China prepares for third round of shale bidding

Chinese Yuan
Source: DollarPhotoClub

One year on from the last round of bidding, China’s Ministry of Land and Resources is preparing for the next, third, round of tenders for shale gas exploration – Want China Times reports.

Despite being the richest country in the world when it comes to shale gas (with reserves estimated at 1,115 trillion cubic feet), China has so far been unable to unlock its enormous potential.

The ministry has so far issued 54 licenses covering an area of 170,000 square kilometres, chiefly around Sichuan and neighbouring areas, with combined investments of more than 20 billion yuan (US$3.27 billion). Approximately 80 per cent of these are controlled by the country’s four largest exploration companies; The Chongqing Administration of Land, Resources and Housing (CALRH), CNPC, State Development & Investment Corporation (SDIC) and Sinochem Corporation. The companies were to start drilling for shale gas by June 2014, having signed a letter of intent to this effect on May 8th.

Despite the initial optimism, so far the results of Chinese shale exploration have been disappointing, leading to downgrading the amount of shale gas China is aiming to pump by 2020 from 60-80 billion cubic metres (bcm) mapped out in 2012, to just 30 bcm in August.

The downgrading came with certain repercussions. In October, Sinopec was fined or completing only 73% of its promised exploration of shale gas. To avoid such situations in the future, sources close to the ministry report that it has decided to reserve the right to withdraw exploration rights if the enterprises which win bids fail to meet their commitments.

In September, the ministry announced that it may increase the production target from the revised 30 billion cubic meters if smoother progress is achieved. Following that announcement, two Chinese giants – China Petroleum & Chemical Corp. (Sinopec) – announced combined investment of $4.87 billion to increase output to 6 billion cubic meters of gas in 2015 – 3.5 and 2.5 billion respectively.

In October, National Energy Administration estimated that China’s shale gas output will likely hit 6.5 billion cubic meters next year, up from an estimated output between 1 billion and 1.5 billion cubic meters this year.

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