China Kicks Off First Shale Gas Tender

29.06.2011 -

China issued its first shale gas exploration tender with an offer of four blocks to a group of Chinese energy companies, state media reported, as the country kicks off its search for potentially vast reserves of the unconventional resource.

The tender result will be announced in July and China plans to hold another similar auction in the second half of the year, said Zhang Dawei of the oil and gas strategy center of the Ministry of Land and Resources, a key government agency behind the shale resource push.

In March, the U.S. Energy Information Agency estimated China holds 36.1 trillion m3 of technically recoverable shale gas reserve — significantly higher than U.S. reserves of 24.4 trillion m3, the next largest.

Industry estimates in China peg shale gas resources slightly lower — but still huge — at 26 trillion m3, although they have yet to give their own forecasts of how much of that is recoverable.

The blocks in the tender are mostly in the southwestern Chongqing municipality and Guizhou province and cover an area of 11,000 km2, smaller than an earlier announced plan to offer eight blocks with an area of 18,000 km2.

The Ministry of Land and Resources issued the tender on Monday to PetroChina, China Petroleum and Chemical Corp (Sinopec), CNOOC Ltd., Shaanxi Yanchang Petroleum Group and two coal seam gas companies, the official Xinhua News Agency said on its website (
"By reducing the number of blocks on offer, we're hoping to bring about more intense competition," said MLR's Zhang, adding that the companies had submitted their bids with results likely to be due in early July.

The auction comes several months later than expected as the ministry was trying to bring more companies, such as Sinochem and Zhenhua Oil, into the competing round. Zhang said these firms were not in the first tender but might emerge as bidders in the future auctions.

Though still in a very early stage, China's shale gas industry has attracted the attention of global energy companies such as Royal Dutch Shell, BP and U.S. independents such as Hess and Newfield Exploration.

Officials have said the shale gas tenders would only be open to Chinese companies, but foreign companies were welcome to join hands with the winners.
The auction also offered a possible chance for CNOOC Ltd., an offshore oil specialist, to expand into Chinese onshore gas plays.
CNOOC Ltd. was the first Chinese energy firm to land shale gas deals overseas, with stake acquisitions of drilling acreages of U.S. independent Chesapeake Energy.

Two other bidders in the auction were China United Coal Bed Methane and Henan Provincial Coal Seam Gas Development and Utilization. China United Coal Bed Methane is controlled by CNOOC Ltd.'s parent, China National Offshore Oil Corp (CNOOC).

China, soon to overtake the U.S. as the world's top energy user and already the world's biggest coal burner, is keen to boost the use of cleaner natural gas to tame the growth of coal.

Industry estimates in China put shale gas resources at 26 trillion m3, smaller than the U.S. estimate but still huge, though China has yet to give its own estimate of how much that is recoverable.

For now, China does not have any shale gas production. Its total gas output, mostly from conventional reservoirs and tight gas deposits, was about 94 bcm in 2010, a volume set to triple to 300 bcm in 2030, Chinese oil companies have estimated.