China 2nd-Batch Shale Gas Auction Likely In July-August

China will likely auction exploration rights for 20 shale-gas blocks in July and August, with 17 companies apparently planning to submit bids, China Securities Journal reported Wednesday, citing unidentified sources.

Companies with registered capital of at least CNY300 million ($48 million) and demonstrated expertise in shale-gas exploration will be eligible to participate in the auction, the newspaper said.

Although state-owned companies will still be major bidders, private domestic companies will also be allowed to participate, it said.

China's two largest oil firms, China National Petroleum Corp. and China Petroleum & Chemical Corp. (SNP), or Sinopec, are among the companies that will submit bids, the source said in the report, with power companies including China Huadian Corp. and China Datang Corp. potentially joining as well.

Chinese government held its first shale gas auction in June 2010, with six state-owned companies bidding for exploration rights at four blocks. Sinopec and Henan Provincial Coal Seam Gas Development & Utilization Co. won the rights to explore one block each, according to the China Securities Journal report.

China's annual output of shale gas is expected to total 6.5 billion cubic meters in 2015, up from zero now, according to the country's shale gas development plan for 2011-2015.

China is pushing hard to increase its use of natural gas and reduce its dependency on coal, which is used to generate 70% of the nation's electricity. Many foreign companies want a share of the action.

Royal Dutch Shell PLC (RDSB) in mid March signed a production-sharing contract with CNPC to explore for and produce shale gas in China. Shell will contribute its advanced technology and operational expertise to the partnership. Other companies, including Total SA (TOT) and Chevron Corp. (CVX), are also seeking to exploit shale gas reserves in China.

China has an estimated 25.08 trillion cubic meters of potentially recoverable shale gas reserves, according to the Ministry of Land and Resources.

The U.S. Energy Information Administration last year said that China has an estimated 1,275 trillion cubic feet of technically recoverable shale gas reserves, which would make it the largest repository of shale gas in the world.