China to Allow Local Private Companies to Bid in Shale Auction

China, holder of the world’s biggest shale-gas reserves, will allow privately owned local companies to bid for the rights to explore for the unconventional fuel when it holds the country’s second auction of areas.

Chinese companies planning to participate in the auction must have a minimum registered capital of 300 million yuan ($47 million) and apply to qualify for bidding before May 25, the Ministry of Land and Resources said in a statement on its website today. The country first auctioned shale areas in June and awarded blocks to two of the six state-owned companies that were invited.

China has yet to produce shale gas commercially as its explorers struggle to overcome the lack of domestic drilling expertise and geology that is tougher than in the U.S., where output has surged 15-fold in the past decade. The government has pledged to prioritize land approvals, allow tax-free equipment imports and offer subsidies to explorers.

“It’s obvious the second round of shale gas auctions is getting near and it’s a good sign for the development of China’s shale gas industry,” Zhang Jinchuan, a professor of geology at the China University of Geosciences in Beijing and an adviser to the land ministry, said by telephone. Large-scale shale gas exploration across the country could start “in the second half,” Zhang said.

The country holds 25.08 trillion cubic meters of exploitable reserves of the fuel trapped in shale rock, the ministry said March 1, citing a nationwide survey.

Overseas Companies

The ministry said only local companies can participate in the auction.

Overseas companies will remain barred from bidding directly and can invest in ventures led by local explorers, Zhang Jianfeng, a director at the ministry’s research institute, said in an interview on April 23. More than 100 Chinese companies have qualified for the auction and the government will offer at least 20 areas, Zhang said.

The Chinese government will hold one or two auctions of shale-gas blocks this year, the land ministry said on March 1. China Petroleum & Chemical Corp. (386), the nation’s second-largest oil company, and Henan Provincial Coal Seam Gas Development and Utilization Co. won the exploration rights in June.

The country aims to produce 6.5 billion cubic meters of shale gas annually by 2015 and ramp up output to between 60 billion and 100 billion by the end of the decade, the National Development and Reform Commission said, citing a plan drafted by the National Energy Administration.

To contact the reporter on this story: Aibing Guo in Hong Kong at aguo10@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net

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