, with production of 64,000 cubic metres per day.

The expansion is part of Sinopec’s efforts to prevent Fuling’s production from falling from the current level of 10 Bcm per annum. The new development also calls for the building of 13 gas gathering stations and two processing plants, as well as an export pipeline spanning 61 kilometres.

China’s gas consumption increased to 237 Bcm last year, up 15% from 2016, of which 147.4 Bcm came from domestic production and 92 Bcm from imports.

Of the total imports, 54% are LNG and 46% are pipeline gas, mostly from Turkmenistan.

Last year, the country’s largest gas supplier PetroChina lost 23.9 billion yuan on importing 38.7 Bcm of pipeline gas from northeast Asian countries, including 26.9 Bcm from Turkmenistan and liquefied natural gas, the price of which is based on a formula set when the crude price was at its peak about 10 years ago.

To improve the balance sheet of its gas operations, PetroChina has decided to increase its domestic gas production to 120 Bcm by 2020, up from 103 Bcm produced last year.

Weekly

China looks to boost shale gas incentives