China Ministry Held First Shale Gas Block Auction Monday -Official

SHANGHAI (Dow Jones Newswires), June 28, 2011

China's Ministry of Land and Resources held its first shale gas block auction Monday, a ministry official said Tuesday, marking a move to exploit on a large scale the new source of the cleaner-burning fuel.

There are serious concerns about contamination of ground water during hydraulic fracturing--known as fracking, the process by which shale gas is extracted from wells drilled deep into relatively impermeable rock beds--but the country's massive estimated reserves could help to slow its increasing reliance on imported energy.

The auction results will likely be announced in mid-July, and the firms that win blocks will be allowed to work with foreign companies, said the official, who didn't wish to be named.

PetroChina, China Petroleum & Chemical Corp., CNOOC, Shaanxi Yanchang Petroleum Group, China United Coal Bed Methane Co. and Henan Provincial Coal Seam Gas Development and Utilization Co. participated in the auction, the official told Dow Jones Newswires.

The auction covered four blocks in southwestern Guizhou province and Chongqing city, covering an area of 11,000 square kilometers, the state-controlled Xinhua News Agency said.

The ministry is expected to hold at least one more auction later this year, which could allow more companies, such as China Sinochem Group Corp. and China Zhenhua Oil Co., to participate.

Technical advances allowing the development of shale gas have transformed the U.S. energy sector in recent years, prompting a wave of merger-and-acquisition activity and sharply reducing reliance on gas imports.

Earlier this year, CNOOC Ltd. bought into several shale oil and gas leases in the U.S. owned by Chesapeake for $570 million in cash, following a similar deal in October.

The U.S. Energy Information Administration estimated in a report that China holds 1,275 trillion cubic feet of technically recoverable shale gas reserves, the largest in the world.

Beijing has invited U.S. and European companies into its tightly controlled onshore gas acreage in order to gain technical know-how.

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