China began exploring for and using coalbed methane in the 1990s, but the proven portion of the resource was still very low at the end of 2009, a study by FACTS Global Energy, Singapore, has concluded.
From a resource estimated at 1,300 tcf, China in 2009 produced 696 MMcfd of CBM, and almost 600 MMcfd of that came from coal mine extraction rather than from wells drilled from surface, said the study by Kang Wu and Lijuan Wang.
The Chinese government has urged all players to step up efforts to develop CBM, but only in 2009 did the country construct its first CBM pipeline. Most of the active CBM development projects are in Shanxi, Liaoning, and Shaanxi provinces.
Still, compared to production, the actual utilization of CBM is even lower, the researchers found. Most of the gas has been consumed in the residential sector in coal mines and nearby areas, and its use in power generation is just starting.
A series of preferential policies that encourage overseas investment attracted foreign investors to China's CBM business since 2005. Foreign joint ventures total 18 between 8 international companies and China United CBM Corp. and 11 between 10 international firms and PetroChina Co. Ltd.
"To further develop the CBM industry, China is facing many challenges such as cost issues, infrastructure bottlenecks, institutional constraints, and other investment barriers," Wu and Wang wrote. "To deal with these challenges, China should implement further specific and favorable measures and policies."
Based on heating values in China, 1 cf of CBM equates to 0.87 cf of standard natural gas.
China's CBM resource
China's 1,300 tcf CBM resource within 2,000 m of the surface ranks third in the world after Russia's 3,991 tcf and Canada's 2,684 tcf.
About 504 tcf resides at 1,000 m or shallower, while 374 tcf is at 1,500-2,000 m.
Of the total, 385 tcf is estimated to be recoverable.
Distribution of the resource is viewed as 56.3% in North China, 28.1% in Northwest China, 14.3% in South China, and 1.3% in Northeast China.
Cumulative proven geological reserves at the start of 2010 were 7.1 tcf, while recoverable reserves, the equivalent of proved reserves of the international standard, stood at 2.2 tcf at the start of 2009.
Eight basins contain more than 35.3 tcf of resource each, and six basins have 17.6-35.3 tcf of resource (Fig. 1). Most of the investment has occurred in the Qinshui and Ordos basins.
Of the 2.2 tcf of proved reserves, PetroChina accounts for 45%, CUCBM 26%, and other companies 29%.
The various operators have drilled more than 4,000 CBM wells from surface by the start of 2010, establishing 242 MMcfd of production capacity.
CBM capabilities have been established for 10 coal mines: Yangquan, Huainan, Huaibei, Shuicheng, Panjiang, Songzao, Jincheng, Fushun, Jixi, and Ningmei, each of which has a production capacity of around 10 MMcfd or more.
Since nearly 2 bcfd of CBM is emitted from coal mines, "China emits and thus wastes as much as 1.3 bcfd of CBM. The waste is actually higher considering a large portion of the produced CBM is not utilized."
CBM transportation
China's first commercial long distance CBM pipeline started up in September 2009, but China is increasingly using CBM in the liquid form.
The first pipeline is a 290 MMcfd system that links Qinshui field with the West-East Pipeline for conventional natural gas.
Jingmei (Shanxi Coal) Group has also activated a 28-mile, 34 MMcfd pipeline associated with one of the coal mines, and CUCBM is laying a 61-mile, 194 MMcfd CBM pipeline in Shanxi and Henan provinces.
CBM is used in about 1 million households and fires about 920 Mw of power plants, but overall utilization of CBM is around 35% of the total produced in the country.
"With the connection of the CBM pipeline with conventional gas pipelines, CBM use is expanding to the faraway consuming centers in coastal areas," Wu and Wang wrote.
Meanwhile, at the start of 2010, China had three liquefied CBM projects in operation, two under construction, and one proposed. From these projects, production capacity in operation is more than 32 MMcfd, capacity under construction is 92 MMcfd, and proposed capacity is 28 MMcfd.
China CBM economics
FACTS Global Energy termed the overall economics for CBM in China "challenging."
It placed the exploration and production cost at $2.74-3.65/MMbtu for well-developed fields and as much as $5.47/MMbtu for CBM produced from more expensive surface wells and smaller coal mines.
At a transportation cost of $3.88/MMbtu, higher than that for conventional gas, CBM transported by long-distance pipeline could be delivered to large cities for $6.84-7.75/MMbtu, making it difficult for CBM to compete with cheaper domestic conventional gas.
CBM, if well developed, still has a competitive edge against natural gas shipped by long distance pipelines such as Puguang-Shanghai or the second West-East Pipeline.
Liquefied CBM has a different set of costs. Liquefaction cost is $1.60/MMbtu, and the transportation cost of the bottled gas is around $2.28/MMbtu, giving LCBM a cost range of $6.61-7.53/MMbtu.
"On top of the above," FACTS Global Energy wrote, "since the government provides a slew of incentives, including the full rebate of value-added tax and a direct subsidy of 91¢/MMbtu, the cost structure for CBM has been improved substantially.
"According to CUCBM's calculation, even without government subsidies and incentives, CBM investment can be fully paid in 7.9 years for an internal rate of return of 12.1%. That assumes a sales price of $5.02/MMbtu. With the subsidies and other incentives, the investment can become profitable faster.
"We found these calculations a bit too optimistic," Wu and Wang wrote, "partially because they call for a higher sales price. When CBM actually reaches the end users it will not be that cheap. That is the challenge that the CBM industry is facing."
Foreign players
China in 2007 ended a 10-year monopoly that CUCBM had held on establishing CBM joint ventures with foreign companies, and PetroChina in August 2007 became the first state oil company to sign a CBM agreement, with Arrow Energy Co. of Australia.
CUCBM has at least 18 CBM cooperative contracts with international companies from the US, Canada, Australia, and Hong Kong. PetroChina has 11 contracts with companies from the US, UK, Canada, and Hong Kong.
The areas under cooperative contract exceed 5,600 sq miles for CUCBM and 4,100 sq miles for PetroChina (Tables 1 and 2).
PetroChina invested $659 million in CBM in 2008-09. It is focusing on four areas: Qinshui basin, Linfeng region; the Yellow River banks of Shanxi Province; and Hancheng of Shaanxi Province. It has also been eying the Junggar basin in Xinjiang Autonomous Region in western China since 2009.
CUCBM spent $293 million in CBM investment in 2009. PetroChina's withdrawal from CUCBM in 2008 has seriously weakened CUCBM, which has run into problems with funding and a clash of interest with individual coal mines, FACTS Global Energy said.
The future
Considering all factors, the study's authors expect that China will produce 1.4 bcfd of CBM by 2015, 2.9 bcfd by 2020, 4 bcfd in 2025, and 5.4 bcfd by 2030 under a base case (Fig. 2).
CBM would account for 14% of China's total domestic gas supply by 2020 and 17% by 2030. When liquefied natural gas imports are included, CBM would account for 9% in 2020 and 10% in 2030.
China will likely fail to reach most of the targets set out under the 11th 5-Year Plan issued in 2006. Even though total CBM production may reach 1 bcfd thanks to better than expected extraction from coal mines, surface drilling lags far behind schedule and output will be far below the projected 484 MMcfd for 2010.
The 12th 5-year plan being formulated will have updated targets for 2015. Outside the 5-Year Plan, China's Medium-to-Long-Term Program for CBM calls for coal gas production to rise to 3 bcfd in 2015 and 5 bcfd by 2020.
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