China Second Shale Gas Auction Draws Phenomenal Response From Investors

Release Date: 08-Aug-2012

China has become the center of attraction with its fast paced and ambitious shale gas development policy that is following the footsteps of North America but only faster. The country owns 50% more shale gas reserves than the United States of America and is optimistically looking to repeat its energy boom success story. The government has put shale gas development as a priority for all the national oil companies which will divert majority of their time and resources in affecting a robust development of shale gas and commencing production as soon as practicable. While the companies are in the process of acquiring foreign assets to gain the knowledge and technical expertise, the country is auctioneering the shale gas block licenses to the highest bidders.

The first auction was held in the middle of 2011, which had not been able to attract any companies other than the national firms. In the first round, China had shortlisted only six companies as eligible for the bidding round. There were 4 blocks to be auctioned which covered an area of 18,000 square kilometers. These six companies were Sinopec, Shaanxi Yanchang Petroleum group, China United Coal Bed Methane Company, Henan Provincial Coal Seam Gas Development and Utilization Company, PetroChina and CNOOC. Only two of the blocks were auctioned and the bids were won by Sinopec and Henan Coal Seam Gas Company. Bidding on two other blocks was cancelled due to inadequate number of bids. Sinopec is putting in Yuan 591 Million and Henan coal seam gas will be adding another Yuan 248 Million.

The country is now gearing up for the second round of auctions. For the second round, the Chinese Ministry of land and Resources has asked all the national oil and gas companies to invest three times their present investment and has also allowed the private firms to place their bids. More than 100 domestic private companies have shown interest for the bidding round, an exponential increase from the first round of bidding, after the companies realized the potential of shale gas in China. The fate of foreign companies in the auctions has not yet been declared by the government.
We believe that while the foreign companies will not be allowed to bid directly, in keeping with the Chinese policies, the companies must still be allowed to partner with the bid winning domestic companies as minority stake holders. This move will help the companies exploit the technical knowledge that the North American companies will bring with themselves, affecting a rapid and more accurate development of the Chinese shale gas assets. China is gathering might in the North American shale gas assets to improve its management tactics but more importantly to train its engineers in the art of shale gas exploration and production which will be later applied to its own assets.

A recent research report “China Shale Gas Market Analysis” by KuicK Research delves deep into the auction rounds and how it will affect the Chinese development of shale gas. The report says that it will be important to see how many of the foreign companies are allowed to participate as stake holders in the Chinese blocks and how this will be beneficial for the Chinese government. With China targeting 6.5 Billion Cubic Meters of shale gas production by 2015, the role played by the technology experts will be more pronounced. The research report is a detailed piece of literature that deals with all the aspects of the Chinese shale gas development which is deemed to be bigger than the recent shale gas boom in North America.

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