China is considering opening oil exploration blocks in its smaller basins to private domestic private companies in what could be the first step toward introducing competition in the country's highly regulated upstream energy market.

The Ministry of Land and Resources plans to develop a bidding system for exploration rights in small and mid-sized basins over the next five to 10 years, the China Oil News reported on its website on Sunday.

Trial bidding is expected to start in three to five years, the report said, citing Che Changbo, deputy chief of the Oil and Gas Resources Strategic Research Center under the land ministry.

China now grants oil and gas exploration and exploitation licenses to three state-owned energy giants, China National Petroleum Corp, Sinopec Group and China National Offshore Oil Corp, as well as provincial government-run Shaanxi Yanchang Petroleum Group Co.

Speaking to an energy forum in Beijing on Friday, Che said China should allow Chinese companies under all types of ownership to access the upstream energy market provided they meet requirements in capital and expertise.

"The big state trio should still play the dominant role in domestic energy exploration and production sector by controlling more than 85 percent of the country's total oil and gas reserves and output (in the future)," Che said.

China's onshore and offshore oil basins cover 5.5 million to 6 million square kilometers, and the big three and Yanchang have already registered for the rights to explore 4.38 million square meters, according to the ministry.

Che said the blocks to be open will be those that are unregistered at present.

Small local companies that have cooperation projects with the state big names can also apply to obtain exploration rights.

The reform in the upstream market will encourage the transfer of exploration rights among qualified companies, said China Oil News, which is a publication under CNPC.

In July, PetroChina Co, which is CNPC's listed unit, said it will open nine exploration blocks in Tarim Basin in the northwestern Xinjiang Uygur Autonomous Region to foreign investors.

(Shanghai Daily October 9, 2006)