(Yicai Global) April 4 -- Shares in China’s shale gas sector have surged after state departments cut resources tax on the natural gas by 30 percent over the next three years in a bid to encourage development and increase supply.
Sino Geophysical Co. [SHE:300191] led shale sector gains in trading yesterday afternoon by hitting the 10-percent limit up, while water and related gas segments also inched up. Shares in China Petroleum & Chemical Corp. [HKG:0386], the state-owned oil giant better known as Sinopec, jumped more than 4 percent in Hong Kong as the firm unveiled plans to increase shale production by two thirds by 2020.
Tax on shale gas will be levied at 4.2 percent rather than 6 percent from April 1, 2018 through March 31, 2021, according to a circular released yesterday by the Ministry of Finance and State Administration of Taxation.
Rock layers in China’s shale gas reservoirs have low permeability and extraction is difficult, the circular said, adding that development technologies have not yet matured. This means expenditure is high, output is low, and it takes a long time for investors to recoup their capital, so companies are not actively developing the sector, it added.
The National Energy Administration unveiled a five-year plan in 2016 to escalate China’s shale gas production to 30 billion cubic meters a year by 2020. The nation’s output was almost CNY7.9 billion cubic meters in 2016, ranking it third worldwide behind the United States and Canada.