1、Energy:Oil&Gas 2022 Definitive global law guides offering comparative analysis from top-ranked lawyers China:Law&PracticeJin Xiong,Grace Fan and Daisy Duan King&Wood MallesonsCHINA2Law and PracticeContributed by:Jin Xiong,Grace Fan and Daisy Duan King&Wood Mallesons see p.26ChinaMongoliaMyanmarIndia

2、KazakhstanJapanN.KoreaS.KoreaBeijingRussiaC O N T E N TS1.General Structure of Petroleum Ownership and Regulation p.41.1 System of Petroleum Ownership p.41.2 Regulatory Bodies p.41.3 National Oil or Gas Company p.41.4 Principal Petroleum Law(s)and Regulations p.52.Private Investment in Petroleum:Ups

3、tream p.52.1 Forms of Allowed Private Investment in Upstream Interests p.52.2 Issuing Upstream Licences/Obtaining Petroleum Rights p.62.3 Typical Fiscal Terms Under Upstream Licences/Leases p.72.4 IncomeorProfitsTaxRegimeApplicabletoUpstream Operations p.82.5 National Oil or Gas Companies p.82.6 Loc

4、al Content Requirements Applicable to Upstream Operations p.82.7 Requirements for a Licence/Leaseholder to Proceed to Development and Production p.92.8 Other Key Terms of Each Type of Upstream Licence p.92.9 Requirements for Transfers of Interest in Upstream Licences and Assets p.112.10 Legal or Reg

5、ulatory Restrictions on Production Rates p.123.Private Investment in Petroleum:Midstream/Downstream p.123.1 Forms of Allowed Private Investment in Midstream/Downstream Operations p.123.2 Rights and Terms of Access to Any Downstream Operation Run by a National Monopoly p.133.3 Issuing Midstream/Downs

6、tream Licences p.143.4 Typical Fiscal Terms and Commercial Arrangements for Midstream/Downstream Operations p.153.5 IncomeorProfitsTaxRegimeApplicabletoMidstream/Downstream Operations p.153.6 Special Rights for National Oil or Gas Companies p.163.7 Local Content Requirements Applicable to Midstream/

7、Downstream Operations p.163.8 Other Key Terms of Each Type of Midstream/Downstream Licence p.163.9 Condemnation/Eminent Domain Rights p.163.10 Rules for Third-Party Access to Infrastructure p.163.11 Restrictions on Product Sales Into the Local Market p.173.12LawsandRegulationsGoverningExportsp.173.1

8、3 Requirements for Transfers of Interest in Midstream/Downstream Licences and Assets p.184.Foreign Investment p.184.1 Foreign Investment Rules Applicable to Domestic Investments in Petroleum p.184.2 Sanctions Applicable to Investment Abroad p.19CHINA CONTENTS35.Environmental,Health and Safety(EHS)p.

9、195.1 Principal Environmental Laws and Environmental Regulator(s)p.195.2 Environmental Obligations for a Major Petroleum Project p.205.3 EHSRequirementsApplicabletoOffshoreDevelopment p.205.4 Requirements for Decommissioning p.215.5 Climate Change Laws p.215.6 Local Government Limits on Oil and Gas

10、Development p.226.Miscellaneous p.226.1 Unconventional Upstream Interests p.226.2 LiquefiedNaturalGas(LNG)Projectsp.246.3 Energy Transition Considerations p.246.4 Unique or Interesting Aspects of the Petroleum Industry p.256.5 Material Changes in Oil and Gas Law or Regulation p.25LAw AND PRACTICE CH

11、INAContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons 41.G E N E R AL S TRU C TU RE O F P E T R OL EU M O W N E R S HI P AN D R E G U L ATI O N1.1 System of Petroleum OwnershipOil and gas resources in China are owned by the state.Notably,a few state-owned enterprises have de facto

12、 control of most conventional oil and gas resources in China.Private and foreign investors now can also par-ticipate in oil and gas exploration and exploita-tion after 1 May 2020,thanks to the new policy entitled the Opinions of the Ministry of Natural Resources on Several Matters Concerning Pro-mot

13、ing the Reform of Mineral Resources Admin-istration(for Trial Implementation)implemented by the Ministry of Natural Resources on 1 May 2020(the“2020 MNR Opinions”).1.2 Regulatory BodiesThe Ministry of Natural Resources(MNR)and the National Development and Reform Commission(NDRC)are the two primary C

14、hinese regulators exercising macro-control and administration over the domestic oil and natural gas industry.Other related matters,such as production safe-ty and environmental protection involved in the process,are subject to the joint supervision and administration of the Ministry of Emergency Mana

15、gement(MEM)and the Ministry of Ecol-ogy and Environment(MEE).The Ministry of Commerce(MOFCOM)oversees import and export licences,among other regula-tory functions.The following are the major regulatory roles and functions of those key regulators:MNR(including its provincial and local counterparts)su

16、pervises and administers the upstream exploration and extraction of oil and gas resources,including the grant of explora-tion and mining(production)licences.The NDRC has the authority to oversee downstreamrefineryspecificationsandtheproduction scale and quota setting over resources allocation for ea

17、ch province.The NDRC and its National Energy Administra-tion have the authority to formulate industrial standards related to petroleum and natural gas,new energy,and renewable resources and examine,approve and verify the invest-mentinfixedenergyassets.TogetherwithMOFCOM,NDRC is also the authority to

18、 issue the so-called“Foreign Investment Access Special Administration Measures(Negative List)”(the“Negative List”),regu-lating industries that foreign investors are restricted or prohibited from investing().The MEE and its provincial and local coun-terparts are responsible for issuing approv-als for

19、 Environmental Impact Assessments(EIAs),a process which evaluates the likely environmental impact of proposed explora-tion,exploitation activities and related project constructions().MOFCOM is responsible for quality control of oil and gas products and issuing import and exportlicencesforcrudeandref

20、inedoiltocompanies.Together with the NDRC,MOF-COM is the authority to jointly promulgate the Negative List annually.Foreign invest-ments into those restricted sectors must be approved by MOFCOM().MEM is in charge of guiding and training for work safety in the energy sector().1.3 National Oil or Gas

21、CompanyThe following national oil or gas companies are the main players dominating the Chinese petro-leum industry:5CHINA Law aNd PraCTiCEContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons China National Petroleum Corporation(CNPC);China Petrochemical Corporation(SINOPEC);ChinaNat

22、ionalOffshoreOilCorporation(CNOOC);Sinochem Group Company Limited(SINO-CHEM);andChina Zhenhua Oil Co,Ltd.1.4 Principal Petroleum Law(s)and RegulationsThe following primary laws and regulations established the(upstream)regulatory regime of the Chinese petroleum industry.The Mineral Resources Law and

23、its Imple-menting Rules(2009 Amendment)establish the basic legal framework for exploration and production activities(including oil and gas development).The Regulation for Registering to Explore for Mineral Resources Using the Block System(2014 Revision)provides a block registra-tion system for the e

24、xploration of mineral resources.Procedures for Administration of Registra-tion of Mining of Mineral Resources(2014 Revision)provide detailed requirements for registration of mineral resources exploitation and the issuance of exploitation licences.The Measure for the Administration of Trans-fer of Ex

25、ploration Right and Exploitation Right(2014 Amendment)regulates the transfer of exploration and exploitation rights.The Regulation on Sino-foreign Cooperation in the Exploitation of Continental Petroleum Resources(2013 Revision)serves as the basis for foreign companies to participate in the explorat

26、ion and exploitation of onshore blocks in China through Production Sharing Contracts(PSCs).TheRegulationontheExploitationofOff-shore Petroleum Resources in Cooperation with Foreign Enterprises(2013 Revision)serves as the basis for foreign companies to participate in the exploration and exploitation

27、ofoffshoreblocksinChinathroughPSCs.The Measures for the administration of petro-leum prices(for Trial Implementation)provide guidance on the pricing of petroleum produc-tion,wholesale and retail operations in China.The Safe Production Law(2021 Amendment)regulates the production safety of the entitie

28、s engaged in oil and gas production and busi-ness operations.The Environmental Protection Law of 2015 provides for environmental supervision,pre-vention of pollution and other issues related to oil and gas exploration and exploitation.The PRC Natural Resources Taxation Law of 2020 provides guidance

29、on the income or profittaxregimefortheChineseoilandgassector.Oil and gas operations are further subject to local ESG regulatory regimes and provincial regulations promulgated on the provincial level.2.PRIVATE INVESTMENT IN PETROLEUM:UPSTREAM2.1 Forms of Allowed Private Investment in Upstream Interes

30、tsFrom May 2020,the oil and gas exploration and exploitation rights can be awarded to private enterprises by approval of the central MNR as a result of a licence application,bidding,auction,or listing for sale on a property right exchange or agreement.Application of LicencesChina has a licensing sys

31、tem in place for the exploration(which includes exploration and trial extraction)and extraction of mineral resources(including oil and gas).Private investors need to LAw AND PRACTICE CHINAContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons 6obtain a licence from the central MNR bef

32、ore the exploration of oil and gas.Applicants pay for exploration rights fees as part of the application,register exploration and con-verted extraction rights and obtain such licences upon approval.The licences usually have a lim-itedperiodandcoveraspecifiedarea.Bidding,Auction,Listing for SaleForne

33、wexplorationrightswhichfitinthefol-lowing situations,the administrative department under the MNR shall grant such a right by means of invitation to bid,auction,and quotation:itisanoilfieldsurveyedwiththefundsofthestateandverifiedtobepossibleformining;itisanoilfieldwhichhaslosttheminingright;itisanoi

34、lfieldwhichhaslosttheexplorationright but is geologically available for explora-tion;the hydrocarbons and related by-products can be extracted without survey as pre-scribed by the administrative department;orother circumstances prescribed by the MNR and the administrative department at the provincia

35、l level.Foreign investor applicants are subject to a separate market/industry entry/access regula-tory regime(see 4.1 Foreign Investment Rules Applicable to Domestic Investments in Petro-leum).2.2 Issuing Upstream Licences/Obtaining Petroleum RightsProcess for Private Investors to Obtain An Upstream

36、 LicenceFile an application with the MNR and await approval(usually within 90 days)or to win in upstream licence bidding,auction or listing for sale on a property right exchange subject toatleast40daysofpublicnotification;pay for exploration fees,and once operation converts to actual extraction(tria

37、l extrac-tion is included with exploration activities),fileproofofreservesandworkplanwiththeMNR to receive the corresponding extraction licence;andregister exploration rights received with the MNR before getting the actual licence.Chinese oil and gas exploration licences are usu-ally issued for up t

38、o seven years with possible extensions.Due to Covid-19,the MNR encour-agesapplicantstoapplyonlinethroughitsoffi-cial website at .Extensions of up to three months can also be granted to appli-cants for delays caused by the pandemic.Prerequisite QualificationsThe applicant for oil and gas exploration

39、rights must be the entity funding the explo-ration activities and be a company with an independent legal status.All companies incorporated in China with net assets value of at least CNY300 million can apply for an oil and gas exploration licence and later convert to an extraction licence.There is no

40、 longer a distinction between domestic and foreign applicants.Other Relevant Permits Required for OperationsThere is a Pollutant Discharge Permit system in China.An entity must discharge pollut-ants in accordance with the requirements of the Pollutant Discharge Permit,and pollut-ants cannot be disch

41、arged without a proper permit.For solid waste,waste water and exhaust gas,the following permits are required.(a)Pollutant Discharge Permit for Solid Waste:entities that generate industrial solid wastes must obtain this permit.(b)Water Pollutant Discharge Permit:com-panies or other operators that dir

42、ectly or 7CHINA Law aNd PraCTiCEContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons indirectly discharge industrial waste water into water bodies must obtain a Water Pollutant Discharge Permit,which sets out the requirements for the type,con-centration,total amount and discharge de

43、stination of the discharged water pol-lutants.(c)Air Pollutant Discharge Permit:compa-nies that discharge industrial waste gas or harmfulairpollutants(asspecifiedintheList of Toxic and Hazardous Air Pollutants)must obtain an Air Pollutant Discharge Permit.2.3 Typical Fiscal Terms Under Upstream Lice

44、nces/LeasesOil and Gas Registration FeeExploration registration fee is usually based onascaleoftheunderlyingoilfield:(a)Small Field typically CNY200(Crude Oil 100,000 t/y;Natural Gas 100,000,000 m/y);(b)Medium Field typically CNY300(Crude Oil 100,000500,000 t/y;Natural Gas 100,000,000500,000,000 m/y

45、);and(c)Large Field typically CNY500(Crude Oil 500,000t/y;NaturalGas500,000,000m/y).Exploration Rights Use Fee/Extraction Rights Use FeeAn oil and gas exploration rights or extraction rights-holder are also subject to an exploration rights use fee and an extraction rights use fee to the government,t

46、aking into consideration the economic condition,geological environment and labour reality of the oil-producing province.Exploration rights fee:(a)one to three years,typically at the annual rate of CNY100/km;and(b)four years onwards,the annual rate is typically increased by CNY100/km per year(up to C

47、NY500/km).Depending on location,extraction fees typicallyrangefromCNY1,0003,000/km.Around certain grassland areas,such as Inner Mongolia,there is a grassland make-whole fee of up to CNY4000 for each well drilled.Special Oil Gain LevyA special oil gain levy,administered by the Min-istryofFinance,isan

48、on-taxfiscalrevenueofthe central government.It is levied on all oil pro-duction enterprises that sell crude oil produced in China,whether sold inside or outside China.The special oil gain levy is charged at progres-sive rates,depending on the monthly weighted average of the selling price of crude oi

49、l of an enterprise.The levying threshold is set at a cer-tain price per barrel,adjusted every year(eg,in recent years,at about USD65/barrel).The levy rates and quick calculation deductions are as follows:Crude Oil Price(USD per barrel)/Levy Rate/Quick Calculation Deduction(USD per barrel)USD65 to US

50、D70(inclusive)/20%/USD0;USD70 to USD75(inclusive)/25%/USD0.25;USD75 to USD80(inclusive)/30%/USD0.75;USD80 to USD85(inclusive)/35%/USD1.50;andOver USD85/40%/USD2.50.Signature BonusFor foreign capitals participating in the oil and gas industry through PSC with major Chinese oil and gas entities,a sign

51、ature bonus paid to the state is prescribed in the PSC.The bonus is usually determined by the volume of oil and gas resourcesandtheeconomicvalueofthefield.LAw AND PRACTICE CHINAContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons 82.4 IncomeorProfitsTaxRegimeApplicable to Upstream O

52、perationsResource TaxOil and gas extraction rights holders must pay resource tax on their sales amount derived from oil and gas sales.The resource tax rates vary fordifferenttypesoftaxableoilandgas,eg,theresource tax rate is 6%for crude oil,natural gas andshalegas,whiletherateis12%forcoal-bed methan

53、e.There is also exemption or reduc-tion of resource tax on the applicable situation(ResourceTaxLawofthePeoplesRepublicofChina).Income TaxIncometaxispayableontheprofitsforthesaleof oil and gas at the rate of 25%.Taxes and duties on importing and exporting oil and gas may vary based on any bilateral t

54、ax treaties between China and the relevant foreign country.Value-Added Tax(VAT)VAT is levied on the import and export of oil and gas at the following rates:for crude or processed oil:13%;andfornaturalgasandpetroleumliquefiedgas:9%.Consumption TaxConsumption tax is levied on the import of pro-cessedo

55、il,andtheratesvaryforthedifferentkinds of processed oils.For example,the con-sumption tax rate for fuel oil is CNY1.2 per litre.The import of crude oil and natural gas is not subject to consumption tax,as is the export of any oil and gas.Customs DutyCustoms duty is due on the import of processed oil

56、andtheratesaredifferentfordifferentkindsof processed oils.For example,the customs duty rate for fuel oil is 1%in 2022.The import of crude oil and natural gas is exempt from cus-toms duty,as is the export of any oil and gas.Local LeviesLocal levies,including Urban Maintenance and Construction Tax(UMC

57、T),Educational Sur-charge(ES)and Local Educational Surcharge(LES),are levied on the amount of VAT paid(local levies do not apply to import VAT).The applica-ble rates of the local levies are as follows:UMCT 7%for taxpayers located in cities,5%for taxpayers located in towns and the country and 1%for t

58、axpayers located in plac-es other than cities,towns and the country;ES 3%;andLES 2%.2.5 National Oil or Gas CompaniesAs explained in 1.3 National Oil or Gas Compa-ny,certain national oil companies had de facto control over the petroleum industry(upstream,midstream and downstream)until the 2020 MNR O

59、pinion,which(legally)allows private and for-eign capital to have access to those licences exclusively held by national oil and gas com-panies.Inpractice,becausemostoilfieldblockswerealready granted to those Chinese state-owned oil majors,Chinese private and international oil companies usually partne

60、r up with the Chinese oil majors to access those blocks.2.6 Local Content Requirements Applicable to Upstream OperationsChinese PSCs generally require that Chinese personnel,materials and services be given pref-erential rights during a projects procurement process.Operators should also include Chine

61、se employeestatisticsinspecificworkplans.9CHINA Law aNd PraCTiCEContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons 2.7 Requirements for a Licence/Leaseholder to Proceed to Development and ProductionRequirements for Development PlansOncethelicenceholderfindsprovenoilorgasreserves o

62、f a certain scale calculated with a combination of factors such as quantity,scale and economic returns,extraction can begin after:filingreportstotheMNR;signs an extraction rights grant contract with the MNR;andregistersitsextractionrightswithinfive(5)years(in practice,an oil and gas operation wants

63、to receive extraction rights if sales of crude product are contemplated).The licence holder must also submit a devel-oped plan upon registration of the extraction right.The development plan should include the following key terms:condition and level of the mineral resources;present situation and fore

64、cast of demand for crude products;determination of major construction schemes;facilities for processing and tailings;andenvironmental protection plans,etc.Requirements for Government ApprovalsThe registration authority reviews the develop-ment plans from the following key aspects:the scale of mine c

65、onstruction;mining programmes;reasonableness of the recoverable reserves;ore dressing and processing facilities;reasonableness of environmental protection plan,including soil and water conservation and land reclamation;andlabour safety,etc.Depending on the content and the construction stage of the p

66、roject,approval from other govern-ment departments may be necessary:NDRC,for national security-related approvals;MNR,for urban and rural planning;MEE,for ecological environment protection assessments and plans;the Ministry of Water Resources(MWR),for water conservancy;andMNR,for forestry and grassla

67、nd protection-related approvals,etc.Rights to Appeal Denials of ApprovalIndividual and corporate applicants of denials of approval can apply for reconsideration through the Chinese administrative review process.Chal-lengesmustgenerallybefiledwithin60dayswith the relevant regulator.The Chinese admini

68、strative review process for the oil and gas sector can cover both procedur-al and content review with respect to an appli-cants case.After such review,an applicant can fileadministrativelitigationagainsttheregula-tor in front of the Chinese State Council(which can review both procedural and content

69、issues suchaslicencedenial,suspensionorfines)ora relevant Chinese court(which can only review procedural issues),but not both.Administrative litigation against a regulator is time-consuming and subject to higher authoritys dismissal.In practice,such appeal is hardly practical.2.8 Other Key Terms of

70、Each Type of Upstream LicenceExploration Periods,Production Periods and ExtensionsThe exploration licence for petroleum and/or gas is valid for up seven(7)years.If there is a need toextend,thelicenseeshallfileforanextensionof the licence with the licensing authorities within 30 days prior to the exp

71、iration.The extension of LAw AND PRACTICE CHINAContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons 10an exploration licence shall not exceed two(2)years each time.The validity of an exploration or extraction licence is determined according to the construc-tionscaleofanoilfield:fora

72、large-sizedoilfield,thelicencemaybevalid for a maximum term of 30 years;for a medium-sized one,the licence may be valid for a maximum term of 20 years;andfor a small-sized one,the licence may be valid for a maximum term of ten years.Size is determined by the following standards:large-sized:for oil,m

73、ore than 100 million tonnes,and for gas,more than 30 billion cubic metres;medium-sized:foroil,from10100milliontonnes,andforgas,from530billioncubicmetres;andsmall-sized:for oil,less than 10 million tonnes,and for gas,less than 5 billion cubic metres.Minimum Work ProgrammesThe exploration licensee is

74、required to begin work within six(6)months of the date of issue of the exploration licence and meet a minimum expenditure for exploration according to the fol-lowing schedule:CNY2,000persquarekilometreforthefirstyear of exploration;CNY5,000 per square kilometre for the sec-ond year of exploration;an

75、dCNY10,000 per square kilometre each year thereafter,starting with the third year of exploration.Such a requirement can be prorated if the explo-ration word is interrupted due to force majeure.Any exceeding expenditure surplus can be applied to the expenditure for the following year.Liability and Ri

76、sk RegimeExploration beyond the approved limits of the explorationblocksmayresultinafineofuptoCNY100,000.And the mineral products extract-edoutsidethelimitaresubjecttoconfiscation.Failure to report any circumstances change or to meet the minimum work programmes,refusing toacceptofficialexaminationor

77、supervision,oremployingdeceptionmayresultinafineofupto CNY50,000 and/or even the revocation of the licence.Criminal responsibility may be imposed if serious destruction is caused to the mineral resources.Lease and sale of the upstream licences are strictly regulated under the Notice of the Ministry

78、of Natural Resources on Amending the Relevant Provisions of the Mineral Right Trading Rules(2018).Such mining rights,however,cannot be used as collateral for mortgages.Relinquishment Requirements/Withdrawal,Termination and Abandonment Rights and ObligationsIf the exploration licensee rescinds the ex

79、plora-tion project for some reason,it needs to submit to the licensing authorities a report on the com-pletion or termination of the exploration project.Forms for reporting the input of capital and rel-evant documents of proof are also required to terminate the licence.If the production licence is e

80、xpired or suspend-ed,the licensee must send an application to the original licence issuing organ to cancel the licence within 30 days as of the day when the decision is made for the suspension or closure of the mining licence.11CHINA Law aNd PraCTiCEContributed by:Jin Xiong,Grace Fan and Daisy Duan,

81、King&Wood Mallesons The licensee must also complete works regard-ing labour safety for production,water and soil conservancy,land recovery and environmental protection,or pay in full the cost for the land recovery or the environmental protection.Domestic Supply Requirements and TermsMOFCOM and its l

82、ocal counterparts regulate the domestic supply of oil and gas and provide goals and guidance for oil and gas companies regard-ing the domestic supply requirements.The local authorities are responsible for making sure that the goals are met.Export RightsQuota and export licences are required for com-

83、paniestoexportcrudeorrefinedoil.Naturalgas,on the other hand,is not exportable due to the unmet domestic demand.There is a huge drop in the oil export quota in 2022.The first batch of domestic refined oilexport quotas for 2022 totalled 17.5 million tons,12 million tons(about 41%)lower than the 29.5

84、million tons last year.In practice,only seven state-owned oil compa-nies obtained the exporting quotas.2.9 Requirements for Transfers of Interest in Upstream Licences and AssetsMinimum Conditions of the TransferExploration and extraction rights can be trans-ferred under the following circumstances:f

85、orexplorationandsurveyrightsexpiryof two years from the date of issuance,or the discovery of mineral resources,and the fulfilmentofminimuminput;forminingrightsexpiryofoneyearofgoingintominingproduction;there is no dispute over the ownership of the right;andfull payment of the relevant fees and taxes

86、.The original extraction rights-holder may also transfer the right as a result of the mining com-panys significant structural changes(merger,sale of assets,etc).Government Approval ProcessMNR(including its provincial and local counter-parts)is the governing agency.The transferor may apply for approv

87、al of the transfer of oil/gas exploration rights or extraction rights by submitting the following documents:a letter of application for transfer;the transfer contract concluded between the transferor and the transferee;testimonial documents of human quality of the transferee;proof of conditions of t

88、ransfer listed above;anda report on mineral resources exploration and survey or exploitation.MNR(including its provincial and local coun-terparts)must notify both parties of its deci-sion within 40 days from the date of receipt of the application.If approved,both parties must modify the registration

89、 formality within 60 days from the date of receipt of the approval notice.The contract for the transfer becomes effec-tive after the approval is granted.The amended licence can then be issued to the transferee after paying the fee(Articles 4 and 10,Administrative Measures on the Transfer of Explorat

90、ion Right and Exploitation Right).An evaluation must also be carried out in trans-ferring mineral exploration and mining rights formed by state-contributed exploration and survey.LAw AND PRACTICE CHINAContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons 12Retained Liabilities of Tra

91、nsferorThe rights and obligations of a person with a mineral exploration right or a mining right are transferred with the transfer of the mineral exploration or mining rights.There would be no retained liabilities of the transferor.Oil and gas exploration and/or extraction rights can be leased or mo

92、rtgaged if the transfer condi-tions are met,and the lease or mortgage agree-ment must be approved by the issuing agency.Minimum Requirements for TransfereeA transferee of exploration right must meet the qualificationsofanoilandgasexplorationrightapplicant prescribed in the Measures for Area Registra

93、tion Administration of Mineral Resourc-es Exploration and Survey or the Measures for the Registration Administration of Mineral Resources Exploitation.Special Requirements for Transfer of OperatorshipAlthough not prescribed in the statutes,it is rec-ommended that approval is obtained if there is a c

94、hange of control in the company that has the oil and gas exploration or extraction rights.2.10 Legal or Regulatory Restrictions on Production RatesThere is currently no legal restriction on the pro-duction rates of oil and gas extraction.3.PRIVATE INVESTMENT IN PETROLEUM:MIDSTREAM/DOWNSTREAM3.1 Form

95、s of Allowed Private Investment in Midstream/Downstream OperationsPrivate Investment in Midstream OperationsPrivate capital is encouraged to work with state-owned oil companies on the construction of oil/gas trunk pipelines and oil/gas branch pipelines in various ways.Notably,a separate national pip

96、eline network company,PipeChina,was incorporated in December 2019 and played a central role in pro-viding open access to the third party in the mid-stream gas sector.PipeChina shall,without dis-crimination,provide oil and gas transportation,storage,gasification,loadingandunloading,andtranshipmentser

97、vicestoqualifiedprivateinves-tors and shall not delay or refuse to sign service contractswithqualifiedprivateinvestorswithoutjustifiedreasons.Government ApprovalsThereisabasicdifferenceintheregulatorytreat-ment between an intra-state pipeline system and an interstate pipeline system.Generally,pipeli

98、ne design and construction are subject to review based on the requirements for safety,environmental protection,optimal land use and economic feasibility.Nationwide pipe-lines must be consistent with the national energy and land-use plans.An EIA must be obtained before construction(Law on the Protect

99、ion of Oil and Gas Pipelines 2010).Trans-province and transboundary network projects(autonomous regions or municipalities directly under the Chinese government,exclud-ing gathering and transportation pipeline net-13CHINA Law aNd PraCTiCEContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mal

100、lesons worksinoilfields)aresubjecttotheapprovalof the competent investment department under the State Council.Further,the transboundary projects must be submitted to the State Coun-cil for registration.Oil pipeline network projects(excluding gathering and transportation pipe-linenetworksinoilfields)

101、otherthanthosemen-tioned above are subject to the approval of local governments(Circular of the State Council on Promulgating the Catalogue of Investment Pro-jects Subject to the Approval of Governments(2016 Version).For oil and gas transportation using cross-border pipelines,the regulations and req

102、uirements set outinMeasuresoftheCustomsofthePeoplesRepublic of China for the Administration and Supervision of the Pipeline Transportation of Imported Energy(2018 Second Amendment)must be followed.Thequalificationsoftheenterprisesandper-sonnel engaged in the design,installation,use and inspection of

103、 pipelines must be accredited by the State Administration for Market Regula-tion or its local counterpart,as the case may be(Item 249,Directory of the Projects subject to Administrative Approval according to the State Councils Decision).Private Investment Used in Downstream OperationsThedownstreamoi

104、lsector,includingrefineries,petrochemical production and gasoline retail businesses,is still dominated by the NOCs,although it is generally open to both private and foreign investment,subject to ordinary permit-ting procedures.From 2019,the approval of qualification forwholesale,storageandoperationo

105、frefinedoilproducts has been gradually cancelled,and theapprovalrightofqualificationforretailandoperationofrefinedoilproductsdelegatedtothe local governments.Further,in the Special Administrative Measures(Negative List)for the Access of Foreign Investment(2019),it has also deleted the restrictions w

106、hereby the construc-tion and operation of gas,heat,and water supply and drainage pipeline networks in cities with a population of more than 500,000 shall be con-trolled by the Chinese parties.3.2 Rights and Terms of Access to Any Downstream Operation Run by a National MonopolyWhile the downstream oi

107、l sector,including refineries,petrochemicalproductionandgaso-line retail businesses,is still dominated by the NOCs,it is generally open to both private and foreign investment,subject to ordinary permit procedures.The storage and domestic trading of crude oil,storageanddomesticwholesaleofrefinedoilpr

108、oducts were previously subject to similar spe-cificbusinesspermitsbuthavebeengraduallyliberalised since 2019(Decision of the Ministry of Commerce to Repeal Some Rules(2020).In terms of the retail business of refined oil,a refined oil business licence issued by thelocal government is required.There a

109、re cer-tain requirements for applicants to obtain such a business permit,including a certain amount of registered capital,long-term supply agree-ments,and stable sales channels and facilities.Foreign-invested enterprises may also apply for such permits.In addition,trading of oil and gas requires saf

110、ety permits under,eg,the hazardous material regu-latory regime.The trading and sale of gas or liq-uefiednaturalgas(LNG)asatypeofburningfuelrequires a fuel gas business permit.LAw AND PRACTICE CHINAContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons 143.3 Issuing Midstream/Downstrea

111、m LicencesMidstream/downstream licences are granted upon application to the competent authority by the interested party.The major licences mainly include the following types.Gas Business LicenceThe state shall implement the licence system for gas operation.Enterprises engaged in gas operation shall

112、meet the following conditions:to meet the requirements of the gas develop-ment plan;there are gas sources and gas facilities that meet national standards;thereisafixedbusinesspremises,aperfectsafety management system and a sound business case;the main responsible person of the enter-prise,the safety

113、 production manager and the operation,maintenance and repair personnel aretrainedandqualifiedbyprofessionaltrain-ing;andother conditions under the laws.If the conditions mentioned in the preceding par-agraph are in accordance with the provisions of the preceding paragraph,the gas management licence

114、shall be issued by the gas management department of the local government at or above the county level(Article 15,Regulation on the Administration of Urban Gas 2016).Special Equipment Production LicenceSpecial equipment production units shall have the following conditions and shall be responsi-ble fo

115、r the supervision and administration of the management department to engage in produc-tion activities:technical personnel adapted to production;equipment,facilities and workplaces adapted to production;andsound quality assurance,safety management,and job responsibility(Article 18,Special Equipment S

116、afety Law).Work Safety LicenceBefore production,an enterprise shall apply for the work safety licence to the department in charge of the issuance and administration of work safety licences and satisfy the following conditionsspecifiedinArticle6:establish the responsibility system for work safety;for

117、mulate internal work safety regulations and operating rules;set up administrative institutes for work safety and install full-time work safety administrative personnel;andappointaqualifiedmajorperson(s)-in-chargeand work safety administrative personnel,etc(Article 6,Regulation on Work Safety Permits

118、 2014).The department in charge of the issuance and administration of work safety licences shall com-plete its review process within 45 days from the day of receipt of an application and issue work safety licences to those found upon review to satisfytheworksafetyconditionsspecifiedinthe present Reg

119、ulation(Article 7,Regulation on Work Safety Permits 2014).Storage/Wholesale LicenceThe storage and domestic trading of crude oil,storageanddomesticwholesaleofrefinedoilproducts were previously subject to similar spe-cificbusinesspermitsbuthavebeengraduallyliberalised since 2019(Decision of the Minis

120、try of Commerce to Repeal Some Rules(2020).Refined Oil Retail LicenceAspecificrefinedoilretaillicencebusinessper-mit issued by the local government is required.There are certain requirements for applicants 15CHINA Law aNd PraCTiCEContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons

121、to obtain such a business permit,including a certain amount of registered capital,long-term supply agreements,and stable sales channels and facilities.Foreign-invested enterprises may also apply for permits.3.4 Typical Fiscal Terms and Commercial Arrangements for Midstream/Downstream OperationsTrans

122、portationPipeline owner and its customers:A national pipeline network company,Pipe-China,was incorporated in December 2019 and started operation in the fourth quarter of 2020.PipeChina has taken possession of all the major oil and gas pipeline assets and some LNG receiving terminals developed by the

123、 three-barrels in restructuring agreements among large Chinese state-owned enterprises and other parties in October 2020.Other pro-vincial oil and gas companies are still invest-ing in pipeline constructions,but the skeleton of the pipeline network is still expected to be constructed by PipeChina.LN

124、G receiving terminals in China are owned by PipeChina,the state-owned oil majors and other project developers typically associated with regional gas companies.Currently,the price of natural gas pipeline transportation is subject to the principle of“one price for one enterprise”,and the price is dete

125、rmined by the government under the principle of“permitted cost plus reasonable income”.Pipeline transportation prices are checked and adjusted every three years.Gas PriceGas resources mainly include domestic onshore gas,domesticoffshoregas,importedLNGandimported pipeline gas.The natural gas price pa

126、id by end-users includes:resource costs;pipeline transmission fees;andgas distribution fees.Thepricesofdomesticoffshoregas,domesticunconventional gas and imported LNG gas can be freely negotiated and determined by the par-ties(however,local governments and gas com-panies may still set prices for pip

127、eline natural gas based on the sales price of the gate station in practice).Currently,the price of natural gas pipeline trans-portation is subject to the principle of“one price for one enterprise”,which is determined by the government under the principle of“permitted cost plus reasonable income”.Pip

128、eline trans-portation prices are checked and adjusted every three years.Gasoline PriceThe gasoline retail price is subject to a hard cap set by NDRC and adjusted every ten business days.3.5 IncomeorProfitsTaxRegimeApplicable to Midstream/Downstream OperationsMidstream refining is subject to consumpt

129、iontax,VAT and local levies,income tax,etc.Downstream sales are mainly subject to VAT,local levies,income tax,etc.Midstream and downstream pipeline transpor-tation is governed by PipeChina,mainly com-prised of CNPC,SINOPEC and CNOOC and theirrespectivesubsidiaries.Thereisnospecificapplicableincomeor

130、profitstaxregime.Measures to calculate the VAT on Oil-Gas Field Enterprises can be found in the Pilot Imple-menting Measures,which substituted the ear-lier Administrative Measures for the Value Added Tax on Oil-Gas Field Enterprises,issued by the LAw AND PRACTICE CHINAContributed by:Jin Xiong,Grace

131、Fan and Daisy Duan,King&Wood Mallesons 16Ministry of Finance and the State Administra-tion of Taxation.Some important measures are set below:Article3stipulatesthatoil-gasfieldenter-prises shall pay VAT for providing productive labour services for crude oil and natural gas production;Articles 5 and 1

132、1 stipulate that the VAT rate for the productive labour services provided byoil-gasfieldenterprisesshallbe17%,nowreduced to 13%(of that,3%VAT should be paid where the productive labour services are rendered);andArticle 9 stipulates that the input VAT on the productive labour services received by an

133、oil-gasfieldenterprisefromanotheroil-gasfieldenterprisecouldbecreditedagainsttheoutput VAT.3.6 Special Rights for National Oil or Gas CompaniesNational oil companies have priority rights on supplements within the pipeline capacity.As mentioned in 3.3 Issuing Midstream/Down-stream Licences,pipelines

134、owned by national oil companies(PetroChina,SINOPEC,CNOOC)are transferred to PipeChina(established in 2019),which are still entitled to access to the pipelines.3.7 Local Content Requirements Applicable to Midstream/Downstream OperationsThere is no midstream and downstream local content requirement un

135、der Chinese law,but it may be required as contractual market practice.As a matter of market reality,the state-owned national oil majors wholly own or otherwise control midstream facilities.So local content requirements are arguably not relevant.3.8 Other Key Terms of Each Type of Midstream/Downstrea

136、m LicenceThe standard model of the Midstream/Down-stream Licence will normally state the following items:the entity that applies for the licence;the address of the licensee;the legal representative of the licensee;the validity period of the licence;andthe detailed type of business that the licensee

137、is authorised to carry out.3.9 Condemnation/Eminent Domain RightsAccording to the Pipelines Protection Law and Land Management Law,a private investor shall submit the pipeline construction plan to the competent urban and rural planning department ofthelocalpeoplesgovernmentatorabovethecounty level.F

138、or the purpose of the public inter-est,the surface or land the pipeline is designed to build may be condemned based on the pipe-line construction plan.Fair and reasonable compensation shall be giv-en for the expropriation of land,and the standard shallbedeterminedbythelocalpeoplesgov-ernment at or a

139、bove the county level.3.10 Rules for Third-Party Access to InfrastructureThird parties may,with certain exceptions,have accesstothepipelinesofcrudeoil,refinedoiland natural gas,LNG receiving stations,under-ground gas storage,as well as their supporting infrastructure.In May 2019,China introduced the

140、 Measures for Regulation of Fair and Open Access to Oil and Gas Pipeline Facilities.This Regulation empha-sised that operators of oil and gas pipelines and facilities within China are obliged to grant third-party users“fair and open access”to their facili-17CHINA Law aNd PraCTiCEContributed by:Jin X

141、iong,Grace Fan and Daisy Duan,King&Wood Mallesons ties and provide new principles and policies to support this access.Conditions and the process for access,metering and price-related require-ments are also provided in this new regulation.It is expected to provide a more integrated and detailed legal

142、 framework to support the further development of a fair and open access regime.In line with the above national measures,Pipe-China later established its own rules for access to its facilities in PipeChina Interim Measures for the Fair and Open Management of Oil and Gas Pipeline Network Facilities in

143、 2020.The user must,amongothertechnicalstandards,fulfilthefollowing requirements:being a PRC entity;the operation of the entity complies with national laws and regulations,local govern-ment regulations and relevant industrial poli-cies;has acquired oil and gas-related administra-tiveapprovalsandsafe

144、tyoperationcertifica-tion;andhas a good contractual performance record,soundfinancialpositionandcreditrecord.The standard Terminal Use Agreement(TUA)for receiving terminals is mostly in line with interna-tionally common practice.The remaining capac-ity information is published on PipeChinas web-site

145、 on a quarterly basis.Typical TUAs contain the following key provi-sions:minimumusagefee/fixedchargeandusage-based charge scheme;annual terminal usage plan and adjustment;LNGtankerspecification;LNGspecificationsandoff-specLNGtreat-ment;storageandregasificationservices;andallotted laytime and demurra

146、ge.3.11 Restrictions on Product Sales Into the Local MarketAfter the abolition of the Measures on the Administration of the Crude Oil Market and the Measures on the Administration of the Product Oil Market,except for the approval for the retail sales of product oil products by the local govern-ment,

147、approvals for the wholesale and storage of petroleum products are exempted.However,the wholesale and storage operators shall com-ply with the laws and regulations on registra-tion,land resources,planning and construction,oilquality,safety,environmentalprotection,firecontrol,taxation,traffic,meteorol

148、ogyandmeter-ing,and meet the relevant standards.3.12 Laws and Regulations Governing ExportsChina adopts parallel administrations on the import of crude and product oil by state trad-ing enterprises(enterprises/institutions licensed by the state to import certain types of goods subject to the state t

149、rading administration)and non-state trading enterprises.Crude oil export requires export quota approval by the MOFCOM and export licences.In prac-tice,only four state-owned oil companies can applyforrefinedoil-exportingquotas:PetroChina;Sinopec;CNOOC;andSinochem.The State Council approved the Severa

150、l Meas-ures on Supporting the Opening up and Devel-opment of the Whole Oil and Gas Industry in the China(Zhejiang)Pilot Free Trade Zone on 26 March 2020,allowing the Zhejiang Pilot Free TradeZonetocarryoutrefinedoilexportstoanappropriate extent.This allows existing eligible refiningandchemicalintegr

151、ationenterprisesinLAw AND PRACTICE CHINAContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons 18the Pilot Zone to pioneer non-state exports of refinedoil,subjecttoanannualexportquota.The MOFCOM regularly publishes a list of names of the state trading enterprises.Other enterpris-es ma

152、y become a non-state trading enterprises ifthefollowingconditionsarefulfilled:haveaforeigntradebusinessqualification;meet the requirements published by the MOFCOM for dealing with commodities that are subject to the state trading administration;andregister with the MOFCOM(Trial Measures for the Stat

153、e Trading Administration of the Import of Crude Oil,Product Oil,and Fertilizer).In order to import crude oil,both state and non-state trading enterprises must apply to the MOF-COM for an import license.However,the import licences for non-state trading enterprises are limited to an import quantity pe

154、rmitted by the state.For gas,there is no restriction on the import/export quota and the right to trade.China has not yet exported natural gas due to its own shortage of natural gas.3.13 Requirements for Transfers of Interest in Midstream/Downstream Licences and AssetsThe downstream operations and re

155、levant licenc-es can be transferred between private owners.As the power of approving retail licences is authorised by the local government,the transfer of the licences shall follow the local regulations.Where a retail outlet is transferred,the transferee retail outlet intending to continue to engage

156、 in theretailoperationofrefinedoilproductsshallapply for a retail licence from the municipal com-merce department in accordance with the provi-sions,and the operator of the transferred retail outlet shall return the retail licence to the issuing authority.As for the midstream,like LNG terminals,it i

157、s common to have a restriction against the assign-ment of rights or obligations without written con-sent under the TUA.4.FOREIGN INVESTMENT4.1 Foreign Investment Rules Applicable to Domestic Investments in PetroleumUntil 2020,foreign investors were restricted from participating in the exploration an

158、d extraction of oil and gas in China.The only way to participate was to enter into PSCs with those state-owned Chinese oil majors,who were legally permitted to apply for and hold the exploration and extrac-tionlicencesforthebenefitofallthepartiestothe PSCs.The Negative List of 2020 removed the restr

159、ic-tion so that foreign investments in petroleum are encouraged.Foreign investments into the upstream sector of petroleum are further regulated by laws and regulations promulgated or administered by the MNR.As for the exploration rights,pursuant to the 2020 MNR Opinions,domestic(private)and wholly-f

160、oreign owned enterprises registered within China with net assets value of no less than CNY300 million are eligible to apply for oil and gas exploration and extraction licences.As of 2019,the restrictions on foreign invest-ment in midstream and downstream have been largely lifted.Several precedents e

161、xist in wholly foreign-operated midstream and downstream projects,suchasrefineriesandretailgassta-19CHINA Law aNd PraCTiCEContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons tions.However,as the midstream pipeline net-work in China has been consolidated under the control of PipeChi

162、na,the participation of foreign capital in pipeline investment is unlikely,if not impossible(although there are no outright statu-tory nor regulatory prohibitions).4.2 Sanctions Applicable to Investment AbroadCurrently,there is no sanction in place with respect to investing in oil and gas assets in

163、for-eign jurisdictions or conducting business in the oil and gas sector with foreign counterparties,governments or jurisdictions.However,certain sanctions are applicable to for-eign entities that have been put on the“unreli-able entity list”for the purpose of national secu-rity.According to Article

164、10 of the Provisions on the Unreliable Entity List issued by MOFCOM in 2020,foreign entities listed are restricted or prohibited from engaging in China-related import and export activities,including investing in China.5.E N V I R O N MEN TAL,H E A LT H A N D S AF ETY(EH S)5.1 Principal Environmental

165、 Laws and Environmental Regulator(s)Principal environment laws:EnvironmentalProtectionLaw2014(effectivefrom 1 January 2015);Law on Environmental Impact Assessment 2018(2018 EIA Law);Law on Promotion of Cleaner Production 2012(2012 Cleaner Production Law);Circular Economy Promotion Law 2018(2018 Circ

166、ular Economy Promotion Law);Law on Environmental Protection Tax 2018(2018 Environmental Protection Tax Law);Administrative Measures for Pollutant Emis-sion Permitting(for trial implementation)2019(2019 MEE Pollutant Emission Permitting Measures);Regulation on the Administration of Pollution Emission

167、 Permitting 2021(2021 Pollutant Per-mitting Regulation);Emergency Response Law 2007(2007 Emer-gency Response Law);andRegulations on the Administration of Con-struction Project Environmental Protection 1998(last amended in 2017).Laws in specialised areas:Law on the Prevention and Control of Atmos-phe

168、ric Pollution 2018(2018 Air Pollution Prevention Law);Law on Prevention and Control of Water Pol-lution 2017(2017 Water Pollution Prevention Law,witheffectfrom1January2018);Law on Prevention and Control of Soil Pollu-tion 2018(2018 Soil Pollution Prevention Law,witheffectfrom1January2019);Marine Env

169、ironment Protection Law 2017(2017 Marine Environment Protection Law);Solid Waste Pollution Prevention and Control Law 2020(2020 Solid Waste Pollution Law);Water Law 2016;Grassland Law 2013(revised in 2021);Forestry Law of the PRC 2019(2019 Forestry Law,witheffectfrom1July2020);Regulations on the Con

170、trol over Safety of Dangerous Chemicals 2002(last amended in 2013);andRegulations of the PRC on the Administration of Environmental Protection in the Exploration andDevelopmentOffshorePetroleum1983.Environmental RegulatorsNational Development and Reform Com-mission(NDRC).The main environmental activ

171、ities of the NDRC include strategies for sustainable development and climate change LAw AND PRACTICE CHINAContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons 20and co-ordinating energy saving and emis-sions reduction(https:/).Ministry of Ecology and Environment(MEE).The MEE is resp

172、onsible for national environ-mental policy and coordinating and supervis-ing major environmental projects,and it is involved in a broad range of ecological issues such as biodiversity and greenhouse gas emissions.Before April 2018,the predeces-sor regulator of the MEE was the dismantled Ministry of

173、Environmental Protection(MEP)(https:/).Ministry of Natural Resources(MNR).The MNR was established in April 2018 to con-solidate the administration of Chinas national natural resources from various other agencies().Ministry of Emergency Management(MEM).The MEM was established in April 2018 in charge

174、of safety production,disaster man-agement and emergency relief().MWR.The main responsibilities of the MWR include the rational development and use of water resources and drafting or promulgating various water-related legislation( of Agriculture,Fisheries Bureau.The Bureauisresponsibleforpreventingan

175、yfish-ery calamity caused by pollution and relieving the damage so caused().5.2 Environmental Obligations for a Major Petroleum ProjectEnvironmental Impact Assessment(EIA)An EIA process must be completed before the construction of an oil or gas project begins.A private investor must prepare the EIA

176、report,statement,or registration forms according to the classifiedlistinEIALaw.Companiesexploitingoil or natural gas must prepare the EIA report orstatementdependingonthespecificcircum-stances of the project.EIA reports must be pre-pared for projects for:crude oil processing;natural gas processing;s

177、haleoilandotherrefinedcrudeoil;coal-to-liquid;bio-to-liquid;andother petroleum production.The EIA documents(including EIA reports,statements and registration forms)must then be submitted for approval to the environmental administration department of the central or local government.Before approving t

178、he EIA reports or statements,the environmental administration department must solicit opinions from the:administrative departments responsible for oceanicadministration,maritimeaffairsandfishery;environmental protection department of the armed forces;andpublicopinionifthereisasignificantimpacton the

179、 environment.The environmental administration department must decide whether to approve the EIA report or statement within 60 days from the date of receiving the EIA report or within 30 days from the date of receiving the EIA statement.During the operation of oil or gas projects,if any solid waste,w

180、aste water or exhaust gas is to be discharged,a Pollutant Discharge Permit must be obtained in advance.The operator must also comply with the national pollution discharge standard and pay environmental protection tax.5.3 EHS Requirements Applicable to OffshoreDevelopmentOffshore Exploration and Extr

181、actionOffshore,the operator must provide safetytraining and anti-hydrogen sulphide safeguard measuresforlabours.Fire-fightingequipment21CHINA Law aNd PraCTiCEContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons and hazardous items must be managed accord-ing to the highest standards.

182、Stand-by vessels and helicopters may be required for dangerous projects.The local authority would also require the oper-ator to prepare a contingency plan for safety accidents,subject to updates according to the currentconditionoftheoffshoreoperation.Anyaccident must be reported promptly to the loca

183、l authority.TheoperatorsofoffshoreoilprojectsinChina,orfixedplatformsormobileplatformsandotherrelated facilities must comply with a series of environmental protection requirements,includ-ing:insurance;financialguarantee;waste management;andfisheriesprotection.5.4 Requirements for DecommissioningInan

184、offshoreoperation,generally,theoperatorshall submit a written application to the state competent administrative authority of marine affairs for disposal of facilities 90 workingdays prior to the cessation of production and decommissioning of infrastructure and shall not decommission infrastructure u

185、ntil the approval documents are obtained.Prior to the decom-missioning of infrastructure,the operators shall prepare an implementation plan for the disposal of facilities and submit it to the state competent administrativeauthorityofenergyforfiling.Please note that the Environmental Protection Techn

186、icalRequirementsfortheDisposalofOff-shore Oil and Gas Production Facilities(Draft for Comment),released on 30 November 2021,is thelatestlegislativedevelopmentinthefieldofdecommissioning,which provides general and technical requirements for decommissioning ofoffshoreoilandgasinfrastructure,technicalp

187、oints for ecological EIA,environmental protec-tion measures and decommissioning plans,etc.5.5 Climate Change LawsClimate Change LawsThe climate change laws for lowering green-house gas emissions and scaling up energy efficiencyandcleanenergymainlyinclude:Law on Prevention and Control of Atmospher-ic

188、 Pollution(2018 Amendment);Renewable Energy Law;Energy Conservation Law;Cleaner Production Promotion Law;Circular Economy Promotion Law;Electric Power Law;etc.Carbon Tax RegimeChina has not introduced a carbon tax regime,but an environmental protection tax has been imposed on certain types of greenh

189、ouse gas,such as nitrogen oxides.Carbon Trading RegimeThere are also regulations for trial implementa-tion in relation to carbon emission trading and emissionreportingverification,mainlyincluding:Measures for the Administration of Carbon Emissions Trading of 2020;GuidelinesforVerificationofCorporate

190、Greenhouse Gas Emission Reports of 2021;Rules for the Administration of Registration of Carbon Emissions of 2021;Rules for the Administration of Trading of Carbon Emissions of 2021;andRules for the Administration of Settlement of Carbon Emissions of 2021.The main products of carbon emissions trading

191、 areemissionquotasandChineseCertifiedEmis-sions Reductions(CCER).The trading parties are the key emission entities and the agencies LAw AND PRACTICE CHINAContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons 22andindividualsspecifiedunderthetradingrules.Thetradingagenciesarethosequal

192、ifiedbythedepartment in charge of carbon emission trading under the State Council(currently the MEE).The specifictradingrulesaremadebythetradingagenciesandmustbereportedtoandfiledwiththe MEE.The key regulatory authorities include the MEE and environmental departments at provincial,regional and munic

193、ipal levels.Nationwide trad-ing of carbon emissions allowances officiallylaunched on 16 July 2021 at the Shanghai Envi-ronment and Energy Exchange,with limited trad-ing products and limited market participants.Specific Rules in the Oil and Gas IndustryIn terms of the oil and gas industry,the Emis-si

194、on Standard of Air Pollutants for Onshore Oil and Gas Exploitation and Production Industry isChinasfirstpollutionemissionstandardfortheoilandgasindustry,whichtookeffecton1January 2021 for new facilities and 1 January 2023 for existing facilities respectively.The Standards stipulated the requirements

195、 for the control,monitoring,supervision and admin-istration of the emission of volatile organic com-pounds(VOCs)of onshore oil and natural gas exploitation enterprises and sulphur dioxide of sulphur recovery equipment of natural gas puri-ficationplants,andalsotherequirementsontheco-ordinated control

196、 of the emission of green-house gas methane.5.6 Local Government Limits on Oil and Gas DevelopmentAs noted in 1.1 System of Petroleum Owner-ship,only the central government(through MNR)has control of petroleum resources.The explora-tion and extraction licences can only be issued by MNR without deleg

197、ation to their provincial and local counterparts.The provincial and local counterparts of NDRC do have the power and authority to approve certain infrastructure projects,depending on whether a given project is on their annual cata-logue list.Also,the ecological and environmental depart-ments of the

198、local government have the right to set local restrictions and any prohibitions on oil and gas development within the realm of national standards pursuant to the Environment Law.However,the extent of enforcement of those laws and regulations is very much“policy”driven.6.MISCELLANEOUS6.1 Unconventiona

199、l Upstream InterestsShale GasChinasshalegasresourcesranksecondintheworld,and the government has established mul-tiple pilot regions for shale gas exploration and extraction,such as in the Sichuan Basin.Both domestic and foreign capitals may obtain such rightsthroughtheofficialbiddingprocess.The Chin

200、ese government has also introduced a series of shale gas supportive industry policies and development plans since 2009,including:the 12th Five-Year Plan for Natural Gas and the Shale Gas Development Plan(201115);industrypoliciesincludefinancialandtaxpolicy,technology research and development(R&D)sup

201、port policy,resource management policy,shale gas price policy,pipeline net-work policy and international co-operation policy;andprovincialofficialsinSichuan,ChongqingandGuizhou have released shale gas develop-ment plans.23CHINA Law aNd PraCTiCEContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&W

202、ood Mallesons A subsidy is granted for shale gas produc-tion.Nevertheless,the Chinese state-owned oil majors are the only shale gas explorer and producersinChinaduetotechnicaldifficultiesand the geological nature of the Chinese shale gasfields.International oil majors(Shell,BP,etc)have been interest

203、ed in participating in the shale gas devel-opment opportunities in China and successful-ly won a number of blocks through the public tendering process.However,it would appear that foreign participating operations and devel-opments were hampered by the lack of water resources nearby and other environ

204、mental limi-tations.Thegeologicaldifficultiesandtechnol-ogy issues also create great challenges.Coalbed MethaneThankstotheNegativeList(2019Edition),effec-tive from 30 July 2019,foreign investment into the development of coalbed methane(CBM)no longer requires the co-operation with select qualifiedChi

205、neseenterprises.Thepolicyallowsdomestic and foreign capitals equal access to all the mineral rights related to CBM.In order to promote and encourage the devel-opment of CBM,China has given preferential policies of taxation and subsidies to the indus-try through the CBM Industrial Policy released by

206、the NEA in March 2013.For example,the equipment,instruments,accessories and spe-cial tools used in CBM exploration and develop-ment are exempted from import duties and VAT.ThepolicyoflevyingVATfirstorwithdrawingVATfor the general taxpayers of CBM extraction and production enterprises shall be implem

207、ented.In terms of private and foreign investment for CBM exploration,development and infrastruc-ture construction,relevant laws and policies include:RegulationofthePeoplesRepublicofChinaontheExploitationofOffshorePetroleumResources in Cooperation with Foreign Enter-prises(2013 Revision);Notice of th

208、e MOFCOM;andNDRC and the Ministry of Land and Resourc-es on Issues Concerning Further Expanding the Cooperation with Foreign Parties in Min-ing Coalbed Methane.Despite the released restrictions and promotions of private and foreign investments,currently,the primary CBM regions are still dominated by

209、 state-owned enterprises.Private and foreign capitals can hardly enter the market without partnering with the top barrels.The other challenge is that those major coal mines with the greatest CMB potential are most-ly owned or controlled by state-owned enter-prises.Any holders of CBM licences must wo

210、rk with those coal mines to be able to explore and extract the resources.Hydraulic FracturingPolicies in respect of managing the environmen-tal risk of hydraulic fracturing include:Policy on Pollution Prevention and Control Technologies of Petroleum and Natural Gas Exploitation Industry;andPolicy on

211、 Shale Gas Industry.Thereisnospecificregulationonadministrativeconsenting and EIAs relating to hydraulic frac-turing.Oil and gas enterprises are subject to the strict technical demonstration and approval process regarding the construction design and technical measures in relation to fracturing.Prefe

212、rential measures for unconventional gas or oil are mainly tax relief policies.The shale gas resource tax(at a prescribed tax rate of 6%)can be reduced by 30%(Notice on Reducing LAw AND PRACTICE CHINAContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons 24Resource Tax on Shale Gas,fro

213、m 1 April 2018 to 31 December 2023).Shale oil produced from kerogen shale can enjoy a 70%VAT refund pol-icy(Catalogue of VAT Concessions for Compre-hensive Utilisation of Resources Products and Services).6.2 LiquefiedNaturalGas(LNG)ProjectsMost of the LNG receiving terminals are owned and operated b

214、y PipeChina and the state-owned Chinese oil majors.However,there is a grow-ing appetite for developing further new receiving terminals owned in whole or part by non-state-owned entities.The primary authority for approval of new receiv-ing terminals is the NDRC.Previously,the sub-mission of an applic

215、ation for NDRC approval was required to be accompanied by certain“pre-approval documents”.As of 2019,NDRC would accept and review applications for new LNG receiving and storage terminal facilities with-out the pre-approval documents submitted at the same time.The statutory timeline for NDRC approval

216、 is set out under the Measures for the AdministrationoftheConfirmationandRecorda-tionofEnterprisesInvestmentProjects(2017).ImportsThere is no restriction on the import of natural gas,and a series of encouraging policies are set out in the Several Opinions of the State Coun-cil on Promoting the Co-or

217、dinated and Stable Development of Natural Gas and other regu-lations.Nevertheless,the importer still needs to secure the receiving terminal,pipeline and regasificationcapacity.ThelargestLNGtermi-nal operator in China is PipeChina.Some gas companies opt to build their own receiving ter-minals to gain

218、 a strategic advantage in the LNG value chain,but most LNG importers either use PipeChinas receiving terminal or pipelines for transit or both.Therefore,compliance with Pipe-Chinas commercial terms,technical standards andproductspecificationsarerequiredforLNGimport in China.ExportsChina has not yet

219、exported natural gas due to its own shortage of natural gas.As of mid-2022,the prevailing pricing system for LNG and natural gas in China is still volume-based.However,the transition toward a heat-value-based pricing system is undergoing.6.3 Energy Transition ConsiderationsDuetotheimprovementoffuele

220、fficiencyandthe transition toward an electronic or natural gas-powered transportation system,domestic natural gas exploration and production and LNG imports are expected to grow exponentially.New projects in respect of LNG receiving,storage,andregasificationwillsubstantiallyincreasetheoverall capaci

221、ty after 2025.Scaling-up carbon capture,utilisation and stor-age(CCUS)are essential tools to achieve the energy transition goal.Using CCUS to improve theoilandgasproductionefficiencyhasbeenon the agenda of every Chinese NOC.For exam-ple,Sinopecs 100mn mtpa CO CCUS project entered into production sta

222、ge in early 2022.In addition,CCUSmayalsoplayasignificantrolein the policy initiatives to transit toward green hydrogen production.There are also pioneer programmes across the country to use existing natural gas pipeline net-works to transit the mixture of natural gas and up to 20%hydrogen.The trial

223、does not require modificationofanyexistingfacility.Thetechnicalstandard for long-distance pure hydrogen pipe-line is still in the drafting stage.25CHINA Law aNd PraCTiCEContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons 6.4 Unique or Interesting Aspects of the Petroleum IndustryDu

224、ring the Fourteenth Five-Year Plan period,China accelerated its green and low-carbon energy transformation.China pledges to reach the carbon dioxide emissions peak by 2030 and achieve carbon neutrality by 2060.The total installed capacity of wind and solar power aims to reach 1.2 billion kilowatts o

225、r more by 2030.The worlds major oil companies have succes-sively announced net zero(or close to zero)strategies,and the Chinese oil and gas compa-nies are also increasing investments into new energy to embrace energy transition.6.5 Material Changes in Oil and Gas Law or RegulationMost notably,the 20

226、20 MNR Opinions have pro-foundlyinfluencedtheupstreamsector.Amongother changes,it provided equal market entry for domestic and foreign investors to obtain mineral rights.Further,toreflectoperationalreality,thestatute also combined prospecting and exploi-tation rights into a single exploration(with t

227、rial extraction)right in the Chinese oil and gas sec-tor.For midstream,the 2019 Measures for Regula-tion of Fair and Open Access to Oil and Gas Pipeline Facilities stated that oil and gas pipeline facility operators should provide services to all qualifiedusersinafairandnon-discriminatorymanner.For

228、downstream,China has gradually liberalised the control of crude and product oil in recent years.Since the State Council issued the Opin-ionsoftheGeneralOfficeoftheStateCouncilon Accelerating the Development of Circula-tion Industry and Promoting Consumer Spend-ing in 2019,wholesale,storage and opera

229、tion ofrefinedoilproductsarenolongersubjecttoapproval.Theapprovalrightofqualificationforretailandoperationofrefinedoilproductsaredelegated to the local governments.LAw AND PRACTICE CHINAContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons 26King&Wood Mallesons(KWM)is an inter-nation

230、allawfirmheadquarteredinAsiawhichoffersexpertiseinPRC,HongKong,Australia,UK,US and a range of European laws.KWM offers comprehensive legal services in cross-border M&A,securities and capital markets,bankingandfinance,litigationandarbitration,intellectual property and compliance with a team of leadin

231、g practitioners.The KWM en-ergy and resource group brings together lead-ing specialists in oil and gas,mineral resources,power,renewable energy,ESG and compliance who cover the entire value chain of the energy andresourcespractice,supportedbythefirmsstrategic presence in major legal markets such as

232、London,Singapore and Dubai.It has a track record of executing some of the most high-profilemulti-jurisdictionalenergyandresourcestransactions representing Chinese companies,such as Chinese oil majors,over the past dec-ade,as well as international companies invest-ing in Chinese energy sectors.A U T

233、H O R SJin Xiong is one of the leading partners of the King&Wood Mallesons energy and resource team.His practice focuses on cross-border M&A and energy and resources investments,with vast experience in representing Chinese and international clients in their cross-border investments and energy and re

234、source-related transactions.With over 20 years of multi-jurisdictional practice,Jin has substantial experience in a wide range of transactions such as private and public M&A,FDI,strategic alliance and joint ventures,and project investments.He has in-depth sector knowledge covering energy and resourc

235、es,infrastructure,consumer and advanced manufacturing,and he lectures extensively on legal issues covering the energy sector.Grace Fan is one of the leading partners of the King&Wood Mallesons energy and resource team.She has a broad practice that includes the cross-border energy sector,project deve

236、lopmentandfinancing,internationalarbitration and private equity investments focusing on oil and gas,new energy,mineral resources,financialinstitutionsandshipbuilding/FPSO sectors.In recent years,Grace also helped design the Chinese energy companys global compliance regime,including anti-corruption,e

237、conomic sanctions and data protection.With over 12 years of focus on energy,she has in-depth legal and commercial knowledge of this area and lectures extensively on energy topics.Grace is a member of AIPN.27CHINA Law aNd PraCTiCEContributed by:Jin Xiong,Grace Fan and Daisy Duan,King&Wood Mallesons D

238、aisy Duan is part of the team at King&Wood Mallesons and has over 19 years of experience providing comprehensive tax services for domestic and international clients.In particular,Daisy has solid experience in assisting clients in tax audit defence,transfer pricing investigation and tax appeal/litiga

239、tion cases and has successfully represented clients in a number of highly challenging dispute cases.She has published several articles on various tax issues,some by international publishing houses.Daisyisacertifiedtaxagentandislicensed to practice law in the PRC.King&Wood Mallesons18th Floor,East To

240、wer World Financial Center No 1 Dongsanhuan Zhonglu Chaoyang District Beijing 100020 PRC Tel:+86 Fax:+86 010 5878 5566Email:Web:Chambers Global Practice Guides Chambers Global Practice Guides bring you up-to-date,expert legal commentary on the main practice areas from around the globe.Focusing on the practical legal issues affecting busi-nesses,the guides enable readers to compare legislation and procedure and read trend forecasts from legal experts from across key jurisdictions.To find out more information about how we select contributors,email Katie.B