Challenges in China’s coalbed methane industry

Thread Content

Author/Source: Xiaokang Magazine Date: 2009-4-3 -------------------------------------------------------------------------------- Challenge 1: Technology \"The conditions under which coalbed methane exists in our country are vastly different from those abroad – characterized by low pressure, low permeability, and low saturation.\" To address these issues, it is necessary to establish one’s own technical system and explore unique technologies suited to the actual conditions of the strata. This is a prerequisite for the economic and efficient development of coalbed methane. ”Experts in coalbed methane extraction technologies point out that due to the differences in China’s geological conditions compared to those in other countries, it is difficult for foreign parties to carry out technical upgrades once they enter China. Moreover, research on safety technologies that are of public interest, forward-looking, fundamental, and involve key common technologies and equipment lacks the necessary support in terms of talent, infrastructure, and funding. In particular, research with social benefits has been **weakened, and progress in technological research and innovation in areas such as gas management and utilization is slow. ”The Plan states. 　　 According to Liu Xinhou, there are two types of coalbed methane that can be utilized. The coalbed methane extracted before coal mining has a methane content of over 95% and is essentially natural gas; whereas the coalbed methane generated during mining contains oxygen, so it needs to be separated and liquefied before it can be used. ““The utilization of oxygenated coalbed methane is extremely difficult,” said Liu Xinhou. The Institute of Physics and Chemistry, Chinese Academy of Sciences, where he works, possesses internationally leading refrigeration technology, and is conducting experiments on the low-temperature separation and liquefaction of oxygen-containing coalbed methane. These experiments have been carried out with caution due to safety concerns, and they are still in the industrial demonstration phase. “The comprehensive utilization of coalbed methane is a systematic project. For different regions, with varying amounts of resources and different technical conditions, distinct industrial design and technical research is required. ”　　 Challenge 2: The conflict between “energy” and “coal” Compared to technical difficulties, the interviewees mentioned deeper-seated issues more often. 　　 ““The separation of mining rights from gas rights is the biggest challenge facing coalbed methane development,” and this view held by Zhao Ning from the Shanxi Institute of Coal Chemistry, Chinese Academy of Sciences, is shared by many industry professionals. 　　Coalbed methane and coal are symbiotic mineral resources in the same reservoir. However, at present, the approval authority for mining rights and gas rights lies with different departments: for coalbed methane, licenses are issued at the ministerial level, while for coal, they are issued at both the ministerial and provincial levels. To prevent gas explosions, it is **principally stipulated that gas should be extracted first before coal, but this is difficult to implement in practice. “Given China’s urgent need for energy, it is also not feasible to stop coal mining and prioritize the extraction of coalbed methane first. ”A official from the Ministry of Land and Resources also said that in recent years there has indeed been an issue of overlap between coal and coalbed methane operations; this includes the granting of mining rights for coalbed methane after mining rights for coal have already been assigned, as well as the granting of such rights to companies engaged in coalbed methane extraction. 　　 This situation has led to an increasingly deepening conflict between \"gas\" and \"coal,\" with more and more disputes arising, as well as ongoing conflicts between China United Coal Group and various local coal mining enterprises. Some coal companies ignore the rule of extracting gas first before mining, and directly release it into the atmosphere. There are also some companies that, under the pretext of developing coalbed methane, seize resources and extract coal. 　　On the other hand, CNPC and China United Coal Company focus more on large gas reservoirs in extensive areas; however, coalbed methane is found in small coal mines. In those areas where no scale advantages can be achieved, the gas is collected for local use, or \"sky lanterns\" are used to ensure safe production. 　　Challenge 3: Limited funding and market access. In addition to pressing issues such as technology and ownership of mining rights, the young coalbed methane industry also faces difficulties due to the fact that China has not yet established a coordinated development model for coalbed methane extraction and coal mining, resulting in restricted investment channels. On the one hand, various types of capital are flowing into this industry, resulting in a phenomenon of \"artificial enthusiasm\"; a clear manifestation of this is the competition for market share – coal and shale gas companies often fight over shale gas resources. On the other hand, however, there is poor coordination between capital and the industrial chain. 　　 The utilization of coalbed methane still faces many challenges. The constraints identified in the Plan include: in the areas where coalbed methane is developed, there are no corresponding long-distance pipelines, which leads to a disconnect between development and the market, resulting in the phenomenon of \"isolated production sites\" ； Lacking technologies for the safe transportation and utilization of low-concentration gas, large amounts of such gas can only be diluted before being discharged ； The difficulties in connecting gas-powered generators to the power grid and the low prices for doing so result in no profits for these generating companies, which in turn limits the utilization of gas extracted from mines ； The comprehensive utilization of coalbed methane lacks safety management standards, industry norms, and regulatory regulations, which hinders the healthy and orderly development of the coalbed methane industry. 　　 Challenge 4: Franchising Opening up to the outside world and bringing in foreign capital and advanced technology to foster the development and rapid growth of weak domestic industries is a development strategy. CNOOC, which holds the exclusive right to carry out overseas cooperation in offshore oil exploration and development, is a successful example. 　　 Zhonglian Coal, established in March 1996, held a exclusive franchise for foreign cooperation in coalbed methane extraction. At that time, the Ministry of Coal, the Ministry of Geology and Mineral Resources, and CNPC jointly funded the establishment of Zhonglian Coal to engage in the exploration, development, production, transportation, sales, and utilization of coalbed methane resources. Subsequently, the management structure was changed to two shareholders, with PetroChina Corporation and China National Coal Group each holding 50% of the shares. 　　 According to the data on the Zhonglian Coal website, Zhonglian Coal has currently signed 21 product sharing contracts with 10 foreign companies, with foreign investment amounting to nearly 120 million US dollars. However, observers say that looking at the number of contracts alone is meaningless, as the key factor in evaluating any development project is whether there is sufficient production capacity. According to industry insiders, the company’s production of coalbed methane in 2007 was 60 million cubic meters, which was less than one-third of the output produced by the local company Jinmei Lanyan in terms of coalbed methane. 　　 Zhonglian Coal has performed poorly over the past decade or so, and a key reason for this is its weaknesses in management. 　　 In fact, the 50-50 shareholding split between CNPC and China National Coal Group has not yielded the benefits of a strong partnership. It is precisely these 50% shares that put both sides of the management in a difficult position; the arrangement of \"you as chairman for three years and I as general manager for three years\" prevents either party from having full control over the development direction of Zhonglian Coal. 　　 In early September 2008, CNPC suddenly announced that it would withdraw its 50% stake in Zhonglian Coalbed Methane, taking with it nearly 50% of the cooperative areas as well as around 20 employees. 　　 Just as the industry believed that CNPC’s decision to operate on its own made it urgent to grant exclusive rights for coalbed methane cooperation with foreign parties, recent reports suggest that since no consensus has been reached among the relevant ministries, agencies, and companies regarding the granting of such exclusive rights, there is still uncertainty surrounding the approval of CNPC’s withdrawal from the Sino-Lian Coalbed Methane project. 　　 Even after the monopoly model gave way to multiple operators, the prospects for coalbed methane extraction in China remain far from optimistic. The British Financial Times once analyzed that under exclusive monopolies, state-owned enterprises lack pressure to meet performance targets, and external cooperation projects often end up unfinished. It is common for the minimum workload specified in the contract not to be fulfilled, or for wells to be drilled without concern as to whether gas will emerge from them. Such institutional flaws prevent China from attracting qualified foreign investment partners. Among the foreign investors who entered the coalbed methane exploitation sector in the early stages, some did so primarily to lay the foundation for their oil and gas projects in China, while others aimed to boost their stock prices by leveraging these \"Chinese projects\". The situation in China, where coalbed methane resources are developed by state-owned oil and coal companies, also prevents international firms seeking large-scale coalbed methane development projects from entering this sector. 　　 At the same time, issues related to subsequent development, such as sales, between the Chinese and foreign partners also need to be addressed urgently. Some cooperative coalbed methane projects did not enter the actual sales phase after extraction. 　　 An expert in coalbed methane and oil and gas noted that, based on international experience, cooperation between oil and coal companies in the extraction of coalbed methane is the best approach. “Cooperating in accordance with market principles leads to a win-win situation, but under monopoly conditions, state-owned enterprises only seek to expand their territory and become the leaders, lacking the willingness to cooperate. 　　 “\"Achieving the development goals for the coalbed methane industry is a challenging task, but the potential is also great,\" said Zhang Guobao. According to the targets for coalbed methane extraction and utilization set for 2009, China’s underground coalbed methane extraction volume is expected to reach 5.5 billion cubic meters, with an amount utilized at 1.9 billion cubic meters ； The extraction volume of coalbed methane from the ground is 1 billion cubic meters, with 700 million cubic meters being utilized ； The underground coalbed methane production capacity is 2.2 billion cubic meters.