China prepares for shale gas auction

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BEIJING, July 16 (UPI) -- More than 70 companies have indicated interest in participating in China's second tender for shale gas blocks, says China's Ministry of Land and Resources.

While the government hasn't announced a specific date for the auction -- it is expected in the next two months -- Jiang Xinmin, deputy director of the Energy Research Institute, a think tank of the National Development and Reform Commission, estimates that about 17 blocks will be on offer, China Daily newspaper reports.

That compares with four blocks from the first round of auctions last June, in which China Petroleum and Chemical Corp and a provincial coalbed methane company each secured two blocks.

China has 25.08 trillion cubic meters of exploitable onshore shale-gas reserves, said the Chinese Ministry of Land and Resources in March. As part of its current 5-year economic plan, China aims to produce 6.5 billion cubic meters of shale gas a year by the end of 2015.

"Shale gas development is a 'revolution' to increase domestic gas supply, improve the energy mixture and protect energy security," Wang Yuqin, board secretary of privately held natural gas pipeline operator Guanghui Energy Co., was quoted as saying by the newspaper.

Wang said Guanghui "will definitely" apply for this shale auction, adding that the government has the final say "on whether we can squeeze in."

While state-run news agency Xinhua in May said that more than 200 domestic companies had registered for the upcoming auction, China's Ministry of Land and Resources later said that figure was "greatly exaggerated."

Except for an agreement between Royal Dutch Shell and China National Petroleum Corp. to develop shale gas blocks in the southwestern province of Sichuan, Beijing has excluded foreign firms from participating, Energy Tribune reports.

But a recent report from London's Global Data Ltd. cites numerous challenges facing shale development in China, including the geology of the reserves, the country's water shortages, inadequate pipeline infrastructure, government control over natural gas prices as well as environmental issues.

Liu Yijun, a professor with the China University of Petroleum, told Xinhua that China's shale gas development is still in a "primary stage and has a long way to go toward mass commercial use."

Of China's 62 shale gas wells in trial development zones, 24 have generated output qualified for industrial use, Xinhua reports.

Last month, Liu Tienan, deputy head of the National Development and Reform Commission, called for China to speed up mass production of shale gas with its own technologies to ensure adequate energy supply.