Energy Policy ∎ (∎∎∎∎) ∎∎∎–∎∎∎

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Energy Policy
journal homepage: www.elsevier.com/locate/enpol

Opportunity, challenges and policy choices for China

on the development of shale gas
Desheng Hu n, Shengqing Xu
School of Law, Xi'an Jiaotong University, 28 Xianning West Road, Xi'an City 710049, China

H I G H L I G H T S

 China faces four major challenges in shale gas development.

 Granting foreign investors mining rights is helpful to get advanced technology soon.
 Improving environmental regulation could make developers more responsible.
 Developers' efficient water-use could help in not worsening water supply.
 SLO-based mechanism guidance may improve industry–community relationship.

art ic l e i nf o a b s t r a c t

Article history: With the highest shale gas reserves worldwide and huge need for energy, the Chinese government has
Received 9 April 2013 introduced many incentives to accelerate the development of shale gas, including subsidies and
Accepted 29 April 2013 reduction or waiver of the related fees or taxes. However, the challenges posed by a lack of advanced
technologies, environmental protection, a shortage of water in quantity and a knowledge of how to
Keywords: develop a good industry–local community relationship are anticipated in the realization of the predicted
Shale gas industry in China golden age of the Chinese shale gas industry. Based on the particular situation and available resources in
Environmental protection China, and with reference to the experiences in countries with a developed shale gas industry (such as
Benefits distribution the U.S.A.) and suggestions by the International Energy Agency, recommendations about the choices
facing China can be summarized as follows: allowing foreign investors directly to hold exploration and
mining rights in shale gas could facilitate the obtainment of advanced technologies; the improvement of
the regulatory arrangements related to environmental protection could make developers more
responsible; prompting developers to improve their water-use efficiency could help in not worsening
the water supply to some extent; and SLO-based mechanism guidance could be helpful in developing a
mutual-trust and -benefit relationship between the shale gas industry and the local community.
& 2013 Elsevier Ltd. All rights reserved.

1. Introduction in order to meet the increasingly huge energy demand required

During the process of realizing the goal of building a prosperous
moderate society in all respects by 2020, energy security, sustain-
able development and environment protection are the major
challenges facing China. Regarding the area of energy, the shale
gas revolution occurring in the U.S.A. has inevitably been attract-
ing China's attention. In the U.S.A., shale gas production increased
from 0.32 trillion cubic feet (tcf) in 2000 to 6.84 tcf in 2011. It now
constitutes the largest source of growth in the U.S. natural gas
supply and is expected to make the U.S.A. a net natural gas
exporter by 2035 (U.S. Energy Information Administration, 2012).
The Chinese government has decided to develop this new resource
for its rapid social–economic development.
This paper focuses on the shale gas development policy of
China. Based on an analysis of the opportunities and challenges
facing the development of shale gas industry in China, as well as
with reference to the experiences of countries with a developed
shale gas industry and suggestions by the International Energy
Agency, several policy choices, which may be beneficial for
China to realize the golden age of the shale gas industry, are
recommended.
2. Opportunity

With the largest population and as the second-largest economy

n
Corresponding author. Tel.: +86 139 0371 1715; fax: +86 29 8266 8142. in the world, China has a great demand for energy, and has been
E-mail addresses: deshenghu@126.com, deshenghu@hotmail.com (D. Hu). one of the largest energy consumption countries globally since

0301-4215/$ - see front matter & 2013 Elsevier Ltd. All rights reserved.
http://dx.doi.org/10.1016/j.enpol.2013.04.068

Please cite this article as: Hu, D., Xu, S., Opportunity, challenges and policy choices for China on the development of shale gas. Energy
Policy (2013), http://dx.doi.org/10.1016/j.enpol.2013.04.068i
2 D. Hu, S. Xu / Energy Policy ∎ (∎∎∎∎) ∎∎∎–∎∎∎
2009 (International Energy Agency, 2010). At the 18th National
Congress of the Communist Party of China, Hu J. (2012) set a new
target for China's economic growth, i.e., to double both its GDP and
per capita income for both its urban and rural residents between
2010 and 2020. To a great extent, the realization of this ambitious
target means a higher consumption of energy. Consequently,
energy and its security are of vital importance to China.
China has considerable reserve of shale gas. It is estimated that
China has onshore shale gas reserves of up to 134.42 trillion m3,
with 25.08 trillion m3 (excluding the Tibetan Plateau area) being
technically recoverable (Ministry of Land and Resources of China,
2012a). Although the latter amount is lower than the 36.1
trillion m3 predicted by the U.S. Energy Information Administration
(2011) based on the Sichuan Basin and Tarim Basin, it still suggests
that China has one of the largest shale gas reserves worldwide, which
lays a resource foundation for China to treat shale gas as a new major
alternative resource to rely on for satisfying its rapidly increasing
demand for energy.
Shale gas is an important kind of unconventional gas that is
trapped in shale, and its main component is methane. Due to the
low permeability of shale, shale gas was once regarded as too
difficult or too costly to extract. However, with the development of
technologies in developed countries, such as the U.S.A. and
Canada, especially the application of horizontal drilling and
hydraulic fracturing, it is now possible to extract shale gas on a
commercial scale and at a reasonable cost. Horizontal drilling can
be divided into two stages, i.e., (a) drilling a vertical well to the
targeted rock formation, and (b) at the desired depth, turning the
drill bit to bore a well that stretches through the reservoir
horizontally. Since shale has low permeability, hydraulic fracturing
is necessary to unlock the hydrocarbons trapped in shale forma-
tions to enable natural gas to flow from the shale into the well.
During this process, a combination of water, sand and chemical
additives is pumped into the well to keep the induced fractures
open. The combination of these two techniques makes the shale
gas flow to the well rapidly, and the commercial production of
shale gas possible (Rahm, 2011). Based on the developed technol-
ogies, the International Energy Agency (2012a) predicts that the
unconventional gas will account for nearly half of the increase in
global gas production to 2035, most of which will come from
China, the U.S.A. and Australia.
The Chinese government is engaged in building a resource-
conserving and environmentally-friendly society. China's Outline
of the 12th Five-Year Plan for National Economic and Social
Development for the period 2011–2015 states that energy con-
sumption per unit of GDP should decrease by 16% while CO2
emissions per unit of GDP should fall by 17% (National People's
Congress of China, 2011). However, the energy structure of China is
largely coal-dominated. For example, in 2011, China's total energy
consumption was about 3.48 billion tons of standard coal equiva-
lent (tce), with coal accounting for 68.4%, oil for 18.6%, and natural
gas for 5% (National Bureau of Statistics of China, 2012). Obviously,
gas, as a clean energy, accounts for only a very small part, and the
heavy dependence on coal has placed the Chinese government
under strong pressure to reduce carbon emissions and protect the
environment. Such an energy structure is inappropriate for a
modern economy (Cao and Bluth, 2012) and must be changed,
which provides an opportunity for the commercial production
of shale gas to contribute to the transition of China's energy
structure.
It seems that the China's ambitious economic goal means an
ever-greater energy demand. For the development of shale gas in
China, the abundant reserves in China provide a solid foundation,
the advanced technologies available around the world make the
development technically possible and economically viable, and the
present coal-dependent energy structure provides an important
Please cite this article as: Hu, D., Xu, S., Opportunity, challenges and policy choices for China on the development of shale gas. Energy
Policy (2013), http://dx.doi.org/10.1016/j.enpol.2013.04.068i
alternative measure for dealing with climate change. In order to
stimulate the extraction of shale gas, the Chinese government has
promulgated a series of policies.
The success of the U.S.A. relies on the efforts of thousands of
small-and-medium sized enterprises, and a competitive market is
good for the development of shale gas. However, the oil and gas
franchise is an obstacle to shale gas extraction in China, since
broader social investment is precluded from natural gas extrac-
tion. In December 2011, shale gas was recognized as the 172th
mineral (Ministry of Land and Resources of China, 2011). This
means that it can be explored under an independent mineral right,
and its exploration and development is no longer in the form of an
oil or gas franchise, so it provides private capital with a chance to
engage in this process. After shale gas was recognized as an
independent mineral, the Ministry of Land and Resources pub-
licized an Open Tender Notice for Shale Gas Exploration Rights, on
September 10, 2012. This is the second round of tendering for
shale gas exploration rights in China and the first time that this
right was opened up to private investment entities, while the first
round of shale gas exploration tendering was held in the form of
an invitation tender, and the enterprises invited were PetroChina,
Sinopec, CNOOC, Yanchang Petroleum, CUCBM and Henan CBM, all
of which are state-owned enterprises. The development of shale
gas in China is still in its infancy. It was not until August 13, 2011,
that China's first horizontal shale gas exploration well was brought
into the preproduction stage in Sichuan's Weiyuan block. As
Chinese enterprises are relatively inexperienced with regard to
shale gas exploration, it is necessary for them to partner foreign
enterprises, especially American ones, that have gained extensive
experience in and advanced technologies related to the develop-
ment of shale gas. In order to accelerate the development of
techniques related to shale gas extraction, in 2010, at the Strategic
Track under the framework of the Second Round of the U.S.-China
Strategic and Economic Dialogue, the U.S.A. and China signed the
U.S.-China Shale Gas Resource Task Force Work Plan between the
U.S. Department of State and China's Ministry of Commerce.
According to the Catalog for the Guidance of Foreign Investment
Industries (amended in 2011), shale gas exploration and develop-
ment are included in the Catalog of Encouraged Foreign Invest-
ment Industries, although foreign investment is limited to the
forms of Sino-foreign joint venture and Sino-foreign contractual
(cooperative) joint venture (National Development and Reform
Commission of China, Ministry of Commerce of China, 2011). There
has already been a policy of encouraging foreign enterprises with
advanced exploration and mining technologies related to shale gas
to become involved in shale gas exploration and mining in China
in the form of Sino-foreign joint venture or Sino-foreign contrac-
tual (cooperative) joint venture (Ministry of Land and Resources of
China, 2012b).
The Chinese government also offers subsidies for the develop-
ment and utilization of shale gas. The central government will
provide a shale gas mining enterprise with a subsidy of 0.4 CNY/m3
from 2012 to 2015, which will be adjusted according to the
development of shale gas industry (Ministry of Finance of China,
Ministry of Commerce of China, 2012). In addition, the local
government may provide shale gas development and utilization
with appropriate subsidies according to the actual situation as it
progresses. In contrast, the central government provides coal
bed methane (CBM) mining enterprises with a subsidy of
0.2 CNY/m3 (Ministry of Finance of China, 2007), which is only
half that provided for shale gas.
According to the Shale Gas Development Plan (2011–2015),
legitimate holders of or applicants for shale gas exploration and
mining licenses may apply for a reduction in or waiver of the
license fees. As for any imported shale gas exploration and
development equipment (including the associated technologies)
 D. Hu, S. Xu / Energy Policy ∎ (∎∎∎∎) ∎∎∎–∎∎∎
that are for self-use and cannot be produced in China, the importer
may apply for an exemption from customs/duties. The factory-gate
price of shale gas will be determined by the market. When
reviewing an application for a land use permit, a shale gas
developer will be given priority (National Development and
Reform Commission of China et al., 2012).
From the above discussion, it appears that there is a great need
to extract shale gas to meet the demands of economic–social
development, and that the Chinese government has developed a
policy framework which includes government investment, technol-
ogy development, the construction of infrastructures, subsidies and
tax credits, to accelerate the development of its shale gas industry.
3. Challenges
Although the opportunity to develop shale gas in China is
unprecedented and inspiring, the challenges facing China are
formidable. Generally speaking, there exist at least the following
four major challenges.
3.1. A lack of advanced technologies
The technologies for developing shale gas in China are in an
early stage and rely on cooperation with foreign enterprises. The
main equipment needs to be imported from abroad. What's more,
because of the differences in geological characteristics, the tech-
nologies employed in other countries (such as the U.S.A.) may be
unsuitable for the development of shale gas in China. For example,
with regard to burial depth, the shale gas in China is buried deeper
than in the U.S.A. It is estimated that the average burial depth of
shale gas in the U.S.A. is about 800–2600 m, while in Sichuan Basin
the average depth is 2000–3500 m (Jiang, 2010). In addition, the
rocky, complicated topography makes construction more difficult.
This difference means higher costs and the need for more
advanced technologies for the extraction of shale gas in China.
3.2. Environmental protection
The Report to the 18th National Congress of the Communist
Party of China stresses the importance of ecological civilization,
and believes that it is of vital importance to both the wellbeing of
the Chinese people and the future of China. The report introduces
the concept of “Beautiful China”. The new notion for development
shows that China has realized the importance of environmental
protection, and decided not to pursue an economic development
style at the cost of destroying the environment. However, since
shale gas development is accompanied by potentially severe
environmental damage and/or risks, there is considerable conflict
between energy security and environmental protection. There are
many adverse impacts on water, air quality, land use and seismi-
city brought about by the exploration and production of shale gas
(Lipschultz, 2012). Among these, the major ones are water pollu-
tion and methane emissions. Even in the U.S.A. where strict
environmental regulations have been implemented and are being
constantly improved (Andrews et al., 2009), the development of
shale gas remains controversial (Rahm, 2011). For example, there
has been some litigation concerning hydraulic fracturing, and the
Federal Supreme Court had to issue an opinion in Sackett et vir v.
EPA et al. on March 21, 2012. Shortly after the California State Office
of Bureau of Land Management on September 13 of 2012 pub-
licized its “Notice of Competitive Lease Sale Oil and Gas” for the
sale of December 12 of the same year, protest was raised.
(a) Water pollution. The process of hydraulic fracturing requires
the injection of fracturing fluid, and a portion of which returns
Please cite this article as: Hu, D., Xu, S., Opportunity, challenges and policy choices for China on the development of shale gas. Energy
Policy (2013), http://dx.doi.org/10.1016/j.enpol.2013.04.068i
3
to the surface as “flow back”. According to the U.S. Environmental
Protection Agency (2011), up to a million gallons of wastewater
is produced by a single shale gas well within the first 30 days
following fracturing, and this wastewater usually contains,
besides the conventional pollutants, an elevated salt content,
organics, metals and NORM (naturally occurring radioactive
material). When the wastewater flows into a surface water body
or an aquifer without proper treatment, the water body or the
aquifer will be contaminated. In fact, there is a risk of water
pollution throughout the process of the shale gas development,
including well-drilling, hydraulic fracturing, the production
phase and the abandonment of the well. During the well-
drilling, poor well design or construction could lead to the
contamination of the subsurface groundwater, and contamina-
tion could also occur as a result of a failure to control storm
water, ineffective site management, inadequate surface and
subsurface containment, poor casing construction, and so on.
During the hydraulic fracturing stage, the risk of surface water
and groundwater contamination is considered moderate or
high and, when the well is abandoned, both types of water
can be contaminated due to incomplete closure (AEA, 2012;
Rahm, 2011).
(b) CO2 and methane emissions. It is true that natural gas is a
cleaner energy than both coal and oil. When used in an
efficient combined-cycle power plant, the combustion of
natural gas emits less than half the CO2 of coal in terms of
per unit of energy released. However, this does not mean that
the development of shale gas will inevitably reduce green-
house gas (GHG) emissions. The GHG emissions from the
development and utilization of shale gas can be divided into
two parts, i.e., the CO2 produced when shale gas is burned, and
the methane that leaks out, as well as the GHG emission from
the energy employed, during the extraction and transportation
of the shale gas produced. As estimated by Wigley (2011), even
if we disregard the GHG emissions, only if the leakage rate for
the new methane can be kept below 2% will substituting gas
for coal prove an effective means of reducing the magnitude of
future climate change. It is therefore important for the shale
gas industry to take measures to reduce the leakage rate of
methane. Since the measures designed to cut emissions mean
greater costs, the government should establish a regulation
system to ensure that the required measures are undertaken.
3.3. Shortage of water resources in quantity
Most of the major basins containing shale gas in China are
located in the arid or semi-arid regions, with precipitation of fewer
than 800 mm per year, and many of these basins are densely
populated areas with a very high water supply pressure. According
to the Opinions on Implementing the Stringent Water Resources
Management System issued on January 12, 2012, the red line on
the control of water-use efficiency requires that the water-use per
10,000 industrial added values (IAV) should be reduced to less
than 65 m3 by 2020 and by less than 40 m3 by 2030 (State Council
of China, 2012). This means that industries with higher water-use
rates will be restricted in China, especially in the arid areas.
However, the process of hydraulic fracturing (the key technology
employed in shale gas development) requires lots of water. As
estimated by the International Energy Agency (2012b), during the
hydraulic fracturing process, each well might need up to
20,000 m3 of water. In addition, while the onshore conventional
fields might require less than 1 well/10 km2, the unconventional
fields might need more than 1 well/km2, which significantly
intensifies the impact of shale gas drilling and extraction activities
4 D. Hu, S. Xu / Energy Policy ∎ (∎∎∎∎) ∎∎∎–∎∎∎
on both the environment and the local residents (International
Energy Agency, 2012b).
3.4. The relationship between the local community and
the shale gas industry
Establishing and maintaining a good relationship between the
local community and the shale gas industry will prove a great
challenge in China, as evidenced by the lessons from the U.S.A.
(Lipschultz, 2012). It is the local community and its residents who
bear, directly and indirectly, the risks and/or loss caused by the
environmental risks/damage that accompanies shale gas produc-
tion activities. For example, their water supply may be adversely
affected by the huge water-use and, once water is contaminated by
wastewater, the health of the residents will be in a great danger.
Further, the GHG emissions and methane will pollute the air and
the drilling and vehicle transportation will also cause noise
pollution during the site preparation. Once the local community
and its residents believe that their interests or wellbeing are being,
or are likely to be, infringed by the shale gas developer, while they
get little compensation without sharing the benefits of the shale
gas development, they will also seek to stop it. Also, the develop-
ment of shale gas needs the cooperation of the local community
and its residents, since resistance or protest have not only a great
influence on the decision of the government, but also on the
activities of the developer.
4. Choices
In order to take the great opportunity to promote the devel-
opment of the shale gas industry, the above challenges should be
well addressed by Chinese policy-makers when introducing and/
or improving the policies concerning obtaining advanced technol-
ogies, striking a balance between development and environmental
protection, ensuring that there is sufficient water for shale gas
development and establishing a mechanism that can ensure the
participation and benefits of the local community and its residents.
The following choices could be taken into consideration.
4.1. Choices regarding the challenge of a lack of advanced
technologies
Regarding the challenge of obtaining the advanced technolo-
gies required for the development of shale gas, China has three
choices, i.e., developing them independently, introducing foreign
advanced technologies in different forms, and, where appropriate,
combining these two choices. As mentioned above, the Chinese
government has developed a framework policy to encourage the
development of related technologies and the introduction of
foreign advanced technologies and equipment. According to China's
Shale Gas Development Plan (2011–2015), the Chinese government
promises to increase its investment in the research into and devel-
opment of shale gas technologies. However, developing the related
technologies to an advanced level independently will both require
lots of money and take a relatively long time; from an economic
perspective, time means money and efficiency.
In order to obtain foreign advanced technologies, the Chinese
government, on the one hand, has enacted a policy of encouraging
foreign investment to join in with shale gas development. How-
ever, the approaches are limited to two forms, i.e., Sino-foreign
equity joint venture and Sino-foreign contractual (cooperative)
joint venture. On the other hand, the imported equipment and
associated technologies for shale gas exploration and develop-
ment, that are for self-use and cannot be produced in China, are
exempt from customs/duties. The production sharing contract
Please cite this article as: Hu, D., Xu, S., Opportunity, challenges and policy choices for China on the development of shale gas. Energy
Policy (2013), http://dx.doi.org/10.1016/j.enpol.2013.04.068i
(PSC) is one of the main forms of international cooperation in
the development of oil and gas in China, under which the foreign
investor bears all of the costs and risks incurred during the
exploration, extraction and production processes. However, the
uncertainty of the shale reserves in China means high risk
exploration and development for the investor. As a result, the
foreign investor may hesitate to participate in shale gas develop-
ment in China. In addition, since the foreign investor may be
concerned about the protection of the related technologies, the
above two forms may be less attractive to foreign investors with
advanced technologies. Thus, throwing shale gas exploration
rights and mining rights open to the foreign investor with
advanced technologies should be one choice available to China.
4.2. Choices regarding the challenge concerning environmental
protection
The environmental problems that occurred in the development
of natural resources have been a big issue in China for a long time.
Until the potential damages/risks accompanying shale gas devel-
opment are addressed, the benefits obtained by China could be
less than the cost burden for the government and/or public
(particularly the people who are directly affected) related to
reducing and/or eliminating the negative influences, as can be
illustrated by the development of rare earth elements materials in
China (Hu D., 2012). For Chinese policy-makers, the experiences of
international organizations and those in other countries (such as
the U.S.A.) should be keenly studied, and the principle of preven-
tion as well as the precautionary principle should be followed, in
order to find a proper solution for China. To prevent groundwater
pollution caused by leaks from shale gas wells, high standards of
well-design, construction and integrity testing, including stan-
dards to ensure that gas bearing formations are completely
isolated from other strata (especially freshwater aquifers), should
be introduced (International Energy Agency, 2012b), and the
regulatory practices in the U.S.A or its relevant states could be
studied (Rahm, 2011). In order to control methane emissions, the
U.S. Environmental Protection Agency (2012) requires the owners
and/or operators of fractured and re-fractured gas wells to employ
reduced emissions completions (RECs) or “green completions”, to
reduce the volatile organic compound (VOC) emissions from well
completions. Further, the owners and/or operators are encouraged
to use RECs or completion combustion devices (such as flaring) up
to December 31, 2014, and from 2015, they are under an obligation
to use RECs and a completion combustion device. Regarding water
resource protection, Pennsylvania requires that gas wells must be
at least 200 feet from any drinking water supply and 100 feet from
any water source, such as a stream, spring or body of water, and
the gas well operator is presumed to be responsible for the
pollution of any public or private drinking water supply within
1000 feet of the gas well if it occurs within 6 months after the
completion of the drilling of or alteration to the gas well (Abdalla
et al., 2011). In order to prevent pollution by the wastewater
produced, the wastewater should be stored, treated and disposed
of safely, chemical additives should be used as little as possible
and the industry should develop and use more environmental-
friendly alternatives (International Energy Agency, 2012b). How-
ever, the detailed measures and standards adopted by China
should be suitable for its own special natural and social circum-
stances, such as the geology, climate, topography and ethics, etc.,
of the local communities concerned.
4.3. Choices regarding the challenge of water shortage
According to Article 21 of the China Water Law of 2002, among
the different water-uses, the demands related to the livelihood of
 D. Hu, S. Xu / Energy Policy ∎ (∎∎∎∎) ∎∎∎–∎∎∎
the urban and rural inhabitants shall be satisfied firstly, and the
agricultural, industrial, eco-environmental and navigational
demands shall also be taken into consideration and balanced;
however, in the arid and/or semi-arid areas, the eco-environmental
water requirement shall be fully taken into consideration (Hu, 2006).
Governments where a shale gas development project is located have
to allocate an appropriate quantity of water to the project, while
ensuring the water-use demand for the livelihood of those inhabi-
tants who have not relocated and the eco-environmental water
requirement. If there is no available water for allocation, the project
should be allowed to get the water necessary through water rights
transfer. A shale gas development project has to improve its water-
use efficiency and meet the minimum water-use efficiency require-
ment, that is less than 65 m3/10,000 IAV until 2020 and less than
40 m3/10,000 IAV until 2030. The ways for the project to fulfill the
efficiency requirement mainly lie in improving the hydraulic fractur-
ing technology regarding water-use and reuse or recycling of the
water used during fracturing operations.
4.4. Choices regarding addressing the relationship between
the local community and the shale gas industry
Securing and maintaining social acceptance is a key ingredient
for the long-term success of shale gas development, as could be
evidenced in the fracking moratoria in New York, western
Maryland and parts of Pennsylvania in the U.S.A. (Lipschultz,
2012). In establishing and maintaining a good relationship, the
approach of a social license to operate (SLO) is essential for the
smooth development of the shale gas industry and, for the Chinese
central government, SLO-based mechanism guidance should be
formulated to guide its working department and the local govern-
ments concerned as well as the industry, as well as a particular
project for developing a mutual-trust and -benefit relation
between the shale gas industry and the local community. For a
particular project, a SLO means that it is accepted by the society,
especially by the relevant local communities and its residents.
Without a SLO, the risks associated with the project would be
greatly increased, as the developer has to spend more money and
time on handling the conflict(s) with the local community and its
residents and, in extreme situations, the project may be ended due
to the pressure from the public. In fact, the SLO is beneficial to the
developer as well as to the local community. On the one hand, for
the developer, a social license can reduce the social risk and
smooth the operation to be in harmony with the local community.
On the other hand, for the local community, it means that the
community and its members could be involved in the decision-
making process and receive equitable and reasonable benefits
from the project (Prno and Slocombe, 2012). In order to obtain an
SLO, it is vital for the developer to ensure that the local community
participates sufficiently in the decision-making process regarding
shale gas development and obtains tangible economic benefits. For
a project that makes a significant adverse impact on the environ-
ment, sufficient, effective public participation is essential for
establishing mutual understanding and trust between the govern-
ment and the related public, as well as between the developer and
the local community concerned. As suggested by the International
Energy Agency (2012b), the disclosure of fracturing fluid additives
and volumes should be mandatory, and it is very important to
ensure that the local community can obtain tangible economic
benefits. The policy-makers for both the government and the
developer should take public opinion seriously, and respond to
public concerns about shale gas development properly. Also, a
shale gas project should, according to the particular local situation,
where appropriate, help the local community to improving its
fundamental infrastructures, such as its roads, drinking water
supply, wastewater treatment plants, schools, training, etc. Lastly,
Please cite this article as: Hu, D., Xu, S., Opportunity, challenges and policy choices for China on the development of shale gas. Energy
Policy (2013), http://dx.doi.org/10.1016/j.enpol.2013.04.068i
5
but very importantly, where the legitimate rights and/or interests
of the local community and its residents are infringed, equitable
and reasonable compensation is vital, and judicial settlement
should be the last choice in the Chinese tradition. Without this
compensation, sharp conflicts are likely to occur.
5. Conclusion
Despite the great opportunity for China to develop a shale gas
industry, there are great challenges, technical and social, develop-
mental and environmental, for the Chinese government and the
developer to address. Without advanced technologies being
employed, without the eco-environment being well protected,
without water-use being well balanced, without a good relation-
ship being established and maintained between the industry and
the local community and/or its residents, the development of shale
gas cannot bring China any benefits, but merely more serious
environmental problems, a greater water shortage, and an
unstable, unjust social situation in the development regions. There
are several good choices facing China, but these choices are
limited. Allowing a foreign investor with advanced technologies
directly to hold exploration and/or mining rights in shale gas could
open up the way to obtaining advanced technologies; improving
the regulatory arrangements related to environmental protection
could make the developer more responsible; prompting the
developer to improve water-use efficiency could help in not
worsening the water supply to some extent; and SLO-based
mechanism guidance could help to develop a mutual-trust and
-benefit relationship between the shale gas industry and the local
community. Although China's policymakers have recognized the
need to transform its energy policy and have taken measures to
promote the development of a shale gas industry, to what extent
these limited good choices can contribute to the realization of a
possible golden age of shale gas resources in China relies on
whether more detailed measures can be designed, enacted and
implemented.
Acknowledgments
The authors acknowledge the Support of the Fundamental
Research Funds for the Central Universities (China), gratefully
thank Professor A. D. Tarlock (Chicago-Kent College of Law) and
Professor Colin T. Reid (University of Dundee) for their valuable
comments.
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