PetroChina gains on Beijing’s gas production subsidy hope as trade war stokes energy security fears

Beijing is mulling to extend subsidies for shale and coal seam gas production after 2020 and to provide aid to tight gas production

PUBLISHED : Thursday, 06 September, 2018, 10:10pm
UPDATED : Thursday, 06 September, 2018, 10:10pm

Shares of PetroChina and subsidiary Kunlun Energy gained after Beijing said it was mulling financial incentives to bolster natural gas production and logistics capacity to enhance national energy security as the US-China trade war rages on.

Beijing may extend subsidies on shale and coal seam gas production for five more years beyond 2020 and provide aid to tight gas production for the first time, according to a circular released by the State Council on Wednesday.

The subsidies were among various measures to implement Beijing’s “energy security strategy” and ensure “fast growth in reserve proving and production”, it said.

The circular came a month after President Xi Jinping told the three national oil and gas giants to boost output to enhance national energy security amid an ongoing trade war which saw Beijing slapping a 25 per cent tariff on US gas.

PetroChina is the country’s largest producer of conventional and unconventional gas, responsible last year for two-thirds of the national output of the cleaner burning fuel – key to Beijing’s “war on air pollution”. It is also the biggest gas importer.

But the company’s target to raise gas output by 4 to 5 per cent in the next few years has fallen short of Beijing’s goal of an 11 per cent annual output growth until 2020, according to a Jefferies report.

Unconventional gas – including tight gas, shale gas and coal seam gas – adheres tightly to geological structures and whose extraction requires advanced drilling techniques. Producers of shale and coal seam gas enjoy a subsidy of 0.3 yuan per cubic metre, a substantial source of income.

Shale gas takes up for just under 10 per cent of PetroChina’s total gas output, while tight gas may account for up to half, according to Jefferies’ analysts Laban Yu and Aaron Xiao.

State-backed PetroChina’s shares rose 1.6 per on Thursday to close at HK$5.75 on Beijing’s proposed incentives, bucking the Hang Seng Index’s 1 per cent decline. Its gas distribution and logistics subsidiary Kunlun Energy surged 3.3 per cent to HK$8.69.

The circular said Beijing was also studying plans to provide financial support for building key emergency gas storage facilities based on volume thresholds reached, and to offer value-added tax rebates to liquefied natural gas receiving terminals according to their throughput volumes.

Kunlun owns three of some 16 operating LNG terminals in mainland China, and is building emergency buffer gas storage facilities.

Beijing would step up efforts to see that existing oil and gas exploration permits and the exit system are implemented to boost domestic production. Permit holders will be forced to give up exploration rights if they fail to deliver the volume and investments they had promised, the circular said adding that details will be unveiled later.

Existing rules to prevent firms from “sitting on” their permits and not investing enough in the exploration and development of the acreage have not been effective, as the industry is dominated by PetroChina. The oil producer may be forced to ramp up its exploration spending with the proposed measures.

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