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100 Firms Interested in China's 2nd Shale Gas Auction

Source: Reuters 7/25/2012, Location: Asia

More than 100 Chinese companies, including a grain trader, are interested in a shale gas exploration tender the government is expected to issue within weeks, underscoring 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 said.

China is believed to hold the world's largest reserves of shale gas, which is trapped in rocks and that requires a technology called hydraulic fracturing, or fracking, to unleash. A shale gas boom in the United States is turning the top energy user into a gas exporter.

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

About 20 blocks, spanning half a dozen provinces in the south but with a total area of little over 10,000 sq km, will be auctioned, the sources said. 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 Corp.

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 southwest and the provinces of Guizhou, Hunan, Hubei, Jiangxi, Anhui and possibly Zhejiang, but exclude Sichuan, which likely holds the country's largest shale gas deposits.

Local media has reported that the southwestern province is likely to pump 2 billion cubic meters of shale gas by 2015, equivalent to 30 percent of the national target of 6.5 billion cubic meters. Sichuan province is also where Royal Dutch Shell landed China's first production sharing contract for shale gas: a deal with PetroChina to develop 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.

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