China awarded the exploration rights to two shale gas blocks in the Sichuan Basin to Sinopec Corp and a provincial gas company in its first auction for the unconventional gas resource.
The licensing round, initiated last week, marked the start of commercial shale gas exploration in China amid government efforts to boost the use of the cleaner-burning fuel, analysts said.
Sinopec, China's second largest oil producer, was awarded the Nanchuan shale gas block while Henan Province Coal Seam Gas Development and Utilization Co won the Xiushan block, the Ministry of Land and Resources said yesterday.
Sinopec plans to invest 591 million yuan (US$91 million) on exploration at the block, and Henan's Coal Seam Gas will spend 248 million yuan, according to the ministry.
Four blocks were offered in the auction, which was off-limits to foreign companies, but two were canceled as they didn't receive enough bids.
Shale - oil and gas-bearing rocks underground - was uneconomical to extract until advanced technologies were deployed in recent years in the United States. China is tapping foreign technology through partnerships and acquisitions.
"Shale gas has had a transformational impact on the energy outlook of the US and we believe it could also have the same impact in China," Neil Beveridge, an analyst at Sanford C. Bernstein & Co, said in a note yesterday.
A recent report by the US Energy Information Administration estimated China holds 36.1 trillion cubic meters of "technically recoverable" shale gas reserves, almost 50 percent higher than that held by the US, the next largest.
But Beveridge said more difficult terrain, water availability and pipeline infrastructure in China may act as a barrier to rapid development, forecasting shale gas to make up less than 2 percent of China's domestic gas output by 2015.
Companies invited to bid in the first auction also included PetroChina, CNOOC and Shaanxi Yanchang Petroleum Group, all state-owned. Beveridge said private firms may be invited to bid in later rounds while foreign companies are not likely to participate.
Foreign companies can only partner with Chinese businesses through product sharing, he said.