China coalbed methane reaches turning point

Jan. 25, 1999
Phillips Petroleum Co. conducts wire line coring operations at the LXC-003 coalbed methane exploration well in Shanxi Province, China. Whereas 1.1 tcf of coalbed methane (CBM) was produced in the U.S. during 1997, some 6% of total U.S. natural gas production, E&P efforts overseas have yet to achieve a major commercial success for this promising natural gas resource. China's conventional natural gas production is small, about 2.0 bcfd. Indeed, the 2.5 bcfd of coalbed gas produced in the U.S.
Scott H. Stevens
Advanced Resources International Inc.
Arlington, Va.
Phillips Petroleum Co. conducts wire line coring operations at the LXC-003 coalbed methane exploration well in Shanxi Province, China.
Whereas 1.1 tcf of coalbed methane (CBM) was produced in the U.S. during 1997, some 6% of total U.S. natural gas production, E&P efforts overseas have yet to achieve a major commercial success for this promising natural gas resource.

China's conventional natural gas production is small, about 2.0 bcfd. Indeed, the 2.5 bcfd of coalbed gas produced in the U.S. San Juan basin alone in 1997 significantly outpaced China's total natural gas production (Fig. 1 [94,131 bytes]). Yet China's CBM resource base is vast, 500 to 1,000 tcf of gas in place,1 about twice U.S. levels, and if developed could contribute to China's planned tripling of gas supply by 2010.

During the past decade, China has promoted development of its CBM resources. Over 100 test wells have been drilled by Chinese and foreign operators in coal basins throughout eastern China. However, most early efforts-clustered around gas-prone but low-permeability coal mines-were not successful.

Despite the slow start, there is hope that a new, more focused phase of testing currently under way will finally succeed in unlocking China's sizable CBM potential.

During 1998, Arco, Phillips, and Texaco signed CBM licenses and initiated ambitious testing programs within their newly approved exploration blocks (Fig. 2 [171,793 bytes]). Chinese groups are now testing new areas using updated technology.

Challenges still face CBM developers in China, including complex reservoirs, restricted permeability, and few gas pipelines. But the upside includes favorable prices for clean-burning natural gas in China's growing cities, attractive resource concentrations, and limited competing conventional gas supplies. Local Chinese service companies have improved their ability to provide the specialized well drilling, completion, and testing services needed to bring CBM onstream.

Will China share in the impressive success of the U.S. coalbed methane industry? Or will China turn to large-scale LNG imports for its gas supplies, as other East Asian economies have? This billion-dollar dilemma will influence natural gas investment throughout Asia. Answers could come soon from E&P testing now taking place.

Contract terms

Prior to 1995, administration of coalbed methane in China was ambiguous, with several government organizations claiming control.

During this period, the Ministries of Coal Industry (MOCI) and Geology & Mineral Resources (MGMR), and China National Petroleum Co. (CNPC), as well as several provincial and municipal entities, conducted independent CBM development programs and signed preliminary contracts with foreign partners.

Finally in 1995, the Chinese government resolved this uncertainty by establishing the China United Coalbed Methane Corp. As an independent entity governed by the new Ministry of Land and Resources, CUCBM administers coalbed methane production contracts with foreign operators and also operates its own active exploration and development program.

China's CBM Contract is based on the country's onshore petroleum contract but features added incentives such as a 2 year income tax holiday and reduced value-added tax and royalty. Further favorable measures are under consideration and were discussed by foreign and Chinese participants at a recent investment promotion seminar for coalbed methane in Beijing organized by CUCBM and the United Nations.2

CBM exploration blocks range up to 2,500 sq km; multiple blocks can be leased to cover larger areas. Typical contract structure requires an initial 1 to 3 year exploration period with a drilling commitment of several wells. Minimum expenditures total about $4 million over 3 years for a 2,500 sq km block.

The operator can then decide whether to proceed with further work, which might involve long-term production testing of one or more five well pilots. If the project goes commercial, CUCBM has the option to back in for majority ownership by contributing its share of total project costs. Gas prices and development costs are market determined.

Uniquely for China, foreign operators are free to identify their own coalbed methane exploration areas. This process is more flexible than China's current conventional petroleum terms, under which only areas pre-selected by the government are offered for bid.

CBM geology

The principal coal seam targets in China occur within the Permo-Carboniferous age Shihezi, Shanxi, and Taiyuan formations. 3 These units comprise a regressive depositional sequence that was laid down over much of northeastern China ( Fig. 3 [102,549 bytes]). Towards the north, individual coal seams occur lower in the section, and are fewer but thicker. A water-bearing carbonate interval interbedded with the coal seams can complicate well completion and hydraulic stimulation.

Typically, a total of 10 to 30 m of coal occurs within a half dozen potentially completable seams. The coal is generally bright, rich in vitrain, and well cleated, unlike duller Gondwana coals of like age. Gas content varies with coal rank and depth, from about 200 scf/ton in sub-bituminous coals, to over 700 scf/ton in anthracites.

Additional coal targets include the Jurassic Yanan formation and equivalents, but seams in these units tend to be thinner and stratigraphically more dispersed, as well as lower in rank (sub-bituminous). Some exceptional Jurassic areas have 20 m thick individual coal seams with gas contents of 200 scf/ton. Recent commercial successes in the low-rank Uinta and Powder River basins of the western U.S. suggest that China's Jurassic coal deposits deserve greater attention.

While CBM resource concentrations can be favorable in China, reaching 30 bcf/sq miles or higher, locating high permeability is challenging. Well testing in eastern China indicates widespread restricted permeability, generally well below 1.0 md. But most tests took place in high-rank and structurally complex coal mining areas, such as the Jincheng coal field in Shanxi4 and Anyang coal field in Henan,5 where coal mine degasification was a primary objective.

With the exception of the Ordos basin, Chinese coal basins are structurally more complex than the commercial U.S. CBM areas. Faults, some active, compartmentalize the coal reservoirs into isolated blocks that are difficult to develop. In addition, erosion of the coal section and re-burial during Quaternary time have affected gas saturation in East China coal basins.

However, China's complex geologic setting may be managed through a program of reservoir mapping and characterization. An integrated approach combining remote imagery, seismic, and corehole data analysis can identify areas of favorable gas saturation and permeability, reducing exploration risk.6 Low-cost, slim-hole coreholes can be employed for testing reservoir properties to limit development risk.7

Exploration targets

High-potential CBM resources are concentrated in northeastern China. The three major CBM provinces are the Ordos, Qinshui, and North China (Huabei) basins. Geologic conditions for coalbed methane are relatively simple in the Ordos basin but become increasingly complex towards the east. Conversely, the gas market potential improves eastward and is most favorable within the densely populated and industrialized North China basin. As a result, CBM projects in China offer diverse technical and market characteristics.

Ordos basin: The largest coal basin in China (130,000 sq miles), the Ordos offers favorable reservoir conditions for CBM. Of the Chinese coal basins, the Ordos most closely resembles the San Juan and other commercially productive coalbed methane areas in the U.S.

Much of the central Ordos is deeper than 2,000 m, but the perimeter of the basin is of suitable depth for CBM development. Structure is simple with few faults and shallow regional dip into the basin. Coal rank increases gradually clockwise from the northeast, reaching optimal bituminous rank along the basin's eastern edge. Accessible CBM resources from Permian coals in the Ordos are estimated to be 50 to 100 tcf; Jurassic coal targets could add further to this.

The primary challenges to developing the Ordos basin are poor infrastructure, rugged topography within the eroded loess plateau, and a near absence of local natural gas markets. However, access to gas markets improved recently with the completion of three major gas pipelines, discussed below.

Qinshui basin: Located just east of the Ordos, the smaller (40,000 sq mi) Qinshui basin in Shanxi Province is China's largest coal producing area. Like the Ordos, the Qinshui has a 500-1,500 m depth perimeter suitable for CBM development. But its structure is considerably more complex, with numerous normal faults and steeper dip angles. Coal rank is high, mainly anthracite, but bituminous coal is present in the southeast. Data control is good. No foreign-operated production contracts have been signed in the Qinshui, although CUCBM and CNPC have focused their development programs within this basin.

North China (Huabei) basin: This large coal region comprises numerous small, fault-bounded coal fields that stretch from Anhui Province in the south to Liaoning Province in the north. Coal rank varies rapidly, although most is of favorable bituminous rank. Structure is generally complex; closely spaced faults and steep to overturned dips occur locally.

Early CBM testing in China was concentrated in this region, due to the presence of numerous gas-prone coal mines.8 Surface conditions are quite favorable: Gas markets are abundant, infrastructure relatively advanced, and the topography is level. Areas tested included the Hongyang, Huainan, Jiaozuo, Pingdingshan, Shenbei, Tangshan, and Tiefa coal fields. Texaco's Huaibei block is located in a relatively less complex southern portion of this basin.

CBM testing

The "First Wave" of CBM exploration in China took place roughly between 1990 to 1996 ( see table [73,236 bytes]). Chinese and foreign companies evaluated a number of diverse areas and helped to define the high-potential plays, although none of these projects attained commercial status. Early projects tended to focus on coal mining areas with thick coals and high gas content; permeability in such areas frequently was poor. 9

Enron was most active, drilling or evaluating a total of 16 test coreholes and production wells throughout North China. Enron's program helped to identify the eastern Ordos basin as a prospective area. Arco acquired this area from Enron in 1996 and continues to test. Amoco also evaluated China's CBM potential during this period but drilled only one test well in the southeastern Ordos.

Chinese operators during this first phase included the Shenyang (Municipal) Gas Co., the Ministry of Coal Industry, Ministry of Geology and Mineral Resources, and CNPC. The largest project was MGMR's six-well, hydraulically stimulated production pilot at Liulin in the eastern Ordos basin, which achieved peak gas rates of as much as 250 Mcfd/well from shallow (1,100 ft) coal seams during long-term production testing.10

First-wave projects encountered numerous operational problems as the Chinese oilfield services industry struggled to adopt modern CBM drilling and testing techniques and adapt them to local geologic conditions. A technology transfer program conducted by the United Nations Development Program helped equip Chinese operators and service companies with modern CBM test equipment and train their staff at U.S. facilities. Today, wellsite services such as wireline core retrieval, injection/falloff testing, and methane desorption are of higher quality and more widely available.

The "Second Wave" of coalbed exploration is currently reaching a crest. With newly approved coalbed methane contracts in hand, Texaco, Arco, and Phillips have kicked off ambitious testing and evaluation programs in their respective blocks. These companies all operate highly productive coalbed methane projects in the San Juan basin "Fairway;" Texaco is also developing the Ferron trend within the Uinta basin. And CUCBM is testing several of its own areas in China, applying U.S.-developed coalbed methane E&P technology.

Current projects target the Permian coal seams and show potential for multiple trillion cubic foot gas discoveries. However, significant variations exist among these projects in regard to local geologic and gas market conditions. Operators accordingly have adopted a range of testing strategies.

  • Texaco was the first to sign a CBM contract with CUCBM, commencing on Mar. 1, 1998. Texaco has committed to drill three wells within its 2,663 sq km Huaibei block in northern Anhui Province. The principal coal seams at Huaibei average 30 to 50 ft thick with gas contents of about 380 scf/ton at a depth of 2,000 ft.11 Data control is relatively good, with hundreds of coal exploration coreholes drilled throughout the area. Given its East China setting, geologic conditions are fairly complex, but potential gas markets in this industrial area are attractive. Three wells had been drilled, with testing under way at press time.
  • Arco's 5,000 sq km CBM contract in the Ordos basin was approved on Oct. 1, 1998, comprising three separate blocks. Previously, Enron Exploration had drilled eight test wells in this area, reporting favorable permeability in the Shanxi and Taiyuan formation coal reservoirs.12 Since assuming control of the license from Enron in 1996, Arco has drilled and hydraulically stimulated nine production wells that are currently undergoing long-term production evaluation.
  • Phillips Petroleum is testing the Hedong CBM Contract area just north of Arco's lease in the Ordos basin. Following acquisition of high-frequency seismic data during 1997, Phillips has tested gas content and permeability at three wells within its 3,120 sq km block. Coal rank and gas content are somewhat lower than in the southern Ordos, but the coal reservoirs here are thicker. Phillips' block is located about 100 km south of the newly completed 36 in. Ordos-Beijing natural gas pipeline and 120 km west of Taiyuan, a major industrial city.

  • CUCBM's operations group has drilled a total of 10 wells, including two at Fushun mine in Liaoning Province and several each at the Jincheng, Tunliu, and Shouyang areas of Shanxi Province. These areas range from low-rank sub-bituminous coal at Fushun to high-rank anthracite at Jincheng and Shouyang. CUCBM also employs a combination of test coreholes and hydraulically fractured production wells for low-cost evaluation and relies entirely on local supply and service capabilities. CUCBM's areas are adjacent to active coal mines and potential natural gas consumers.
  • CNPC is testing a five spot CBM pilot in the high-rank Jincheng mining areas of the southern Qinshui basin, close to CUCBM's pilot.

Gas markets promising

Coal accounts for over 75% of China's primary energy production and is likely to remain the dominant fuel well into the 21st century. But this heavy reliance on coal has led to severe air pollution problems in China's cities.

China's government is promoting natural gas fuel for certain high-value uses, such as power generation in coastal cities. All of north China's CBM potential lies within 300 km of a major urban market. Wellhead prices will be market-driven and are likely to be favorable.

China's gas pipeline infrastructure is concentrated in Sichuan province, far from the CBM areas of north China. But three new long-distance gas pipelines completed within the last year have significantly improved the marketability of CBM resources in the Ordos basin. These lines transport natural gas from CNPC's 7 tcf Shanganning low-permeability gas field in the central Ordos near Jingbian, Shaanxi Province (Fig. 2).

CBM in the northeastern Ordos basin is now within reach of the Beijing-Tianjin market, potentially China's largest, via CNPC's new 900-km Ordos-Beijing gas pipeline. At current flow rates of 100 MMcfd, this 36 in. pipeline is well below its capacity of around 500 MMcfd, which is the forecasted near-term demand for Beijing.

Southern Ordos gas production could be transported to the major city of Xian via a new 489 km pipeline that currently transports 54 MMcfd. The third gas pipeline, a 293 km connector transporting about 50 MMcfd to the Ningxia provincial capital of Yinchuan, commenced operation in fall 1998. These lines operate solely on natural reservoir pressure (600 psi initially), and capacity could be increased several-fold by adding compression.

Most of China's largest cities-such as Beijing/Tianjin, Shanghai, and Shenyang-have gas reticulation systems, although volumes are small and many were designed for low-Btu manufactured coke gas. Marketing opportunities for coalbed methane in China abound in these coastal cities and also in the provincial capitals of Taiyuan, Xian, Zhengzhou, and Baotou. Many of China's mid-sized regional cities (population 1 to 3 million) are growing even faster; some have gas distribution systems.

Contract terms for natural gas sales are still evolving in China. Once tightly regulated, administrative natural gas prices are being phased out. Delivered prices range widely, from $1/MMBTU for heavily subsidized fertilizer manufacturers to over $6/MMBTU for low-quality methane captured from coal mines for residential use. Urban residential consumers pay up to $7/MMBTU for LPG. High-value end-users in China are likely to include urban industrial and peak-load power generation. Wellhead gas prices in China's coalbed basins are anticipated to be in the range of $1.50 to $3/MMBTU. Should CBM development prove to be successful in China, the marketing outlook for this new gas resource is bright.


The author thanks the technical staff and management of China United Coalbed Methane Co., China National Petroleum Co., Arco, Phillips, and Texaco for their numerous contributions to this article.


  1. Zhang, Xinming, Coalbed methane in China, Shaanxi Science and Technology Publishing House, 1991, 150 p.
  2. Li, H.X., The development strategy and supportive policies for coalbed methane industry in China, United Nations Investment Promotion Seminar on Coalbed Methane Development in China, November 1998.
  3. Han, D.X., and Yang, Q., Coal geology of China, Coal Industry Press, 1979.
  4. Jin, A.X., Li, G.F., Wang, F.M., Liu, G., and Tian, Y.T., Elementary inquiring of transforming permeability of anthracite coal seam in Jincheng by hydraulic fracturing method, United Nations International Conference on Coal Bed Methane Development and Utilization, Conference Proceedings, Beijing, Oct. 17-21, 1995, pp. 356-361.
  5. Li, J.L., The potential for coalbed methane development in Anyang, China, Proceedings of the 1997 International Coalbed Methane Symposium, University of Alabama, Tuscaloosa, May 12-17, 1997, pp. 351-355.
  6. Campagna, D.J., Amos, J., and Kuuskraa, V.A., The Midas touch in macro exploration, Hart's Oil and Gas World, Vol. 90, No. 2, February 1998.
  7. Reeves, S., et al., Designing practical reservoir evaluation programs for frontier international coalbed methane plays, Proceedings of the 1993 International Coalbed Methane Symposium, University of Alabama, Tuscaloosa, May 17-21, 1993, pp. 511-517.
  8. Stevens, S.H., Sheehy, L.D., Zhu, H., and Yuan, B.H., Reservoir evaluation of the Tangshan coalbed methane prospect, Hebei Province, The People's Republic of China, Society of Petroleum Engineers, 67th annual technical conference and exhibition, Washington, D.C., Oct. 4-7, 1992, pp. 475-489.
  9. Sheehy, L.S., Stevens, S.H., Boyer, C., and Lu, F.M., An integrated exploration strategy for identifying production targets in the coal basins of northeastern China for Shenyang, China, Proceedings of the 1993 International Coalbed Methane Symposium, University of Alabama, Tuscaloosa, May 17-21, 1993, pp. 25-38.
  10. Quan, Y.K., Wang, L., Hou, H.B., Su, F.Y., and Cai, Y.F., Simulation technique to evaluate coalbed methane reservoir of Yangjiaping pilot, Liulin area, United Nations International Conference on Coal Bed Methane Development and Utilization, Conference Proceedings, Beijing, Oct. 17-21, 1995, pp. 102-108.
  11. Derickson, J.P., Horne, J.S., Fisher, R.D., and Stevens, S.H., Huaibei coalbed methane project, Anhui Province, People's Republic of China, Society of Petroleum Engineers, 1998 SPE International Conference and Exhibition in China, Beijing, China, Nov. 2-6, 1998, pp. 517-530.
  12. Fisher, R.D., Technical evaluation and development potential of coalbed methane resources in the San Jiao Mine area, Shanxi Province, People's Republic of China, United Nations International Conference on Coal Bed Methane Development and Utilization, Conference Proceedings, Beijing, Oct. 17-21, 1995, pp. 173-179.

The Author

Scott H. Stevens is vice-president of Advanced Resources International Inc., where he performs geologic and financial analyses of petroleum projects worldwide, particularly for coalbed methane. Formerly an explorationist with Texaco and Getty International, he holds graduate degrees from Scripps Institution of Oceanography and Harvard University. E-mail: [email protected]

Copyright 1999 Oil & Gas Journal. All Rights Reserved.