Beijing plans curbs on shale gas subsidies

China has announced it will step down shale gas subsidies over the next five years, in a further blow to the nation's plans to match the US "shale revolution".

Subsidies will drop to RMB0.30 per cubic metre from 2016-2018 from RMB0.40 cubic metre now, and will be cut further to RMB0.20 in 2019-2020, according to the Ministry of Finance.

Beijing pushed its state-owned oil companies to develop shale in an effort to solve China's reliance on oil imports by creating a domestic alternative by fiat. Oil companies Sinopec and PetroChina have vowed to meet centrally-set targets for shale gas production despite disappointing initial results. They say they needed subsidies to do so.

Energy expert Lin Boqiang of Xiamen University said the cuts reflect expectations that advances in technology are driving down costs. "For solar and wind, you can clearly see costs are down. But for shale, we don't see that so clearly."

China's mountainous geography, monopolised pipeline infrastructure and the political difficulty of allocating water to shale gas production in densely populated valleys has made shale gas more expensive and harder to extract than in the United States, where the spike in domestic supply has driven down energy prices and replaced imports. Sinopec has placed the most political capital on its shale gas success, touting its production at the Fuling deposit near the inland port city of Chongqing. Sinopec executives said last year that the company could not break even on shale production without subsidies.

Smaller state-owned rival Cnooc last month said it was shelving plans to develop a shale block in Anhui province, eastern China. Cnooc has profitably invested in shale plays in North America.

PetroChina, the listed unit of China National Petroleum Corp or CNPC, has quietly scaled back its shale joint ventures with Shell in southwestern China, although it has also vowed to meet government output targets. So many Shell executives have left China that one international school in Beijing has stopped offering classes in Dutch.

Additional reporting by Owen Guo

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