So what is shale gas? It is natural gas trapped in shale rock deep below the Earth’s surface. China has identified several onshore shale gas regions: Northwest region, Qingzang region, Upper Yangzi (including Yunnan, Guizhou and Guangxi) region, Mid and Lower Yangzi and Southeast region, and East and Northeast region. In total, 180 shale gas areas from these regions are identified by MLR as suitable for priority development.
China began its shale gas study in 2004 and conducted its preliminary geological survey on shale deposits in 2005. From 2006 to 2007, MLR analysed shale gas prospects in China. During 2008, MLR conducted a comprehensive study on the geological conditions in the U. S. and China for shale gas deposits. The shale gas prospects in the Upper Yangzi Region were the focus of a follow-up study and a number of areas in the region were earmarked for trial development. In 2009, a number of blocks were listed as ‘priority shale gas development projects’ but at the time, shale gas was not listed as a type of independent mineral in China. It was only in December last year that shale gas was recognized as the 172th mineral asset which can be explored under an independent mineral right, and was listed by National Development and Reform Commission as one of the priorities in the 12th five year plan for further development.
In May 2010, China saw its first successful hydraulic fracturing exercise using U. S. fracturing technology. By March last year, another Sino-foreign joint venture drilled China’s first horizontal shale gas exploration well in Sichuan’s Weiyuan block.
A handful of China’s state-owned companies dominate Chinese shale gas development. As they are relatively inexperienced in shale gas exploration, the central Government has encouraged them to partner with international companies, in particular, with US companies that have developed advanced technologies and gained extensive experience in developing US shale gas reserves.
MLR launched the first round of bidding for China’s first commercial development permits in June 2011. Six state-owned energy companies were invited to submit bids. Only two out of four blocks put up by MLR for bidding received sufficient bids1 and were licensed to two Chinese state-owned companies.
Originally, the market was hoping MLR would start the second round of bidding in the fourth quarter of 2011 and the third round in 2012. However, the second round of bidding was delayed. It is not clear whether MLR will resume the planned bidding in the first quarter of 2012.
- According to China’s bidding law, a bid process will be considered a qualified process only if no less than three bids are received.