Govt Sources: China Struggles to Find Prospective Blocks for Shale Auction


BEIJING, Jan 5 (Reuters) - China is struggling to find attractive shale gas blocks to offer in a third auction of concessions, government sources said, increasing the sense that the country's output potential may be overblown.

Some 400 wells have been drilled and geological surveys conducted in blocks awarded in China's first two exploration auctions, yet the world's top energy user has only one large shale find and few international investors in the sector.

Last year, despite potentially holding the largest technically recoverable shale gas reserves, complex geology, water scarcity and high drilling costs led Beijing to more than halve its 2020 output target to 30 billion cubic metres (bcm), or 18 percent China's current demand.

Now, the Ministry of Land and Resources' (MLR) expected third auction may be held up.

"It's massively challenging (to find good blocks)," said one government source who declined to be named as he's not authorized to speak to media.

"MLR has set no timeline for the next tender," another government source said.

Two years after the second auction, the 16 winning firms - none of which had any previous shale experience - have sunk just eight exploration wells across 19 blocks, and only four have completed or reached the stage of horizontal fracturing, or fracking, said a source involved in evaluating the blocks.

In the United States, pioneers of horizontal fracking drilled more than 65,000 shale wells in less than a decade, according to the U.S. Energy Information Administration.

"If there is one word to describe (China's) geology, it's complicated," said Wang Jingbo, chairman of Titan Gas Technology, one of only two private Chinese drillers.

Adding to the problems are crashing energy prices, which have left investors wary of pouring money into new projects.

Investors also complain that there is no mechanism to force state energy giants PetroChina and Sinopec Corp to release promising formations, but which they may have no immediate plans to explore.

Still, Sinopec and PetroChina say they are committed to developing the sector despite cheaper oil and gas prices.

China's biggest shale strike so far lies in southwest China's Fuling field in the Chongqing municipality. The find has a proven reserve of nearly 107 bcm, but experts say this success is hard to repeat due to higher costs and more challenging geology in other areas.

Sinopec plans to produce 10 bcm a year from Fuling by 2017, still leaving a big gap to fill if annual output of 30 bcm is to be reached by 2020.

(Editing by Henning Gloystein and Tom Hogue)

Copyright 2016 Thomson Reuters. Click for Restrictions.


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