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Shell Sees Major Advance in China Shale Output Within Two Years (The Wall Street Journal)
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- China moves to make its markets credible (The Financial Times)
Shell Sees Major Advance in China Shale Output Within Two Years (The Wall Street Journal)By SIMON HALL Updated March 7, 2013 http://online.wsj.com/article/SB10001424127887324128504578346032532346990.html SINGAPORE—Royal Dutch Shell RDSB.LN +0.42% said it may be less than two years away from a major advance in shale gas production in China, bringing the country closer to being the first outside of North America to cash in on technology that has transformed the U.S. energy industry. Unlocking the gas trapped inside China's shale rock reserves, the world's biggest, would provide much needed energy supplies to the energy-hungry economy and help cut down on expensive imports of gas. It would also provide a windfall for Western energy giants that provide the complex hydraulic fracturing technology. Shell is on track to have spent $2 billion by the end of this year exploring the central province of Sichuan, and has drilled nearly 30 wells in joint-venture projects with China National Petroleum Corp. "Mid-decade we will be able to decide" on the so-called final investment decision that will determine whether to go into full commercial production, said Maarten Wetselaar, head of Shell's integrated gas operations world-wide, excluding North America. The multinational energy company is already producing tiny amounts of shale gas as part of its exploration work, and it pumps this into Sichuan's natural-gas network. How quickly output can be ramped up after further investment is unclear. Beijing has set an ambitious target of producing 6.5 billion cubic meters of shale gas annually by 2015, and as much as 100 billion cubic meters by 2020, from nearly zero now. Getting the Shell project into operation will be critical in meeting those goals. In the U.S., which pioneered the technology to extract gas and oil trapped in shale rock formations, gas production has soared, bringing down prices of fuel for manufacturing and chemical production. It has also raised the prospect of liquefied natural gas exports from North America of as much as 70 million tons a year within a decade, equivalent to deliveries from current world leader Qatar, Mr. Wetselaar said in an interview The U.S. Energy Information Administration has a preliminary estimate of some 36 trillion cubic meters of recoverable shale-gas resources in China, more than the U.S. and Canada combined, which, if extracted, could transform China's energy profile. Those estimates have also sent rival Chevron Corp. CVX +0.08% into China searching for shale, while ConocoPhillips COP -0.24% and Total SA FP.FR +0.22% are also planning exploration projects. Foreign companies are obliged to have local partners when exploring for shale in China. China's government hasn't yet given a formal go-ahead to Shell's draft production-sharing pact with partner CNPC, but Mr. Wetselaar said he isn't worried. "We will get the correct regime in place," he said. "I don't think it is lack of intent." Other obstacles in China to successful exploitation include scarce supplies of water required to get the gas out of shale rock, and more complicated geology than in Canada and the U.S. Still, "outside of North America, China is the most mature in terms of wells, in terms of activity on the ground," Mr. Wetselaar said. But after China, the next country ready to produce commercial quantities for shale gas is likely to be Ukraine, where Shell is in the early stages of a drilling program, he said. Write to Simon Hall at simon.hall@dowjones.com China moves to make its markets credible (The Financial Times)JOSH NOBLE Published Thursday, Mar. 07 2013 http://www.theglobeandmail.com/report-on-business/international-business/asian-pacific-business/china-moves-to-make-its-markets-credible/article9478150/ Although gambling is illegal in China – except at the baccarat tables of Macau and Hong Kong’s twin horse tracks – there is one venue on the mainland where some say games of chance are officially sanctioned: the stock market. But that could be changing. There is a growing feeling among investors that China’s regulators are finally taking some of the necessary steps to transform the equity casino into a genuine international capital market. Mark Makepeace, the chief executive of FTSE, said this week that recent market reforms could make China eligible for inclusion into international indices within three-to-five years, a move that would have wide implications both for the market and for global asset allocators. Such a shift would be “very welcome by us as China fund managers . . . it would definitely help to diversify investor behaviour,” says Shumin Huang, Greater China investment manager at JPMorgan Asset Management. Better access to mainland equities – known as A-shares – would also enable investors to broaden their exposure into a wider range of sectors of the Chinese economy, such as consumer and health-care stocks. The China Securities Regulatory Commission, under its chairman Guo Shuqing, has introduced measures to improve the functioning of mainland equities markets in the past year. Just this month, the CSRC has made it easier to short individual companies, increased the pool of available stock options and widened the group of investors allowed to invest onshore through its renminbi qualified foreign institutional investor (RQFII) scheme. The broader goal is to encourage more global funds into Chinese markets and to balance out the short-term focus of domestic investors. China’s equity market currently has a heavy bias towards retail investors, while the fund management industry is hostage to a system of monthly or quarterly performance reviews that leave little incentive for long-term investment plans. Chinese authorities believe that overseas capital, in the form of pension, sovereign wealth and asset management funds, could help change that, and have embarked on international roadshows to drum up interest. They have also lowered the requirements for those seeking licences to invest in mainland shares. Working with index providers would be a guaranteed way of increasing foreign participation in mainland markets. The many global investors who track the indices compiled by the likes of FTSE and MSCI would be forced to buy into the Chinese market were it added to global and regional benchmarks, or had its weighting increased. “This opening up could be a monumental change for global equity markets. It’s important that investors aren’t caught out,” says Deborah Yang at MSCI. China’s current weighting in globally recognized equity indices is far lower than the size of its economy or its markets would imply. Mainland shares account for just 0.15 per cent of the FTSE Global index, 1.1 per cent of its Asia ex-Japan benchmark, and only 6 per cent of the FTSE China index. Without any restrictions on foreign investment, those figures would jump to 3.1 per cent, 19 per cent and 60 per cent respectively. Similarly, China would grow from under a fifth to about a third of MSCI’s emerging markets index, which is tracked by $1-trillion in funds, if investment limits were removed today. In FTSE’s ranking of countries by combined market capitalization, China would rise to fourth from the current 11th spot. There are some doubts, however, about the timing of the reforms. “I’m not sure that high ranking Chinese officials could know the timetable for [opening up the market]. It’s both a financial and a political decision,” says one international fund manager with holdings in China. “They might have a long-term plan, but it is only directional.” Global investors complain not just about barriers to entry, but also corporate governance, shareholder rights and complex equity structures. The biggest challenge may not be to provide access, but rather to align the interests of shareholders, management and the state. “If investors cannot make money through the rational investment process, the market will remain very cyclical and speculative,” says Cong Li, chief investment officer at Mirae Asset Global Investments in Hong Kong. “Diversification of the investor base is a good thing, but more reform is needed. For A-shares to become a really good destination for international investors, it’ll really take a long time.” Analysts say that radical measures will be needed to get Chinese markets up to international standards, prompting debate over how far and how fast China can realistically reform. “We’re moving in the right direction, but I don’t get overexcited,” says Gary Dugan, chief Asian investment officer at Coutts. “We’re some years away from making it a credible market. 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