China's largest state-owned investment firm, the State Development & Investment Corp. (SDIC), has stepped into the country's shale sector with a RMB 30 billion ($4.71 billion) investment in shale gas and coal projects in Chongqing Municipality.
SDIC signed a strategic cooperative framework agreement with the Chongqing municipal government on Tuesday, committing the capital to shale gas exploration and utilization, the Chongqing Daily reported on Wednesday. The investment will also be used to construct a coal port and a national strategic coal storage base.
The investment amount that will be dedicated to shale gas has not been decided yet, Yang Qingyu, director of the National Development and Reform Commission's Chongqing branch, told Interfax on Wednesday.
The two sides have also formed a joint venture (JV) that will focus on shale gas development in Chongqing and related technology consulting, according to the report. The JV, SDIC Chongqing Shale Gas Development and Utilization Co. Ltd., was established by SDIC's High Technology Investment Co. Ltd. (HTI) and the Chongqing Institute of Geology and Mineral Resources with registered capital of RMB 300 million ($47.12 million).
HTI is the JV's controlling stakeholder and the JV will take part in China's second auction of shale gas exploration rights, sources told Interfax on condition of anonymity. The JV will receive funds from SDIC depending on the performance of production wells, according to Yang.
The two sides also discussed establishing special funds for emerging industries, including shale gas development, the report said. Chongqing in south-west China is targeting one billion cubic meters per year (bcm/y) of shale gas output within three years, the report said, citing remarks made by Mayor Huang Qifan.
Beijing has called for the country's shale gas output to reach 6.5 bcm/y by the end of 2015 before a leap in production to 60 to 100 bcm/y by 2020.
SDIC's entry into shale gas follows a series of statements issued last week by government departments in support of greater private investment in the unconventional energy sector. The National Energy Administration, China's energy regulator, issued broad measures on June 20 encouraging more private capital flow in hydrocarbon exploration and development, whilst urging other agencies to formulate supporting policies such as subsidies and tax relief.
"Such policies are still under research and discussion, and no timetable can be given so far," Li Cheng, an energy policy official with the Ministry of Finance, told Interfax on Wednesday.
Zhang Dawei, deputy director of the Ministry of Land and Resources' (MLR) Oil and Gas Strategic Research Center, dismissed concerns that SDIC's move would elbow private capital out of the shale gas sector. "This is market oriented company activity, and it won't harm private companies' opportunities in participating in the shale gas auction," Zhang told Interfax.
Chongqing contains shale gas geological resources of 12.75 trillion cubic meters (tcm) and 2.05 tcm of technically recoverable reserves, according to MLR data.