China taps shale gas through combined efforts

BEIJING -- China is exploring an optimized energy structure by tapping into shale gas resources through the joint efforts of local authorities, enterprises and researchers.

The country's second round of auctions for shale gas licenses, which will be held in late October, has elicited substantial interest from more than 70 domestic companies, including Sinopec and PetroChina, the country's two largest oil producers.

Related reading: China mulls spur shale gas exploitation

Auction to boost shale gas exploration

The nation will offer 20 shale gas blocks with a total acreage of 20,002 square kilometers in the upcoming auction, according to a statement issued by the Ministry of Land and Resources, or MLR, in early September.

The figures are sharply up from the first auction in 2011, when six companies bid for a total of four blocks.

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

Inviting more players

The forthcoming auction welcomes both State-owned and private enterprises and is also open to foreign investment, to a certain extent.

According to the MLR statement, any domestic company or Chinese holding Sino-foreign joint venture registered with capital exceeding 300 million yuan ($48 million) and qualified for gaseous mineral exploration may join the bidding.

The participation of private firms at the initial stage of shale gas exploration could provide a substantial boost to the sector, as they bring in capital and possible technical innovations, analysts said.

Many private companies are now actively exploring less costly drilling techniques and making positive progress, they added.

Related reading: Will China embrace a shale gas boom?

But high risks, huge costs and a long return cycle may still keep out private players without sufficient cash flow.

Shale gas is an expensive business. The exploration and drilling alone may cost hundreds of millions of yuan, not to mention the subsequent construction of pipeline networks and other facilities.

To mitigate the risks shouldered by private companies, some local governments have taken the initiative to facilitate the collaboration between State-run oil giants and their smaller private peers.

Southwest China's Sichuan province, which owns one of China's first shale gas drilling sites, inked an agreement with Sinopec in July. According to the agreement, Sinopec will lead the construction of the province's shale gas pilot project while allowing private capital in with minimized risk.

Experts also expect the MLR to chart smaller blocks to attract more private firms in the auction.

Adjusting technology & policies

Technical hurdles are another challenge facing the nascent energy sector.

After the United States' successful exploration of unconventional mineral gases, many countries rich in shale gas reserves have turned to the clean, highly efficient energy source, especially amid the recent oil price hikes on the global market.