August 21, 2009 / 9:50 AM / 9 years ago

Asia's coal seam gas projects charge ahead, China leads

SINGAPORE (Reuters) - Projects to exploit coal-bed methane (CBM), once the bane of miners, are surging in Asia, with China out front as it strives to find ways of satisfying its prodigious appetite for energy.

Industry players gathered at a conference in Singapore this week to explore opportunities in a region where CBM is in its infancy, except for Australia, whose coal seam gas industry has flourished over the past decade.

While some CBM projects in the United States have shut down, discouraged by very low gas prices, in Asia, the focus is on conversion of CBM to LNG and it will be priced using traditional Asian LNG formulas linked to oil, Tony Regan, a consultant with Tri-Zen International, said.

“Sponsors are taking a long-term view — they expect that oil prices will continue to increase, and therefore the Australian CBM projects are still moving ahead. Most are still at the reserve development stage and are either proving up reserves or buying them,” added Regan.

China, the world’s second-biggest energy user after the United States, is eager to develop CBM into an alternative energy source to drive its rapid industralisation.

“Gas consumption in China is rising at a rapid rate. We see potential, explosive growth of CBM in China,” said Frank C. Ingriselli, chief executive of Pacific Asia Petroleum.

The country extracted four billion cubic metres (bcm) of CBM in 2006, and is expected to pump up 10 bcm by 2010, besides further raising 300 bcm of proven CBM reserves.

CBM will play a salient role in China’s growing energy demand, by strengthening energy security and reducing imports, besides aiding Beijing in its effort to reduce greenhouse gas.

Every cubic metre of CBM used cuts emissions by a factor of 21 times.

“CBM output in China is still low,” said Du Ming, general manager from Canada Can-Elite Energy Ltd.

To support the industry and help develop CBM, China has temporarily waived its resource tax, Zhu XiYang, law research associate at the China Coal Information Institute.

“China’s CBM industry is taking shape,” said Guo Benguang, vice president of China United Coalbed Methane Corp.

The country is moving towards a more transparent market-focused pricing mechanism, though CBM is immature compared with the oil industry.

“It requires a more established legal framework and coordinated incentives,” said Ingriselli of Pacific Asia.

China’s Panzhuang and Shizhuangnan CBM blocks in the flagship region of Qinshui in the northern province of Shanxi, will start producing gas by late 2010, with a combined annual output of 900 million cubic metres.

Foreign firms that ventured into the Chinese CBM industry will soon see light at the end of the tunnel. Far East Energy Corporation (FEEC) plans to sell gas supplies in 2010 from its Shouyang CBM block, also in Shanxi.

The Shouyang block is considered a breakthrough, given its “high permeability and high gas content that is usually associated with the world’s leading CBM plays,” said Michael McElwrath, chief executive of Far East Energy Corp.

“Our pilot area in Shouyang has that desired combination, and as far as we know, is the first discovery of its kind in China.”


While China has drilled 3,500 CBM wells, less than a tenth of that figure, or just 280 CBM wells, have been drilled in India so far.

Still, India is getting its act together to expand the CBM industry, given its huge energy demand with nearby consuming markets for gas in and around coal fields.

The country is set to pump 7 million cubic metres a day of CBM by 2013, as three more blocks go into commercial production.

“India is richly endowed with coal and lignite resources in the Gondwana and tertiary basins,” said S.K. Singh, general manager of Essar Exploration & Production India Ltd.

Essar plans to spend some $350 million in the next three to four years to fund the drilling of 500 CBM wells, with the first gas sales to start in December.

In coal-rich Indonesia, the outlook sparkles with Jakarta pinning its hopes on CBM as one of the means to curb costly oil imports amid dwindling reserves of crude. Indonesia’s Ephindo and its partners will begin gas sales from their CBM blocks in 2011.

But challenges persist.

“CBM will compete with conventional gas in Indonesia. There is cheap gas underground,” said Sammy Hamzah, chief executive of Ephindo.

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