Gas pipes at Sinopec Zhongyuan Oilfield Co in Puyang, Henan province. China is eager to boost the use of natural gas to tame the growth of coal consumption. [Photo / China Daily]

BEIJING - China issued its first shale gas exploration tender with an offer of four blocks to a group of Chinese energy companies, state media reported, as the country kicks off its search for potentially vast reserves of the resource.

The tender result will be announced in July and China plans to hold another similar auction in the second half of the year, said Zhang Dawei of the oil and gas strategy center of the Ministry of Land and Resources (MLR), a key government agency behind the shale resource push.

In March, the US Energy Information Agency estimated that China holds 36.1 trillion cubic meters (cu m) of technically recoverable shale gas reserve - significantly higher than US reserves of 24.4 trillion cu m, the next largest.

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Industry estimates in China peg shale gas resources slightly lower - but still huge - at 26 trillion cu m, although they have yet to give their own forecasts of how much of that is recoverable.

The blocks in the tender are mostly in the southwestern Chongqing municipality and Guizhou province and cover an area of 11,000 square kilometers, smaller than an earlier announced plan to offer eight blocks with an area of 18,000 sq km.

The Ministry of Land and Resources issued the tender on Monday to PetroChina Co Ltd, China Petroleum and Chemical Corp (Sinopec), CNOOC Ltd, Shaanxi Yanchang Petroleum Group and two coal seam gas companies, Xinhua News Agency said on its website.

"By reducing the number of blocks on offer, we're hoping to bring about more intense competition," said Zhang at MLR, adding that the companies had submitted their bids with results likely to be due in early July.

The auction comes several months later than expected as the ministry was trying to bring more companies, such as Sinochem Corp and Zhenhua Oil, into the competing round. Zhang said these firms were not in the first tender but might emerge as bidders in future auctions.

Though still in an early stage, China's shale gas industry has attracted the attention of global energy companies such as Royal Dutch Shell Plc, BP Plc and US independents such as Hess Corp and Newfield Exploration Co.

Officials have said the shale gas tenders would be open only to Chinese companies, but foreign companies were welcome to enter into partnerships with the winners.

The auction also offered a possible chance for CNOOC Ltd, said an offshore oil specialist, to expand into Chinese onshore gas plays.

CNOOC Ltd was the first Chinese energy company to land shale gas deals overseas, getting stake acquisitions of drilling acreages of the US independent company Chesapeake Energy Corp.

Two other bidders in the auction were China United Coal Bed Methane Co and Henan Provincial Coal Seam Gas Development and Utilization Co. China United Coal Bed Methane Co is controlled by CNOOC Ltd's parent, China National Offshore Oil Corp.

China, soon to overtake the United States as the world's top energy user and already the world's biggest coal burner, is eager to boost the use of cleaner natural gas to tame the growth of coal.

Industry estimates in China put shale gas resources at 26 trillion cu m, smaller than the US estimate but still huge, though China has yet to give its own estimate of how much of that is recoverable.

For now, China does not have any shale gas production. Its total gas output, mostly from conventional reservoirs and tight gas deposits, was about 94 billion cu m in 2010, a volume set to triple to 300 billion cu m in 2030, Chinese oil companies have estimated.

Reuters