China’s ambitious shale gas plan could regain traction as top state-owned energy giants are likely to participate in the upcoming third round of gas block tenders, marking a milestone for the nation as it seeks to quench its energy thirst through commercial production of the unconventional gas.
Unlike the previous two rounds of auctions, the third tender will attract several major players. Once the big state-owned companies join the game, they will channel the necessary financial and technological resources to tackle several key issues including those related to pipelines, market structure and trading hubs, observers say.
China will offer blocks in the western region, including Sichuan and Hubei provinces and Chongqing city, in its third round of shale gas auctions, the official Shanghai Securities News reported on Nov. 8, citing unidentified sources.
Four oil giants — China Petrochemical Corp., China National Petroleum Corp., China National Offshore Oil Corp. and Shaanxi Yanchang Petroleum (Group) Co. — and two leading power companies — China Huadian Corp. and China Guodian Corp. — will participate in the auction, the report said.
Beijing aims to produce 6.5 billion cubic meters of shale gas by 2015 and up to 100 billion cubic meters by 2020 from none at present. Slow development of China’s enormous shale gas reserves had raised questions whether the target can be met. With only two years left, authorities are in a great hurry to provide sufficient incentive to draw in the major energy companies into the business.
Only the big enterprises have the financial and technological capability as well as the strength to cope with the great uncertainties in the shale gas sector. Authorities offered 20 blocks spanning 20,239 square kilometers across eight provinces and cities in the second bid round a year ago. But leading oil companies stayed on the sideline in that tender due to less attractive resources and limited pipeline network.
Nineteen blocks were eventually awarded to 16 companies, but none of them had any prior oil and gas experience. The ministry acknowledged in July this year that many of the companies lacked skilled and technical personnel and had limited financial resources. Coupled with the complex geology, the progress — not surprisingly — was slow.
However, the third auction has offered much more attractive reserves and better pipeline network, and it could accelerate the pace of commercial utilization of the nation’s enormous shale gas resources, market watchers say. For example, the nation’s existing west-east gas pipeline network can transport gas from Hubei and Chongqing to coastal cities.
Beijing had opened the lucrative sector to private and foreign players in the previous tender. However, the formidable technology and capital threshold has held back many private investors. More importantly, the investment risk is pretty high, as it remains to be seen whether the blocks will yield any significant finds. The blocks are believed to be geologically more challenging to explore.
The cost of drilling a well in China is around 80-90 million yuan (US$13.2-14.8 million), compared with about 20 million yuan in the US, according to industry experts. It usually takes about three and half months to four months to complete a drill in China, while in the US for a well with the same depth of around 2,000-3,000 meters, it only takes about a month to be completed.
China is estimated to hold the world’s largest reserves of the unconventional gas which can be recovered by hydraulic fracking using advanced technology developed in North America. The process extracts gas from prehistoric shale rocks.
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