China's Encouragement And Introduction For Private Investment Should Turn Talk To Action

Online, July 20, 2012 (Newswire.com) - (1) China will further encourage private investment in the energy sector to boost the restructuring and future development of the industry the National Energy Administration (NEA) said on June 20, 2012. China will open all energy sectors listed in the national energy plan, except those prohibited by law, to private investors.
(2) China encourages private investment in national land and resources industries, including land reconstruction and resources exploration, the Ministry of Land and Resources said on June 29, 2012.
This is the first time for the unconventional oil and gas including shale gas, coal bed methane and oil sands to be open to private investors for exploration and development.
Above 2 guidelines allows eligible private companies to take up the development projects for unconventional oil and gas resources like coal-bed methane, shale gas and oil shale. If for the private company without mining licenses, they can explore the joint work with the eligible ones, for example to create a joint venture.
We can read some terms in the guidelines unprecedented in before statements. Traditionally speaking, the private investors were not allowed to be a part of the energy projects, but for now on they can choose the partners among the state owned oil companies to see the open door to CBM, shale gas, shale oil etc. unconventional development projects through diversified channels, introduced by an expert of ECF International Shale Gas Forum* on ECF roundtable discussion (July 4), who remained to be anonymous. She told the reporter, these guidelines meant a lot and were thought of as the millstone by all the parties.
Private companies are good at operation efficiency and cost control. They always did a good job compared with the state owned companies, according to the public opinion. They can bring vitality into the shale gas industry and put some pressures on the state owned sectors to urge them improve the efficiency and operation capability. But we should say the reality is there were only a few investments put into the energy sector in the past time.
Now facing the encouragement and verbal introduction from the governments, some of the private companies were stilling watching and waiting for the specific rules after the general guidelines and others of the private companies had passive responses to the general guidelines themselves, which cannot be effective unless State owned sectors are willing to dismantle monopolies and middle and small private companies undergo merger and consolidation to win large projects.
Look at the shale gas industry, the US successes told us, the shale gas revolution was promoted by hundreds of middle and small private companies in the earlier stage. The big oil and gas companies didn't do merge and acquisition to make the overall development plans until the middle and small ones built the experiences, gradually improved their own technologies, professional productivity and expended to the specific scales.
In this July, China will hold the 2nd shale gas auction. There were more than 70 domestic companies submitted the bids to the ministry of national land and resources, said the deputy director of its strategic oil and gas research center. Among the long list, the private investors accounted about one third.
Here we just want the private sectors to consider 2 things: one is the priority of the state owned companies in the real auction. They could always get the blocks first and the private ones would only bid for the rest blocks. Take the Sichuan Basin as an example, the coke blocks has already been registered by the big 2 stated owned companies, CNPC and CPC. The other is the transportation and distribution problems waiting for the private sectors after they explored and produced successfully. If they build the gas station the local areas, an additional cost will be added. If they piped the gas through the pipeline networks, they should be firstly in a negotiation with CNPC and CPC to get the right of use.
In the energy sector, the State owned companies have already monopolized the sector in terms of capital, technology and human resources. It's difficult for private investors to break the barriers.
"Vested interests in the State-owned companies which seek to maintain their monopoly positions still hinder private capital from entering the State-controlled sectors. Without dismantling monopolies to allow private investors to share some of the market, the reform cannot achieve the desired result," Bao Yujun, chairman of the All China Private Companies Federation said.
Speaking of barriers, "the private companies have their own problems - they are usually too scattered with limited capital and resources to compete in State-dominated areas," Bao said, "they should undergo merger and consolidation to form joint stock companies to compete with the state owned companies for large projects."
The government should quickly turn the talk into action, releasing detailed regulations to guarantee the interests of private investors.

*ECF International Shale Gas Forum is the first platform to follow the unprecedented model of integrating the intelligence and resources among governments, researches, oil companies and financial organizations and will offer guideline for multinational cooperation and help project approval. The membership recruitment is opening from the last Oct. And we believe, though our endeavor, the shale gas commercialization would speed up.
On Oct 16, Mr. Hu Weiping, Director Oil and Gas Dept, Energy Bureau,. NDRC will be the chair of an ECF roundtable discussion, which is another charged activity not included in 2NDAsia Shale Gas Summit 2012 (Shanghai), and should be 20 people at most. Please simply apply for the participation opportunity at ecfchinadata@gmail.com, which will be handled within 5 business days and you will be informed if your application is approval finally.