Chinese Oil and Gas Law
Mineral Resources Law
The Mineral Resources Law of the People’s Republic of China, originally adopted in 1986 and substantially revised in 1996 and 2020, is the foundational legal instrument governing oil and gas exploration and production. The Law declares that mineral resources, including oil and natural gas, are owned by the state (Article 3). The State Council exercises ownership on behalf of the state through the Ministry of Natural Resources.
The 2020 revision introduced reforms to the mineral rights system. The revision replaced the previous exploration licence (kantan xuke) and mining licence (caikuang xuke) system with a unified mineral rights (kuangquan) registration system. The revision also introduced competitive tender requirements for mineral rights allocation, ending the previous system under which exploration rights were granted primarily through administrative allocation.
Oil and natural gas are categorised under the Mineral Resources Law as strategic minerals (zhanlve kuangchan ziyuan), subject to enhanced state control. The State Council retains the authority to designate specific oil and gas blocks as strategic reserves and to restrict foreign participation in their development.
Petroleum and Natural Gas Pipeline Protection Law
The Petroleum and Natural Gas Pipeline Protection Law (Shiyou Tianranqi Guanxian Baohu Fa), adopted in 2010 and amended in 2024, establishes the legal framework for pipeline safety. The Law requires pipeline operators to conduct regular inspections, to maintain pipeline safety zones (typically 5 metres on either side of the pipeline), and to obtain permits for construction activities near pipelines.
The 2024 amendment strengthened penalties for pipeline damage, increased the maximum fine for operations that damage pipelines from RMB 500,000 to RMB 5 million, and introduced criminal liability for intentional pipeline damage. The amendment also addressed the integration of pipeline safety regulation with the overall energy security framework.
Exploration Rights
Oil and gas exploration rights in China have historically been allocated through a joint venture exploration model rather than the concession model common in many oil-producing jurisdictions. The state-owned oil companies — CNPC, Sinopec, and CNOOC — hold exploration rights over most of China’s onshore and offshore blocks.
The 2019-2020 reforms opened oil and gas exploration blocks to foreign and private investment. The Measures for the Administration of Oil and Gas Exploration and Mining Rights (2020) introduced a competitive tender system for exploration rights allocation, ending the previous exclusive allocation to state-owned enterprises. Foreign-invested enterprises and qualified private enterprises may now apply for exploration rights through the competitive tender process.
The exploration rights system requires the rights-holder to commit to a minimum exploration work programme (zuidi kantan gongzuoliang) and to relinquish a portion of the block area if commercial discovery is not made within a specified period. The minimum work requirement includes seismic survey kilometres and exploration well commitments.
Production Sharing Contracts (PSCs)
The production sharing contract (PSC) (chanpin fencheng hetong) is the principal legal structure for foreign participation in Chinese oil and gas development. Under the PSC model, the foreign contractor bears the exploration risk and costs; if commercial discovery is made, the contractor recovers costs from production and shares the remaining production with the Chinese state-owned enterprise partner.
China’s PSC regime was established by the Regulations on Cooperation in the Exploitation of Offshore Petroleum Resources (1982) and the Regulations on Cooperation in the Exploitation of Onshore Petroleum Resources (1993, revised 2001). The regulations require that CNOOC (for offshore blocks) or CNPC (for onshore blocks) be the joint venture partner and that the PSC be approved by the Ministry of Commerce.
The PSC terms have become more favourable to foreign contractors since the 2000s. The 2011-2014 round of PSC bidding offered improved cost recovery limits (up to 50% of production), extended production periods (up to 30 years), and reduced the state-owned enterprise’s participating interest. Despite these improvements, the number of new PSCs signed has declined since 2015 as Chinese national oil companies have increased their own deep-water and unconventional resource capabilities.
State Monopoly: CNPC, Sinopec, CNOOC
China’s oil and gas industry is dominated by three state-owned enterprises. The China National Petroleum Corporation (CNPC) (Zhongguo Shiyou Tianranqi Jituan) focuses on onshore oil and gas exploration and production and operates the majority of China’s domestic crude oil production through its listed subsidiary PetroChina. The China Petroleum and Chemical Corporation (Sinopec) (Zhongguo Shihua Jituan) is the largest refiner and petrochemical producer and operates the majority of China’s refining capacity. The China National Offshore Oil Corporation (CNOOC) (Zhongguo Haiyang Shiyou Zonggongsi) holds exclusive rights to offshore oil and gas exploration and production.
The state monopoly in oil and gas has been gradually liberalised since 2019. The Measures for the Administration of Oil and Gas Exploration and Mining Rights (2020) ended CNPC, Sinopec, and CNOOC’s exclusive rights to onshore and offshore blocks, allowing other enterprises to compete for exploration and mining rights. The Regulations on the Administration of Crude Oil Market (2020) and the Regulations on the Administration of Refined Oil Market (2020) eliminated the requirement that wholesale and retail operators obtain crude oil and refined oil import and distribution licences, which had been held exclusively by CNPC and Sinopec.
Natural Gas Pricing Reform
Natural gas pricing in China has undergone significant reform since 2011. The previous cost-plus pricing system, under which the National Development and Reform Commission (NDRC) set city-gate prices based on the cost of production plus a margin, was replaced by a market-linked pricing system. The NDRC’s 2013 Guidance on Deepening the Reform of Natural Gas Pricing introduced a tiered pricing system that linked Chinese natural gas prices to a basket of alternative fuel prices (crude oil, LPG, and coal).
The 2017-2020 Natural Gas Pricing Reform Implementation Plan extended market-linked pricing to all non-residential gas users and to most residential users. As of 2024, approximately 60% of natural gas sales in China are priced through market mechanisms, with the remainder subject to regulated pricing for residential users and certain industrial users.
Strategic Petroleum Reserve
China’s Strategic Petroleum Reserve (SPR) (Guojia Shiyou Chubei) was established under the Guiding Opinions on the Establishment of the National Strategic Petroleum Reserve (2003) and is administered by the National Energy Administration. The SPR programme, initiated in 2004, planned for a three-phase construction of storage facilities totalling 500 million barrels (approximately 90 days of import coverage).
Phase I (completed 2009) established storage capacity of 103 million barrels across four sites — Zhenhai, Zhoushan, Huangdao, and Dalian. Phase II (completed 2015) added 170 million barrels across eight sites. Phase III (ongoing) targets an additional 230 million barrels through underground salt cavern storage, floating storage, and commercial storage leasing arrangements.
The SPR is governed by the Administrative Measures for the National Strategic Petroleum Reserve (2015), which establishes the reserve’s purpose (protecting against supply disruption), its management structure (the State Reserve Bureau within the NEA), the procedures for drawdown and replenishment, and the relationship between the SPR and commercial petroleum reserves held by CNPC, Sinopec, and CNOOC.
Conclusion
Chinese oil and gas law is characterised by the state’s ownership of mineral resources, the dominance of state-owned enterprises, and the gradual liberalisation of exploration, production, and distribution. The PSC regime facilitates foreign participation while preserving state control. The 2019-2020 reforms opened the sector to greater competition and market pricing, though the state-owned enterprises retain significant advantages through their control of existing infrastructure, pipeline networks, and international supply relationships.