Forbes: China's Coming Shale Gas Auction Offers Little Hope To Private Investors

China’s auction of shale blocks is a somewhat strange business. The first shale sale in June 2011 was largely a staged play among the six state-run bidders. The second round held in 2012 was open to private investors, but shortlisted candidates included the bizarre choices of a home-appliance company and a hardware firm that mainly sells hand tools. Now the repeatedly delayed third round is expected to take place, but things are unlikely to get any better for private investors hoping to benefit from the country’s future shale gas boom.

The third auction, which Beijing planned to launch towards the end of 2013, is almost a year overdue as the central government, local officials and state-run oil conglomerates finalize the coming sale. Local governments will now manage the bidding process on their own instead of having the Ministry of Land and Resources decide the winners, according to Chinese media reports and research notes from China-based consultancies. The move is unlikely to be good news for private investors and foreign entities seeking to tap the Asian giant’s hope to replicate the shale boom that changed the energy landscape in the United States.

There is a danger that officials will favor local enterprises over any other entity, warns Lin Boqiang, an energy economist at Xiamen University. Those cadres have long wanted more from Sinopec and CNPC, China’s national oil companies that together hold almost 80% of the country’s shale exploration rights. Under the current agreements, the local governments get little from the NOCs other than meager tax revenues. Awarding a good block to local firms will surely guarantee more benefits. MORE