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SPT Energy Expects Low Subsidies, Rules to Hinder China Shale

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Jan. 29 (Bloomberg) -- SPT Energy Group Inc., a Chinese oilfield services company, said inadequate government subsidies and policies may slow development of shale gas in China, the biggest holder of reserves.

“Depending on the subsidy policy to encourage development won’t be enough,” Wang Guoqiang, chairman of the Beijing-based company, said in an interview. “More incentives need to be introduced.”

SPT Energy has boosted spending in central Asia in the event that drilling in China is slower than expected. The Ministry of Finance said in November that 0.4 yuan (6 U.S. cents) would be given for each cubic meter of gas developed to target 60 to 100 billion cubic meters of annual output by 2020.

The 2020 target is “unrealistic,” Neil Beveridge, an analyst at Sanford C. Bernstein & Co., said this month in a report. He’s forecasting 30 billion cubic meters of commercial production by the end of the decade.

SPT Energy, whose shares have surged almost threefold in Hong Kong in the past year, rose 2 percent to HK$3.50 at 11:07 a.m. local time.

China’s natural-gas consumption will increase fourfold by 2030 to 600 billion cubic meters a year, accounting for 30 percent of global growth in gas demand, Wood Mackenzie Ltd. said June 6. The nation’s “ambitious” target for 2020 may be delayed by the need for better understanding of its shale formations and insufficient technical know-how, supply-chain services and infrastructure, according to the consultant.

Difficult Phase

The key to meeting the 2020 target is first meeting a goal of producing 6.5 billion cubic meters by 2015, as initial development will be the most difficult phase, Wang said yesterday. SPT Energy provided hydraulic fracturing services for two wells in Sichuan last year and plans to work on 14 wells in 2013.

“In the U.S., there was already a system in place for rule making and policy development,” Wang said. “China only started thinking about consulting with companies and reforming policy in reaction to shale gas, so this is definitely a challenge.”

Oilfield services may grow at an annual rate of 14 percent in central Asia and at about 9 percent in China, Wang said. SPT Energy is also expanding in the Middle East and is in talks with several Australian oil and gas producers in an effort to expand its customer base, he said.

To contact the reporter on this story: Benjamin Haas in Hong Kong at bhaas7@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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