Widespread interest in China shale round

by on July 25, 2012 4:58 pm BST

The interest underscores the appeal of the unconventional resource in the
world’s second largest energy consumer.

China’s Ministry of Land and Resources (MLR) is expected to hold its second
shale gas auction within the next few weeks, government and industry sources told

China is believed to hold the world’s largest reserves of shale gas.

“The door has been swung open a lot wider this time. Even a tobacco
company and others totally unrelated to energy or minerals have said they’d
like to participate,” a government source told the news wire.

The sources said the potential bidders include coal miners, utility firms, a
tobacco manufacturer, a grain trader, real estate developers and investment

About 20 blocks, spanning half a dozen provinces in the south but with a
total area of little over 10,000 square kilometres, will be auctioned, the
sources told Reuters.

The area is similar to the first auction last year that awarded four blocks
to six energy firms.

Most of the blocks on offer were identified by local governments, which have
become increasingly keen on shale gas to boost the local economy. Experts say
the blocks are mostly outside the acreage already taken up by China’s giant
energy firms, PetroChina and Sinopec.

In May, the MLR said potential bidders had to be local entities with a
registered capital of 300 million yuan ($47 million) and with licenses to
explore for oil and gas or other gaseous mineral resources.

Companies without the licenses could form a joint entity with those holding
licenses, which has led to some foreign companies courting Chinese bidders,
officials with China-based international oil firms said.

The blocks on offer span Chongqing city in the south-west, and the provinces
of Guizhou, Hunan, Hubei, Jiangxi, Anhui and possibly Zhejiang.

Sichuan province, which is thought to hold the country’s largest shale gas
deposits, will be exluded from the auction, Reuters said.

Local media have reported that the south-western province is likely to pump
2 billion cubic metres of shale gas by 2015, equivalent to 30% of the national
target of 6.5 billion cubic metres.

Sichuan province is also where Anglo-Dutch supermajor Shell landed China’s
first production sharing contract for shale gas in a deal with PetroChina to
develop the Fushun block.

Since 2009, China’s government has embarked on a big push to encourage shale
gas exploration, setting ambitious output targets to meet part of its
additional energy demand, but commercial production has so far been negligible.