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licenses18 for exploration in western China. As shale gas production is in its infancy, there is no regulatory framework in place in China. We should remember that shale is a very-lowpermeability reservoir rock that must be fractured to allow conduits for gas to migrate to the production well bore. This is typically accomplished using multiple horizontal wells drilled from a common well pad, with multiple slickwater hydraulic fracture treatments in each (from as few as 5 to more than 20 fracture treatment stages per well). Because of the very low permeability of shale, minimum well spacing of 40 to 80 acres37 or less is required—much closer than well spacing for conventional gas drilling, which is typically 160 acres or more. China is pursuing joint ventures with foreign companies to help build up know-how in shale gas exploration and extraction, and it appears likely that the Chinese government will continue to promote and support shale gas development.19 The shale gas initiative with the United States from 2009 led to multiple U.S.China industry partnerships. Chevron, Shell, BP, EOG Resources, Newfield Exploration, ConocoPhillips, Schlumberger, and Baker Hughes and other foreign firms: a) Royal Dutch Shell has taken the lead among major IOCs, signing China's first shale gas PSC for the Fushun-Yongchuan block in the Sichuan basin. It is planning to spend US$ 1 billion per year to develop shale gas resources in the country; b) other prominent IOCs involved in China include ExxonMobil, Chevron, ConocoPhillips and Eni. ConocoPhillips and Eni have entered into JSAs with PetroChina and its parent company CNPC as part of overseas farm-in deals. These can be converted into PSCs if commercial discoveries are made during exploration. As shale gas has been identified by the Chinese authorities as a new type of mineral 18 Licences authorise a certain entity with the exclusive right of exploration and/or exploitation of hydrocarbons in a specific geographical area for a defined time. 19 China Begins to Tap Its Shale Gas, Despite Daunting Technological, Environmental Hurdles, New York Times, October 14, 2011.


resource, it is subject to a separate legal regime from conventional oil and gas. To date, a clear regulatory framework and detailed regulations for shale gas are lacking. However, Chinese authorities have started to build on the existing regulatory system by issuing some regulations and policy statements in relation to shale resources. China’s shale gas sector is regulated mainly by four major governmental authorities, namely, the MLR, the NDRC, the National Energy Administration (NEA) and the Ministry of Finance (MOF). MLR is responsible for the general administration of mineral issues, from organising the researching and planning of potential shale gas production blocks to the registration and issuance of exploration and prospecting licences. NDRC is involved in designing the pricing system for oil and natural gas and is expected to introduce reforms in the pricing mechanism for shale gas in the near future. MOF is responsible for providing fiscal support to the shale gas players in the prospecting phase. The current legal framework is based on the Notice Regarding the Strengthening of Shale Gas Exploration, Prospecting, Supervision and Administration (the Notice) circulated by MLR following China’s 12th Five-Year Plan for Shale Gas. The Notice serves as a guideline to both private enterprises and local governmental administrative authorities engaged in shale gas activities. In the Notice, MLR emphasised the strategic importance of shale gas as a clean energy source and urges better regulation for the market to ensure its healthy and sound development in the long run. MLR is responsible for the administration and registration of shale gas exploration and prospecting rights. The exploration rights will mainly be conferred by public bidding and licensing. All parties are encouraged to participate in exploration activities as long as they are independent entities with sufficient funding and hold, or partner with the holders of, licences for exploration of oil, gas, or any other kinds of gas minerals. Foreign enterprises with shale gas mining and exploration technology are especially encouraged to create

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