China Auction for Shale Gas Blocks Attracts 152 Qualified Bids

China’s second round of shale-gas auctions attracted 152 bids from 83 companies, as the nation allowed non-state entities to participate in the sale for the first time.

Nineteen of the 20 blocks offered in today’s auction received at least three bids, the minimum required for a block’s auction to proceed, according to a statement posted to the website of the Ministry of Land and Resources today. A block, which received two bids, was removed from the auction.

China, holder of the world’s biggest shale reserves, has yet to produce the unconventional fuel commercially, while output in the U.S. quadrupled in 2010 from 2007. The ministry allowed China’s private companies to join the bidding to boost the pace of China’s shale-gas exploration.

“Private companies can bring passion and innovation to an industry that has not seen much innovation in the past,” said Laban Yu, head of Asia oil and gas equity research at Jefferies Hong Kong Ltd. “Small energy companies are the ones that triggered the U.S. shale-gas boom and the same thing could happen in China.”

The blocks provided in the auction cover 20,002 square kilometers (7,722 square miles) across eight provinces in China. A qualified bidder must have at least 300 million yuan ($48 million) of registered capital and hold relevant licenses. Foreign companies are allowed to join the auction only through ventures with local companies.

China Reserves

China aims to produce 6.5 billion cubic meters (230.37 billion cubic feet) of shale gas annually by 2015 and 60 billion to 100 billion cubic meters by the end of the decade, the National Development and Reform Commission said in March. The country holds 25.08 trillion cubic meters of exploitable reserves of the fuel, according to the land and resources ministry.

The U.S. has an estimated 482 trillion cubic feet (13.6 trillion cubic meters) of technically recoverable shale gas, according to the U.S. Energy Information Administration website.

China’s natural-gas consumption will increase fourfold by 2030 to 600 billion cubic meters a year, accounting for 30 percent of the global growth in gas demand, Wood Mackenzie Ltd. said June 6. The nation’s “ambitious” target for 2020 may be delayed by the need for better understanding of its shale formations and insufficient technical know-how, supply-chain services and infrastructure, according to the Edinburgh, Scotland-based consultant.

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 the nation’s first shale-gas auction in June 2011.

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

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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