China Digs into Coalbed Methane

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In order to meet the rising demand for energy, China has quickened its pace in developing coalbed methane (CBM), a clean fuel.

CBM is more commonly known as coalmine gas. With components similar to natural gas, it is a practical and reliable alternative energy source, said Sun Maoyuan, president of China United Coalbed Methane Co Ltd.

"Last year our company drilled 391 CBM wells in the nation," he said. "And we achieved the production capacity of 200 million cubic meters. This year we aim to drill more than 400 wells and increase our production capacity to 450 million cubic meters."

China started to develop CBM in the 1990s. Established in 1996, China United Coalbed Methane has exclusive rights to form Sino-foreign cooperation to explore, develop and produce CBM in the country.

Last year, the National Development and Reform Commission (NDRC), China's top economic planning body, drafted a five-year plan for the development of CBM.

Under the blueprint, China is to increase its annual CBM output to 10 billion cubic meters in 2010. The country will explore and locate an additional 300 billion cubic meters of CBM reserves by 2010. An industrial system will be gradually set up to develop and utilize CBM.

In January, the NDRC outlined the 11th Five-Year Plan (2006-10) for the coal industry. The development and use of CBM was an important element of this plan.

Also this year, China adopted new preferential tax policies for CBM. Under these new policies, which took effect on January 1, CBM producers will enjoy a full rebate on the value-added tax they pay for CBM production.

Producers will also enjoy corporate income tax exemption on incremental CBM output arising from the application of new technology through research and development funded by their tax rebate.

"These moves will greatly encourage the development and adoption of CBM in China," said Sun. "In 2005 and 2006, China drilled as many CBM wells as it did between 1990 and 2004."

Foreign investment

China boasts 37 trillion cubic meters of CBM reserves, the third largest in the world, after Russia and Canada. No wonder then, an increasing number of foreign companies have the huge Chinese market in their sights.

This month China United Coalbed Methane signed a contract with Hong Kong-based Longmen Hui Cheng Investment Ltd to develop CBM in Northwest China's Shaanxi Province. The two companies will jointly develop the Hancheng block, in Hancheng City. The block covers 460.93 square kilometers and has CBM reserves of 404.87 billion cubic meters, said a company statement.

"It was the 28th such contract that we inked with overseas investors since 1996," said Sun. "We have worked with a number of foreign companies on exploration, mining and processing of CBM, including those from the US, Canada and Australia."

Several foreign companies have been seeking opportunities in China's CBM sector, including Royal Dutch Shell PLC, US-based Asian American Gas and Canada's Ivana Ventures, he said.

Asian American Gas (AAGI), formed by a number of US energy companies and financial institutions, has been working in China's CBM market for over 10 years.

"AAGI has signed two product-sharing contracts (PSC) with China United Coalbed Methane for Panzhuang and Mabi concessions in southern Qinshui Basin of Shanxi Province, the most promising CBM basin in China," said Stephen Zou, president and CEO of AAGI. The company's CBM well in its Panzhuang project produces about 40,000 cubic meters per day, the highest in China, he added.

"Having gained valuable experience working on CBM in China, AAGI and Chinese CBM technical service company Orion have jointly developed the multilateral Drilling (MLD) CBM well in Panzhuang, which has 40 times the productivity of conventional vertical CBM wells in the country," said Zou.

The success of the MLD technology in Panzhuang has triggered enormous enthusiasm in starting a commercial CBM industry in China, he said. "The aim is to increase our production to 200 million cubic meters in 2008," said Zou.

(China Daily March 23, 2007)

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