China steps up shale gas exploration

China second auction for shale gas licenses late this month has drawn the interest of some 70 Chinese firms, including the country's two biggest oil and gas companies.

China will offer 20 shale gas blocks with a total size of 20,002 square kilometers in the auction, said the Ministry of Land and Resources (MLR). The total acreage is a huge increase from the first auction in 2011 when six companies bid for a total of four blocks.

Among the Chinese firms interested in the auction are China Petroleum & Chemical Corporation or Sinopec Ltd., the world's sixth largest company by revenue, and PetroChina Company Ltd., China's biggest oil producer.

Shale gas could become one of China's primary energy sources by 2020 if the nation's shale gas output can reach 60 to 100 billion cubic meters, said analysts.

China aims to pump 6.5 billion cubic meters of shale gas by 2015, and the commercialization of shale gas production can be expected in the 13th Five-Year Plan period (2016-2020).

Extracting shale gas through "fracking" is expensive. The participation of private firms at the initial stage of shale gas exploration could provide a substantial boost to the sector, and bring in capital and teehnology.The coming auction will involve both state-owned and private enterprises and is also open to limited foreign investment.

MLR said any domestic company or Chinese holding Sino-foreign joint venture registered with capital exceeding US$48 million and qualified for gaseous mineral exploration may join the bidding.

Coal-fired thermal power accounts for some 70% of China's power generation. The development of the new, alternative energy source could help mitigate the effects of rapidly rising coal prices.