Winning firms aim to invest US$2.1b in shale gas blocks

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THE successful bidders of China's second shale gas licensing auction plan to invest 12.8 billion yuan (US$2.06 billion) to explore 19 blocks over the next three years, the Ministry of Land and Resources said yesterday.

Two private-sector enterprises are among the 16 successful companies, the ministry said. Non-oil companies, such as coal and power firms, also were winners as they bank on the business being lucrative in the long-term.

The second tender, held in October, was the first time China allowed private companies and Sino-foreign joint ventures to bid, as the government sought to tap the resources faster.

The auction offered 20 sites which covered 20,002 square kilometers in Guizhou, Hunan and Jiangxi provinces. But one block was removed after it failed to receive enough bids.

China Shenhua Energy Co, which won a tender in the latest licensing round, said earlier this month that "there are uncertainties in the exploration achievements of and the development prospects for shale gas resources" as the sector is in its preliminary stage in China. The coal producer is entering the sector to broaden its presence in the energy market and optimize its business model as an integrated energy company.

China, which is believed to hold the world's largest reserves, has said it aims to produce 6.5 billion cubic meters of shale gas annually by 2015 and 60 billion to 100 billion cubic meters by 2020. It has yet to produce any commercially.

Chinese shale gas is trapped in formations that are between 3,000 meters and 5,000 meters deep, deeper than those in the United States, and the complex geological conditions could translate to higher drilling costs, Gordan Kwan, Mirae Asset Securities analyst, warned.

The first shale gas auction was held in 2011.

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