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China Is Now Officially Open For Foreign Oil, Gas Exploration

CNPC drilling

The Chinese oil and gas sector is now officially open for foreign participation without a requirement to form joint ventures with local companies, but while Chinese media quote oil majors as praising the move, experts say that China needs additional regulatory reforms in order to attract foreign investment.  

A month ago, China said that it would remove the joint venture requirement for foreign companies wanting to enter its oil and gas industry as it moves to open up a range of industries as per a pledge it made during its continuing trade dispute with the United States.

The Chinese National Development and Reform Commission announced it would remove the joint venture requirement for oil and gas projects along with a rule stating that only local firms can control gas networks in cities with populations of over half a million people.  

The new regulatory measures took effect this week, on July 30, opening the upstream oil and gas market in China to foreign firms in a bid to attract overseas capital and advance the ongoing energy reforms, China’s news agency Xinhua says.  

Foreign participation will boost China’s oil and gas production, Lin Boqiang, director of the China Centre for Energy Economics Research at Xiamen University, told Xinhua, adding that major international oil firms could speed up the country’s exploration of unconventional oil and gas resources.

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Shortly after China announced the scrapping of the joint venture requirement, China Daily quoted the local managers of majors BP and Shell as saying that they were encouraged by the Chinese market reforms.

Earlier this year, BP was set to become the latest international major to quit drilling for shale gas in China because of poor exploration drilling results so far. Shell, for its part, ventured into the shale oil business by signing an agreement with Sinopec to jointly study the potential development of shale oil in eastern China.

While Chinese media quote Shell and BP praising the opening of the upstream sector to foreign investment, law firm Herbert Smith Freehills LLP—licensed to operate as a foreign law firm in China—said in comments about the reforms that “in order to provide foreign investors with access to more opportunities in a fairer and more transparent business environment, additional regulatory changes are to be in place to implement the new regime, and let the market identify and evolve with opportunities in practice.”

By Tsvetana Paraskova for Oilprice.com

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