Abstract

China is believed to have the world's largest exploitable reserves of shale gas, although several legal, regulatory, environmental, and investment-related issues will likely restrain its exploitation. China's capacity to face these hurdles successfully and produce commercial shale gas will have a crucial impact on the regional gas market and on China’s energy mix, as Beijing strives to decrease reliance on imported oil and coal, and, at the same time, tries to meet growing energy demand and maintain a certain level of resource autonomy. The development of the unconventional natural gas extractive industry will also provide China with further negotiating power to obtain more advantageously priced gas. This article, which adopts a comparative perspective, underlines the trends taken from unconventional fuel development in the United States, emphasizing their potential application to China in light of recently signed production-sharing agreements between qualified foreign investors and China. The wide range of regulatory and enforcement problems in this matter are increased by an extremely limited liberalization of gas prices, lack of technological development, and barriers to market access curbing access to resource extraction for private investors. This article analyzes the legal tools that can play a role in shale gas development while assessing the new legal and fiscal policies that should be crafted or reinforced. It also examines the institutional settings’ fragmentation and conflicts, highlighting how processes and outcomes are indeed path dependent. Moreover, the possibilities of cooperation and coordination (including through U.S.-China common initiatives), and the role of transparency and disclosure of environmental data are assessed. These issues are exacerbated by concerns related to the risk of water pollution deriving from mismanaged drilling and fracturing, absence of adequate predictive evaluation regulatory instruments and industry standards: this entails consequences for social stability and environmental degradation which are inconsistent with the purposes of sustainable development.
Full Paper
Paolo Davide Farah
Founder, President and Director
Riccardo Tremolada
Research Associate

Summary

China is believed to have the world's largest exploitable reserves of shale gas, although several legal, regulatory, environmental, and investment-related issues will likely restrain its exploitation. China's capacity to face these hurdles successfully and produce commercial shale gas will have a crucial impact on the regional gas market and on China’s energy mix, as Beijing strives to decrease reliance on imported oil and coal, and, at the same time, tries to meet growing energy demand and maintain a certain level of resource autonomy. The development of the unconventional natural gas extractive industry will also provide China with further negotiating power to obtain more advantageously priced gas. This article, which adopts a comparative perspective, underlines the trends taken from unconventional fuel development in the United States, emphasizing their potential application to China in light of recently signed production-sharing agreements between qualified foreign investors and China. The wide range of regulatory and enforcement problems in this matter are increased by an extremely limited liberalization of gas prices, lack of technological development, and barriers to market access curbing access to resource extraction for private investors. This article analyzes the legal tools that can play a role in shale gas development while assessing the new legal and fiscal policies that should be crafted or reinforced. It also examines the institutional settings’ fragmentation and conflicts, highlighting how processes and outcomes are indeed path dependent. Moreover, the possibilities of cooperation and coordination (including through U.S.-China common initiatives), and the role of transparency and disclosure of environmental data are assessed. These issues are exacerbated by concerns related to the risk of water pollution deriving from mismanaged drilling and fracturing, absence of adequate predictive evaluation regulatory instruments and industry standards: this entails consequences for social stability and environmental degradation which are inconsistent with the purposes of sustainable development.

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