Mainland shale gas bidding opened up

Private and foreign firms are being invited to participate in the bidding for shale gas exploration rights for the first time

PUBLISHED : Wednesday, 12 September, 2012, 12:00am
UPDATED : Wednesday, 12 September, 2012, 2:01am


Private enterprises and foreign firms have for the first time been invited to participate in the bidding for shale gas exploration rights in the mainland.

But analysts said the lack of clarity on gas pricing, incentives and regulatory framework means winners will be taking substantial investment risk despite the lure of China's huge resource potential.

Mainland-registered domestic companies and Sino-foreign firms controlled by the mainland partners with registered capital of at least 300 million yuan (HK$367 million) are invited to tender, the Ministry of Land and Resources said in a tendering circular on Monday. They must have mainland-recognised oil and gas exploration qualifications. Otherwise, they can only take part by teaming up with domestic firms or Sino-foreign firms that have such qualifications.

Three-year exploration rights on 20 blocks, ranging from 369 square kilometres to 2,307 square kilometres, in Chongqing municipality and seven provinces are on offer. They include Guizhou, Hubei, Hunan, Jiangxi, Zhejiang, Anhui and Henan.

In the first round of shale gas exploration rights auction in June last year, only state-owned firms were invited. Rights in four exploration areas were won by China Petrochemical (Sinopec Group) - the nation's second-largest oil and gas producer, and a state firm that explores and extracts coal bed methane - natural gas trapped between coal seams.

Shale gas is a kind of natural gas trapped within sedimentary rock formations. Its low permeability has for long meant it could not be extracted unless the rock formations are fractured, which can now be done through modern drilling technology.

US firms have succeeded in producing shale gas in large quantities in recent years after more than a decade of technology development.

Li Liang, vice-general economist at China United Coalbed Methane, said the state-owned firm has pre-registered to bid. He said the fact that the bidding rules states that each bidder can tender for no more than two blocks - and some small blocks are offered in this round of bidding - suggest Beijing is keen to see participation from private firms, which tend to have less financial muscle than state firms. It also wants foreign firms to transfer their technology and fund development, he added.

An oil and gas analyst at a United States brokerage, who declined to be named, said foreign oil and gas firms will unlikely bid aggressively, since mainland shale gas development is nascent and risky, whereas US shale gas drilling is more mature and still presents ample opportunities.