Ministry starts auction of shale gas rights

The Ministry of Land and Resources (MLR) announced Monday that it has started public auction of shale gas prospecting rights, a move to accelerate the exploitation of domestic shale gas through market mechanism.

The public tender involves 20 shale gas blocks in eight provinces, including Southwest China's Guizhou Province, Central China's Henan Province and East China's Jiangxi Province, covering an area of 20,002 square kilometers, the MLR said on its website.

According to the announcement, the bidders must be registered in China with the capital of at least 300 million yuan ($47.3 million) and should be either qualified in prospecting for petroleum and natural gas or should cooperate with qualified Chinese companies.

"These requirements shut most of the nation's private firms out of the door," Li Chaolin, an energy analyst with Anbound Consulting, told the Global Times Monday.

It is hard for private firms to obtain the qualification in petroleum and natural gas exploration, said Li.

However, Lin Boqiang, director with the Center for Energy Economic Research at Xiamen University, said the required qualification is not high.

"Many private companies have submitted bid applications and they have big chances of winning," said Lin.

So far, three private companies have participated in the bidding process, namely Xinjiang-based Guanghui Energy Co, Beijing-based Wintime Energy Co and Shandong-based oilfield equipment supplier Yantai Jereh Oilfield Services Group Co, Li Linghuan, an analyst with commodity information provider sci99.com, told the Global Times Monday.

"Guanghui has the exploration qualification and joined the bidding independently while the other two cooperated with firms qualified for prospecting shale gas," she said.

Experts said that private companies should worry more about the difficulties they will face after they get the prospecting rights rather than whether they could get the rights or not.

"It is risky for them to engage in prospecting for shale gas as they may not find this unconventional source of energy after three years of efforts due to the lack of mature exploration technologies, in which case their investments will be wasted," said Li from sci99.

The MLR announcement states that the prospecting rights will expire after three years and the average investment into the prospecting process must reach at least 30,000 yuan per kilometer.

Even if the companies find shale gas resources, they still may not make profits from the business, as the domestic shale gas price is too low and the local environment may not be suitable for large-scale exploitation, Lin said.