Uncertainty in the global oil market isn’t stopping China from expanding its shale gas exploration even further, and the country will be targeting private oil companies to purchase acreage in upcoming auctions.
According to Bloomberg, China’a Ministry of Land and Resources is set to announce details of future shale gas auctions within the next few months, despite falling oil prices and a general lack of demand for Asian shale development.
China plans to auction 40 parcels of land located across the country that they claim to have great potential in shale exploration. Experts view China’s decision as misguided, due to the dwindling interest and available funding for private oil companies.
“It may not be the best time for private companies to bid for shale parcels,” said He Sha, a professor at Southwest Petroleum University. “Falling oil prices, shrinking government subsidies and a lack of technology, among other things, will hurt private companies’ chances to succeed in shale gas exploration.”
Despite the hesitance of private companies to invest in Chinese shale parcels, the global demand for shale gas production is predicted to increase exponentially in the next several decades, making American parcels appealing to savvy investors.
The Energy Information Administration projects that shale gas production will rise to 13.6 trillion cubic feet by 2035, which would represent nearly 50% of all U.S. natural gas production.
Another reason that China’s decision has puzzled industry experts is its announcement to cut subsidies for shale gas developers from 2016 to 2020. Investors will have to pay a premium for shale exploration in the area, and private companies often don’t have the financial backing to cover these increased expenses.
According to Reuters, China is also delaying new crude oil contracts until next year, amid turmoil in the stock market. While originally planned for October of this year, experts now predict that China will wait until early 2016 to begin challenging global oil titans, including London’s Brent and the West Texas Intermediate.
As China begins to expand its shale gas exploration, one is forced to wonder if the country’s challenging geology combined with an uncertain energy market will have an effect on bids during the upcoming auction.