Mainland dragging its heels on CBM

PUBLISHED : Tuesday, 27 October, 2009, 12:00am
UPDATED : Tuesday, 27 October, 2009, 12:00am

Every year, the mainland releases 20 billion cubic metres of coalbed methane (CBM) into the atmosphere - the energy equivalent of 26 million tonnes of coal or the annual output of the Three Gorges Dam.

Aside from the environmental considerations - methane is about 20 times as noxious as carbon dioxide - it is a massive waste of energy which the mainland is belatedly trying to harness.

Historically, CBM was viewed as an unwelcome by-product of coal mining and used to be treated as hazardous waste product. More recently, the increased demand for natural gas, improved extraction technology and higher gas prices have led to the commercial exploitation of CBM.

CBM is found in the seams within coalbeds and is responsible for the frightful carnage caused by gas explosions in the mainland's coal mines every year.

With 36 trillion cubic metres of proven reserves, China has the third-highest reserves in the world after the United States and Canada. The bulk of these reserves are in Shanxi province, Inner Mongolia and Shaanxi province, accounting for 55 per cent of the total, with the northern parts of Xinjiang accounting for 23 per cent.

But development of the resource has been slow as a result of the low levels of investment, lack of infrastructure and cumbersome bureaucratic procedures for getting licences and other legal problems.

The slow pace of development has been reflected in the decision by the National Development and Reform Commission to downgrade its production target for CBM. In 2005, it had set a target of five billion cubic metres in 2010 but recently reduced this to two billion without saying why. The NDRC is planning to produce 50 million cubic metres by 2020.

The mainland began to develop the CBM sector in the 1990s and formed China United Coalbed Methane (CUCBM) in 1998, giving it exclusive rights to form joint-venture partnerships with foreign companies. They have provided most of the investment in the sector.

Foreign companies have been encouraged to explore for the gas on the mainland with subsidies and tax breaks. One of the chief attractions of CBM production over other forms of energy is that it is deregulated and can be sold at negotiated prices so long as it does not use existing pipeline networks.

PetroChina was one of the initial partners of CUCBM but broke away last year to develop CBM on its own. It has since been hampered by its inability to form joint ventures with foreign partners since they have most of the expertise in the sector.

Recently, mainland CBM developers such as PetroChina, Sinopec Corp and Jincheng Anthracite Coal Mining Group have been lobbying the government for a change of policy to make it easier to form joint ventures with foreign companies and speed up the sector's development.

Currently, there is confusion within the sector as some coal miners have bypassed CUCBM and illegally signed deals with overseas companies. Some of the confusion has arisen because provincial authorities are empowered to grant coal mining rights, while CBM deals are authorised by the central government. It is not unusual for two groups to end up with rights to develop CBM in the same area, which results in legal disputes and delays.

The mainland has about 3,500 CBM wells, with 1,400 to 1,500 operated by Jincheng Anthracite Coal Mining, 1,000 by CUCBM and a further 1,000 by PetroChina.

The mainland would need to invest 670 billion yuan (HK$760.52 billion) over the next 11 years, including 170 billion yuan for development and production and 500 billion yuan for exploration, said Sun Maoyuan, chairman of CUCBM.

So far, CUCBM has invested four billion yuan to develop CBM since its establishment in 1998, of which 3.8 billion yuan was provided by its foreign partners while 500 million yuan has come from the government.

CUCBM has signed about 30 production-sharing contracts covering 35,000 square kilometres with foreign companies - about 60 per cent of the area under exploration.

The CBM is mostly being used to fuel taxis, buses and power stations. Widespread usage is restricted by the lack of pipelines. A number of producers are transporting CBM by liquefying it.

The installed capacity of power plants fired by CBM had tripled since 2007 to 484 megawatts as of July. The plants generated 1.122 billion kilowatt-hours of power in the first seven months, with 42 per cent of output used by the generators themselves and the rest fed into the grid, according to China Electric Power News.

Untapped resources

China has the world's third-highest proven CBM reserves of, in cubic metres: 36tr



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