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China set to auction shale gas blocks

Updated: 2011-08-31 By

• China may hold a second and possibly a third auction of shale-gas blocks by the end of this year in an bid to accelerate the pace of exploration and development of the fuel, Pan Jiping, a researcher at the Ministry of Land and Resources, said recently.

  There will likely be a "noticeable" increase in the number of blocks up for auction and participating companies in the future, Pan said, adding that the success of the first auction, which included blocks in Chongqing municipality and Guizhou and Hunan provinces, laid a solid foundation for future sales. China in late June held its first shale-gas auction, which received bids from six State-owned companies for four blocks.

  China Petroleum & Chemical Corp (Sinopec) won the rights to explore the Nanchuan block, which covers parts of Chongqing and Guizhou. Henan Provincial Coal Seam Gas Development and Utilization Co will explore the Xiushan block, which includes portions of Chongqing, Guizhou, and Hunan province.

  "The ministry is still under preparation. I believe the next round will proceed more rapidly and efficiently compared with the first auction, which was a revolutionary step forward for the sector," Pan said, adding that the government is still very cautious and will not make bold moves.

  Shale gas is an unconventional natural gas produced from shale. China is estimated to have 31 million square kilometers of recoverable reserves of the fuel.

  Liu Tienan, head of the National Energy Administration, said in mid-August that China's abundant shale gas resources are a significant contribution to the country's energy needs. The 12th Five-Year Plan (2011-2015) includes exploration and development of shale gas as a key component of the nation's strategic energy plan.

  The current plan sets the framework for further development during the next Five-Year Plan starting in 2016, Liu said.

  Natural gas will be an increasingly major energy source through 2030, during which shale gas will see the most rapid development, given surging demand for energy and growing empahsis on emissions reduction, according to a recent report released by Exxon Mobil Corp.

  Compared with other regions of the world, the demand for natural gas in China will rise the most. The report that forecast daily consumption will exceed more than 880 million cubic meters (cu m) in 2030. That's compared with 137 million cu m daily in 2005, according to the National Bureau of Statistics.

  China, the world's biggest energy consumer, aims to significantly reduce carbon emission partly by diversifying its energy portfolio to include cleaner energy resources and reducing reliance on dirty coal.

  Sinopec said this week that unconventional gas will become a major force for the company's growth and it will cooperate with overseas companies to accelerate shale gas exploration.

  China's shale gas industry is still at an early stage of development and the government should introduce capital from private companies to foster positive competition and stimulate industry growth, said Wan Xuezhi, an energy analyst at CIC Industry Research Center.

  China National Petroleum Corp and Royal Dutch Shell PLC are currently exploring tight gas and shale gas in the Sichuan Basin in southwestern China.

  The government is still discussing the possibility of allowing foreign companies to participate in the auctions, Pan said. He said that the bidding procedures and criteria for foreign companies are not fully developed and have yet to be finalized.

  "Some foreign companies have expressed their willingness to participate. I believe it will not take long and it's possible that several blocks may be opened up for bids from both domestic and foreign companies," Pan said.

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