China is betting the farm on the extraction of shale hydrocarbons

25 august 2016 | IA REGNUM

“At the moment, China’s oil and gas extraction sector would be most interested in investments by the US and Canadian companies,” Vera Kulpina, Adviser of the Department for Strategic Studies in Energy of the Analytical Center, said in an interview with a REGNUM correspondent.

Vera Kulpina
Vera Kulpina
Department for Strategic Studies in Energy

Answering the question about which foreign investments were going to change China’s oil and gas extraction sector, the expert explained that China is interested in getting foreign investments in this sector primarily in terms of the technologies and experience such investments can bring. A lot is being bet on the extraction of shale hydrocarbons in China, which means using innovative equipment and extraction methodologies.

“So, in this sense, investments by, say, the US and Canadian companies would be most desirable. China does not really lack for money. Money is not an issue for them,” Ms. Kulpina explained.

The expert also noted that foreign investments are heavily regulated in China, including through official lists of industries where foreign companies are allowed to invest. These industries are divided up into three categories. The first category comprises industries where foreign investments are banned. The second category is industries where only limited foreign investments are allowed through joint ventures with Chinese investors. The third category is industries where foreign investments are encouraged and investors are given tax exemptions and other kinds of preferential treatment.

It is an important way in which the openness of this industry in China to foreign investments can be influenced. Especially, taking into account the fact that currently foreign investors in oil and gas production are required to have a Chinese partner and foreign companies are restricted with regards to their involvement in oil refinery and electricity production, which, undoubtedly, also affects investor interest in oil and gas production. For example, if an investor wants to create a production chain, the analyst stressed.

“Thus, in order to make the industry more open to foreign investors, the Chinese Government may completely or partially remove the existing restrictions, for example, they can start lifting them for specific pilot regions, it is a practice often used in China,” Ms. Kulpina summed up.