China Sets Date for Second Shale Gas Tender

After months of delays, China has set a date for a shale gas exploration rights auction with 20 blocks spanning eight administrative areas going under the hammer.

Scheduled for the morning of Oct. 25, this will be China's second such tender and the first in which foreign companies will be allowed to participate. The Ministry of Land and Resources MLR adjusted auction entry requirements to allow foreign-funded joint ventures (JV) to participate so long as the Chinese partner holds a majority share.

The ministry previously excluded foreign-funded JVs from the process, relegating international firms to cooperation agreements with winning domestic bidders.

"It is an important change," said Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University in Fujian Province. "China still lacks key technologies and techniques in areas such as hydraulic fracturing, so letting Sino-foreign JVs in [the auction process] can help improve the likelihood of the sector's success," Lin told Interfax.

Tenders for the blocks must be submitted on Oct. 25, with the auction to take place on the morning of the same day, the MLR announced.

The 20 blocks span a combined area of 20,002 square kilometers in eight administrative regions, with Guizhou and Hunan provinces home to five blocks each. Three of the blocks are located in Chongqing Municipality, and Hubei and Henan provinces contain two blocks each. Furthermore, Anhui, Jiangxi and Zhejiang provinces each contain one block.

"The MLR has conducted some preliminary surveys on the blocks but they were early-stage assessments so it is hard to say what the commercial potential is," said Professor Zhang Jinchuan with the China University of Geosciences in Beijing on Monday. Winning bidders will need to evaluate the blocks themselves, Zhang told Interfax.

Each participant will be allowed to bid for two blocks and will be required to submit a bid bond of RMB 2 million ($315,564) for each block they intend to bid for before submitting tenders on Oct. 25.

The MLR said that winning bidders must invest a minimum of RMB 30,000 ($4,733.46) per square kilometer (km), and to drill at least two wells for every 500 square km, Zhang Dawei, deputy director of the MLR's Oil and Gas Strategy Research Center, told Interfax.

Moreover, successful bidders will be required to establish subsidiaries where the blocks are located once the three-year exploration period expires and the development phase begins, according to the MLR's announcement.

If a Beijing-registered company wins a block in Chongqing, it will be compelled to set up a branch or subsidiary in Chongqing after three years of exploration and once it enters the development period, a representative with a foreign oil company told Interfax.

"This move is mainly aimed at ensuring local government interests, namely by increasing investment, employment and tax revenue in the area," said the representative on the condition of anonymity.

China contains 25.08 trillion cubic meters of technically recoverable shale gas reserves onshore, according to MLR data. The ministry held the country's first shale gas tender in June last year, where two out of four blocks available were snapped up by China Petrochemical Corp. and a provincial coalbed methane developer.