NETWORK MATTERS: Methane ducts leading to end users, like this one in the Ezhuang coal mine in Shandong Province, are an important part of coal enterprises’s attempts to develop this resource with great economic potential
　　
　　Foreign energy companies are flocking to China to participate in the development of a potentially meaningful new energy source, coalbed methane, which is found in coal deposits.
　　China United Coalbed Methane Co. Ltd. signed a contract with U.S.-based Orion Energy International Inc. on April 5 to jointly exploit the resource in the Sanjiao region of coal-rich Shanxi Province.
　　Covering an area of some 462 square km, Sanjiao is home to rich coalbed methane reserves with thick, multi-level coalbeds that have a high methane content. The volume is estimated at 60 billion cubic meters.
　　According to the five-year contract, Orion Energy will assume all the operational risks and verify the quantity of coalbed methane. During the prospecting and production periods, both parties will make investments and obtain output based on their investment ratio.
　　This is the fifth contract that the Chinese company has signed with foreign companies this year. So far, it has signed 27 such contracts with foreign counterparts from countries such as the United States, Canada, Britain and Australia, said Sun Maoyuan, Vice General Manager of the International Cooperation Department of China United Coalbed Methane Co. These foreign energy companies include giants such as U.S.-based Chevron Corp. and Far East Energy Corp.
　　China United Coalbed Methane Co., together with these foreign companies, will carry out the prospecting, development, production and sale of the coalbed methane resources in northeast and northwest China.
　　
　　Untouched treasure
　　
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　　SAFETY CONCERNS: Rescuers carry the body of a victim out of a pit in Hunan Province where he was killed in a gas explosion. The exploitation of coalbed methane is expected to help reduce accidents in coal mines
　　
　　Coalbed methane refers to methane deposits in the pores of coal seams. It is created by the same process by which plant material is converted to coal. The latest official data show that China’s coalbed methane deposits total 31 trillion cubic meters, the third largest in the world after Russia and Canada. It is equivalent to 45 billion tons of standard coal or 35 billion tons of crude oil, and equating with the country’s natural gas reserves. Zhao Wenzhi, Vice President of China’s Research Institute of Petroleum Exploration and Development, said that coalbed methane has the best potential for development among all energy resources.
　　With major energy resources such as oil and natural gas in short supply, coalbed methane has begun to attract attention. The State Development and Investment Corp., a government-owned investment holding company, said it will invest up to 5 billion yuan over the next seven years in the development of coalbed methane and coal gas in Shanxi.
　　Zhang Xiancheng, a research fellow at the Institute for Energy Economics Studies of the North China University of Technology, cited several advantages of the resource. The exploitation of coalbed methane can reduce coalmine accidents, most of which are caused by gas explosions, and curb pollution caused by mass gas emissions from the mines. It can also increase the amount of “clean energy,” and reduce the reliance on “dirtier” fuels such as coal and oil.
　　But due to its low permeability, the difficult geological conditions in China’s mines and the lack of advanced technology to recover the gas, mass exploitation of coalbed methane has not been realized in China so far, in spite of deposit surveys and some small-scale collection experiments.
　　A large investment in research, the participation of state-owned coalmine enterprises and foreign investment, however, have helped to produce breakthroughs in developing coalbed methane. Many regions are developing their own technologies that are suited to their geology.
　　“Only after they see the success of China’s self-funded projects can foreign companies build up the confidence to invest in developing coalbed methane,” noted Yang Jian, an executive at China United Coalbed Methane Co. At the end of 2005, the company succeeded in an experimental project in Qinshui County in Shanxi, which heightened interest in developing the resource.
　　Other large domestic enterprises such as China National Petroleum Corp. and China Petrochemical Corp. are entering the business, according to Yang. So far, foreign companies have yielded contracts in 25 areas for coalbed methane prospecting and development with the total investment exceeding 1.2 billion yuan.
　　
　　A booming future?
　　
　　As a “green” energy source of good quality and high efficiency, coalbed methane has a promising future, experts say. Against the backdrop of tightened energy supplies and an increasing number of coalmine accidents, Yang said the mass exploitation of coalbed methane should be promoted and it should become a substitute for such traditional energy sources as coal, oil and natural gas.
　　“The state encourages the development of this new energy, and there’s no restriction on foreign companies entering this field,” Yang said. “With the good prospects, the expanded production of coalbed methane can be expected to happen soon.”
　　Government regulations stipulate that exploitation of coalbed methane by Chinese-foreign joint ventures will be subject to a 5 percent value-added tax, while production by domestic enterprises is subject to a 13 percent value-added tax, with 8 percent rebated.
　　At the same time, Chinese-foreign joint ventures will be exempt from the business income tax for the first two years in which the company earns a profit; for the third, fourth and fifth years, the tax rate will be cut in half. Imported materials that are needed for the prospecting and development work will be exempt from customs duties and the import regulation tax.
　　But bottlenecks still remain. In the past, coal companies released coalbed methane for safety’s sake and did not give much thought to the utilization of the gas. This resulted in a poor pipeline network and insufficient storage facilities, which hampers its use. Due to the monopoly in the electricity industry, it is hard for coal companies to sell methane-generated electricity to power grid enterprises, another impediment to the utilization of coalbed methane.
　　As the only enterprise that is authorized to cooperate with foreign companies in this field, China United Coalbed Methane Co. is taking the initiative to offer suggestions to relevant government departments. It hopes to optimize percentages of coalbed methane and natural gas in energy supplies, and to build coalbed methane transmission pipelines leading to end users to boost the development of the resource.

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