Shale gas exploration tender announced

China will launch its second shale gas exploration tender on Oct 25 in Beijing, as the country accelerates the search for its potential vast reserves of the energy resource, authorities said.

The tender will offer 20 blocks, about 20,002 square kilometers, to Chinese energy companies or Sino-foreign ventures with Chinese companies taking the majority stake, according to the tender announcement released on the website of the Ministry of Land and Resources on Monday.

A successful bidder can get three-year exploration rights to one block for shale gas resources, according to the announcement.

The blocks in the tender cover seven provinces and one municipality, mostly in Guizhou, Chongqing, Hunan and Hubei.

"Whether there will be a third or fourth auction depends on the reaction from the market and explorers," said Che Changbo, deputy director of the oil and gas strategic resources research center of the Ministry of Land and Resources.

Unlike the country's first auction, which allowed only Chinese-owned enterprises, this auction will allow foreign-funded joint ventures controlled by Chinese investors.

"The successful experience in shale gas exploration is important for China to learn, but China's different geological conditions means we must develop our own way," said Lin Zong, researcher of the Development and Research Center of the China Geological Survey.

Shale gas is natural gas formed within shale formations. It has become an important source of energy in recent years.

As shale gas transforms the global energy outlook, China is accelerating its pace in figuring out how to explore its huge reserves of the unconventional resource.

In June, the Economics and Technology Institute under China National Petroleum Corporation estimated China holds more than 36 trillion cubic meters of technically recoverable shale gas reserves, much higher than the US reserves of 24 trillion cu m, the second-largest.

Che said the current exploration enthusiasm is very high.

Zhang Dawei, director of the mineral resources and reserves evaluation center of the Ministry of Land and Resources, told Oriental Outlook, a weekly magazine published by Xinhua News Agency, on Monday that before June, more than 70 companies and organizations have expressed an interest in the auction.

The statement requires that bidders have a registered capital of more than 300 million yuan ($47 million) and be in the oil and gas industry or have cooperated with such companies.

Zhang said that the Ministry of Land and Resources, in addition to setting a strict threshold for entering the shale gas market, is drafting regulations on supervising the shale gas exploration. The regulations will be released later.

Though still in its infancy, China's shale gas industry has attracted the attention of global energy companies such as Royal Dutch Shell PLC and BP Plc, and US independents such as Hess Corp and Newfield Exploration Co.

Officials have said the shale gas tenders will be open only to Chinese companies, but foreign companies were welcome to join forces with the winners.

Bertrand de La Noue, general representative of Total SA, said in July that the French company is very interested in shale gas exploration in China and is talking with China's Sinopec Group about a possible drilling project in Anhui province.

He added that Total is willing to cooperate with Chinese companies and tell them about its experiences in the US.

In March, Shell signed China's first shale gas production sharing contract with CNPC, the nation's biggest oil company. Both sides will cooperate to develop and produce shale gas in the Fushun-Yongchuan block in the Sichuan Basin, an area covering about 3,500 sq km.

But not everyone is optimistic about the near-term future of China's shale gas exploration.

David Eyton, group head of research and technology at UK oil giant BP, said during his visit to Beijing on Aug 30 that it will still be a long time before China can commercialize shale gas development on a large scale.

He said China needs more policy support, including a pricing mechanism for shale gas since its shale gas reserves' geological structure is different from that of the United States, and so China needs to build more infrastructure to transport the shale gas once extracted.

"The company has rich experience in exploring unconventional resources in the North American market and would love to participate in China's future development in shale gas," he said.

According to public information, the company is in talks with Chinese companies on possible deals.

Zhang, from the Ministry of Land and Resources, said that although China does not have any shale-gas production, the construction of pipelines in shale gas-rich provinces and regions is being planned.

China plans to pump 6.5 billion cubic meters of shale gas by 2015, according to the country's 12th Five-Year Plan (2011-15) on shale gas exploration.