China poised to offer 20 exploration blocks.

Blossoming potential: China is ready to offer 20 blocks in August

China's Ministry of Land & Resources (MLR) is poised to offer 20 blocks to up to 17 companies in August this year, some months after the previously announced target of March or April for the launch.

The blocks are spread over more than 10 provinces, including Guizhou, Sichuan, Hunan, Shaanxi, Jiangsu, Anhui and Henan, Chongqing city and Xinjiang region.

Most of them are located in the 19 target basins and regions listed by MLR for exploration as part of the campaign during the current five-year development period, from 2011 to 2015.

MLR sources said private companies are invited to participate in the bidding, but they have to have a registered capital of 300 million yuan ($48 million) and minimum cash of 1 billion yuan.

In addition, the participants should either own shale gas exploration or development technology, or have access to such technology.

Foreign companies are not allowed to bid directly, but the chances are that domestic companies will be allowed to partner them for technical assistance on any blocks they win.

Industry sources said that most of the companies invited to bid are state-owned, or owned by local governments. Some are coal and power entities. Sources said the invitees include China National Petrole um Corporation, Sinopec, China National Offshore Oil Company, Sinochem, CITIC Resources, Zhenhua Petroleum, Guanghui Petroleum, Honghua Group and China United Coalbed Methane Corporation.

The bid winners are required to surrender the licences to MLR should they fail to meet their investment commitment or exploration obligations.

China's last shale gas licensing round was launched last year, when MLR required a minimum investment of 20,000 yuan per square kilometre and the drilling of at least two exploration wells in the first three-year exploration term.

The government will provide some compensation to those who fulfill their financial and exploration obligations but fail to strike any commercial finds, according to sources.

In addition, the government will also provide subsidies to shale gas exploration licence owners based on the practice implemented to coalbed methane development.

Currently, the government subsidises the CBM developers 0.2 yuan per cubic metre of CBM produced, and 0.25 yuan per kilowatt hour of electricity generated from CBM-fired power plants.

On top of these, government will exempt royalties for exploring shale gas, and import taxes for buying foreign equipment that China is not able to manufacture for exp loring shale gas.

China has 134 trillion cubic metres of shale gas potential, with 25 Tcm considered recoverable.

The country aims to produce 6.5 billion cubic metres of shale gas by 2015.

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