China to offer shale-gas blocks to domestic companies

Oct 27, 2010 12:00 AM

China will offer shale-gas blocks to the nation’s biggest energy companies as it aims to increase the use of cleaner-burning fuels to help reduce carbon dioxide emissions. The government will offer six shale-gas exploration blocks to PetroChina Co., China Petroleum & Chemical Corp., CNOOC Ltd. and Shaanxi Yanchang Petroleum Group in an auction to take place within a month, Zhang Dawei, deputy director of oil and gas strategy research at the Ministry of Land and Resources, said at a conference in Shanghai.

China plans to tap its unconventional gas resources, including gas in shale, to help cut reliance on oil and coal. The country may have 26 tcm of shale-gas reserves, more than 10 times its proven holdings of conventional natural gas, according to Zhang. “China is placing increasing importance on shale gas as it could be a significant source of energy in the future,” said Shi Yan, an analyst at UOB-Kay Hian in Shanghai. “The development is still in its very early stages, but Chinese energy companies are looking closely at this.”

The shale-gas blocks up for auction, each as large as 7,000 sq km (2,700 sq miles), are in the provinces of Guizhou, Shanxi, Anhui and Zhejiang, and the municipality of Chongqing, Zhang said. The government considers offering an exploration subsidy of between 0.23 yuan (3 cents) and 0.30 yuan per cm, according to Zhang. China aims to have 1 tcm of proven shale- gas reserves by 2020, Zhang said. Production may reach the equivalent of as much as 12 % of conventional gas output by then, he said.

Foreign participation PetroChina signed an agreement with Royal Dutch Shell Plc last year to explore for shale gas in the south-western province of Sichuan. Shell may invest $ 1 bn annually in the country in the next five to seven years should two wells there show potential for commercial production, Chief Financial Officer Simon Henry said on Sept. 14.

China is seeking to triple the use of gas to about 10 % of energy consumption by 2020. The country will gradually open shale-gas exploration to foreign and private companies, Zhang said. The US and China will jointly appraise reserves in northern China and Jiangsu province after the countries signed a cooperation agreement last November, according to Zhang.

China will separately start an appraisal of the country’s shale-gas reserves next year and the survey will take three years to complete, Zhang said. The government has drawn up supportive policies for shale-gas development and is waiting for the right time to implement them, he said. US shale gas All shale-gas projects in China are currently trials, Zhang said. It will take more than three years at least for production to reach sizable proportions, and that requires construction of pipelines, according to Zhang.

Last year, the US surpassed Russia as the world’s largest producer of natural gas as shale-gas output rose to 10 % of total supplies from 2 % in 1990 in what BP Plc’s former Chief Executive Officer Tony Hayward called a “quiet revolution.” CNOOC, China’s biggest offshore oil producer, said it will pay $ 1.08 bn for a one-third stake in Chesapeake Energy’s Eagle Ford shale gas project in Texas.

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