Inexperience could hamper shale oil target

(Shanghai Daily)

16:13, February 04, 2013

THERE was strong interest but little expertise on show at China's second shale gas auction.

The Ministry of Land and Resources last month announced 16 winning bidders - six from the power and coal industry, seven provincial and state investment firms, one miner and two private sector companies. The winning bids covered exploration at 19 shale sites.

A total of 85 companies participated in the auction, with 20 blocks on offer. In China's first auction in 2011, only six companies took part, and only half of the four blocks on offer were awarded.

In the latest round, neither of state-owned giants Sinopec and PetroChina was a bid winner because, according to analysts, they already control shale blocks within their existing fields.

"While participation and bidding levels highlight a strong level of interest in shale, the outcome of the licensing round was a disappointment," Neil Beveridge, senior analyst of Sanford C. Bernstein, wrote in a note.

The relatively few bidders with actual oil and gas exploration experience led some analysts to conjecture that China may fall short of achieving its production targets for shale gas.

Some suggested that the nation needs to rethink its approach to shale if it wants to effectively exploit what could be a significant resource.

Game changer

"With winning bidders from sectors outside of the oil and gas industry, we see this as more of a land grab than an effective policy to open up acreage," Beveridge said.

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