While China, Indonesia and Russia have made concerted efforts to increase CSG production over the last decade in line with demand for natural gas, the impact of their current incentives is limited by technical obstacles.

GlobalData’s senior analyst covering upstream fiscal and regulatory regimes Will Scargill said China’s government provided a subsidy at a rate of RMB0.2 ($US0.03) per cubic metre, possibly increasing to RMB0.4/cubic metre in the near future. Value-added tax rebates are also available and import duties waived on related equipment.

“Despite such efforts to encourage Chinese CBM [coal bed methane, otherwise known as CSG] development, the inability to reach markets through a lack of infrastructure is a major obstacle,” he said. “Until this issue is overcome, restricted sale prices will impact profitability and investment, increasing the importance of additional fiscal incentives.”

Similarly in Indonesia, profitability is not assured due to high development costs caused by the country’s fledgling industry, which does not currently have enough service capacity or expertise for extensive CSG development.

The sale price will therefore need to be higher, or more incentives provided, to offset inflated costs, Scargill said.

Meanwhile, more significant coal reserves in Russia, along with the improved safety and environmental impact of future mining activities, have become major drivers in the government’s desire for development.

“Russian CBM production is used domestically for industry and local populations, freeing up more conventional gas production for export,” Scargill said.

“Following pressure from Gazprom, Russia added CBM to the Russian Classified Index of Natural Resources and Underground Waters in 2011, meaning that the country could provide more targeted fiscal incentives, such as exemption from mineral extraction taxes.

“Overall, such incentives implemented globally have had varied success, with their effectiveness highly dependent on infrastructure status and reservoir quality.

“Where conditions are conducive to development and production, such as in the US and Australia, minimal incentives are sufficient. However, more extensive government support is still needed for other Eastern Hemisphere countries with CBM aspirations.”

Range Resources said in a presentation earlier this year that, according to management, the natural gas market was already about 2-4 billion cubic feet per day oversupplied and that demand in 2015 will rise 2Bcf/d, greatly reducing the oversupply – though the company itself is expected to increase its own supply by 20% this year.