BEIJING - China will auction eight shale gas exploration blocks in the first quarter of this year, two more than first planned and months later than originally scheduled for November last year, a ministry official said on Thursday.

The eight blocks will cover a total area of 18,000 square kilometers, said Zhang Dawei, deputy director of the oil & gas strategy center at the Ministry of Land & Resources (MLR).

The auction, the first of its kind in China, was originally open only to the four Chinese energy firms with domestic oil and gas exploration permits -- PetroChina, Sinopec, China National Offshore Oil Corp and Shaanxi Yanchang Petroleum Group -- but the government has decided to make more companies eligible.

"We're adding companies such as Sinochem, Xinjiang Guanghui and Zhenhua which have experience in overseas oil and gas exploration," Zhang told Reuters on the sidelines of a unconventional gas conference in Beijing.

China is keen to kickstart the sector by introducing more competition into the bidding process, and said all new shale gas blocks would be put up for tender by the ministry in the future, he said.

He said that a fact-finding tour of shale gas projects in the United States showed that the diversification of investment sources was a crucial element in the development of the industry.

While still at a very early stage, China's shale gas industry has already attracted the attention of energy giants like BP and Royal Dutch Shell but only local firms will be allowed to participate in the first round of auctions.

Unconventional option

China's total natural gas production in 2010 stood at 94.48 billion cubic meters, figures from the National Bureau of Statistics showed on Thursday.

But official estimates suggest consumption could reach as much as 300 billion cubic meters by 2020 as China pursues policies aimed at raising the share of natural gas in total energy use to 10 percent by 2020, up from 4 percent at present.

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Recurring domestic shortages and problems in securing overseas supply sources have encouraged Beijing to speed up the development of "unconventional" shale gas, currently drawing huge amounts of investment in the United States and Europe.

A MLR research unit called for China's total shale gas production capacity to reach 15-30 billion cubic meters by the end of 2020, amounting to around 8-12 percent of China's total natural gas output by that time.

Sinopec has already begun drilling for shale gas in the Sichuan basin in China's southwest, and announced last month that it had struck a daily flow of 11,500 cubic meters at one of its exploration wells.

PetroChina and Royal Dutch Shell also kicked off a joint exploration project last month by drilling their first wildcat well in Sichuan.

Zhang told the conference that the shale gas sector currently lacked policy support, but said the ministry was currently pushing the government to extend the same incentives currently offered to coal bed methane developers.

He said shale gas development was also being held back by insufficient pipeline infrastructure.

Last year, Zhang of the MLR said preliminary estimates put China's total potential shale gas reserves at 26 trillion cubic meters.