Local govts may get shale gas licensing mandate soon

Local governments in China may be allowed to issue shale gas exploration licenses during the long-delayed third round of bidding, industry sources said on Thursday.

The measures will help increase private participation in the shale gas block bidding process and production of shale gas in China, said Wang Ruiqi, an analyst with the Shanghai-based energy consultancy ICIS-C1 Energy.

"The first two rounds of shale gas block bidding didn't achieve great success because most of the good resources were acquired by China National Petroleum Corp and China Petrochemical Corp (Sinopec Group)," Wang said. "Companies which won the bids for some other blocks have not done much exploration because of technology and capital constraints."

CNPC and Sinopec have dominated most of the bids for oil and gas block developments in the country for a long time.

Though the actual bidding process is still some time away, some local governments have already sought permission from the higher authorities to issue exploration licenses to companies for shale gas blocks in their respective regions.

Central China's Hunan province has already submitted a plan to the Ministry of Land and Resources for issuing exploration licenses for five shale gas blocks - Changde, Shimen, Lianyuan, Zhangjiajie and Cili. It is expected that the Hunan government will issue the exploration rights for the blocks within the year after it gets approval from the ministry.

The information office of the ministry, however, did not confirm the news on the new licensing policy.

China held two rounds of shale gas block bidding in 2011 and 2012. Only State-owned companies were allowed to participate in the first while the government allowed private companies to bid in the second round.

Wang Xiaokun, an analyst at domestic commodities consultancy Sublime China Information Co, said private companies were not very enthusiastic about the second round bidding since the blocks offered for bidding were not the ones with good potential even though they were keen on participation.

According to Wang, the cost for one shale gas drilling well is at least 100 million yuan ($16 million), and the central government's subsidy is 0.4 yuan for each cubic meter of output.

"The subsidy policy is based on output which means a company takes high financial risk if it starts test-well drilling and doesn't achieve any output," she said.

The third round of bidding has been postponed twice. It was scheduled in late 2013 and 2014 spring afterwards.

The ministry had indicated that it would offer better blocks in the third round bidding, said Wang.

Reserves rise at Sinopec's fuling block

The Ministry of Land and Resources said on Thursday that it certified 106.75 billion cubic meters of new proven geological reserves in the Fuling shale gas block in the southwestern municipality of Chongqing.

The move signifies the start of China's commercialized shale gas production, said China Petrochemical Corp (Sinopec Group) on its website.

Sinopec, the largest oil refiner in the country, is leading the shale gas industry in China.

As of June 30, Sinopec had produced 611 million cu m of shale gas from the Fuling block, according to the company.

In March, the company announced that the Fuling block would achieve output of more than 10 billion cu m by 2017.

Under China's 12th Five-Year Plan (2011-15) for the shale gas industry, the nation aims to reach total output of 6.5 billion cu m of shale gas annually by 2015.