Coalbed methane sector revs up
China's coalbed methane industry has lagged behind developed countries in the past decade in terms of exploration and development, but industry insiders said the country's surging gas demand and ongoing industry reform will accelerate the sector's commercial development in the coming years.
China's coalbed gas reserves total an estimated 36.8 trillion cubic meters, the third-largest in the world after Russia and Canada, according to the National Energy Administration.
The majority of China's coalbed methane resources lie in the Qinshui Basin of Shanxi province and the Ordos Basin in the Inner Mongolia autonomous region. Together, these two basins contain around one-third of China's total coalbed methane volume and 93 percent of discovered geological reserves.
Commercial-scale coalbed methane production in China started more than a decade ago. Production increased considerably in around 2008, but remains significantly lower than in developed economies such as the United States and Australia.
Chinese oil and gas majors have been actively cooperating with international players to further tap the massive potential of these resources.
For example, China National Petroleum Corp, the nation's largest oil and gas producer by domestic annual output, is working with Royal Dutch Shell and Greka Group.
In 2017, China National Offshore Oil Corp, the country's largest producer of offshore oil and gas, issued a tender inviting domestic and foreign companies to bid for 10 coalbed methane blocks in the Ningxia Hui autonomous region, and Shanxi, Shandong and Anhui provinces, covering 2,173 square kilometers.
These efforts are in accordance with the country's policy to boost underground mining safety, to increase clean energy supply, and to cut greenhouse gas emissions.
By 2020, China plans to have 420 billion cu m of newly added proven coalbed gas reserves and to build two to three large coalbed gas production bases. By that time, annual coalbed methane output is expected to reach 24 billion cu m, accounting for 13 percent of the country's natural gas production, according to the National Energy Administration.
After years of development, China's coalbed gas industry is now entering a fast track, with mature drilling technology and infrastructure construction, said analysts.
Figures from Bloomberg New Energy Finance showed that China produced more than 9 billion cu m of coalbed methane in 2017.
According to Na Min, a senior analyst for oil and gas at Bloomberg NEF, the country's coalbed methane production capacity needs to almost triple by 2020 to meet the government's 24 billion cu m annual production target, as set in the 13th Five-Year Plan (2016-20).
"The prospects for coalbed methane in China are bright, as the country is encouraging the consumption of natural gas to replace coal in a bid to fight pollution, and gas demand growth in northern cities will mean sales opportunities for coalbed methane producers," Na said.
According to an industry forecast from Allied Market Research, high exploration and extraction rates in emerging countries, including China, will drive market growth until 2023. It estimated China's coalbed methane sector will grow at a maximum average rate of 11.6 percent annually in terms of the output value.
China's lower coalbed methane output is not the result of a smaller development scale compared with the US and Australia, but the result of very low single-well gas production rates, according to a report by Chris Carpenter for the Journal of Petroleum Technology.
The Qinshui Basin alone contains more coalbed methane production wells than the entire state of Queensland in Australia, but US and Australian basins have much higher single-well production rates than the Qinshui and Ordos basins, Carpenter said.
Many developed economies, including the US, Germany and Australia, started to explore coalbed methane earlier, and have now established a mature related industry, according to Sun Maoyuan, a consultant from the National Energy Administration.
China, as a relatively late starter, has also accumulated valuable experience in its decades of exploration and research.
The central government has released preferential policies to encourage further exploration of coalbed methane.
The Ministry of Finance has exempted import tariffs and value-added tax on certain coalbed methane exploration and extraction equipment and parts from 2016 to 2020.
However, "it will still be challenging to achieve the country's 2020 goal", said Sun, urging local governments to come up with more supportive measures.
Randeep S. Grewal, chairman and CEO of Greka Group, said it usually takes 10 to 15 years for a country's coalbed gas technology to mature, and China's pace is consistent with the world's developed economies.
In addition, the exploration of coalbed methane will also help to ease China's high dependency on oil and gas imports, and to ensure energy security.
According to the CNPC Economics and Technology Research Institute, China's reliance on imported oil and gas has been mounting in recent years.
The country is now the biggest crude and gas importer in the world, importing 440 million metric tons of crude oil in 2018, a year-on-year increase of 11 percent, and 125.4 billion cu m of gas, a year-on-year increase of 31.7 percent.
The country's foreign dependence ratio for oil and gas reached 69.8 percent and 45.3 percent respectively, and is expected to continue rising in 2019, the institute noted.
The central government has identified 11 cities in Shanxi and Shaanxi provinces, which all feature heavy industry and widespread use of substandard coal, as key areas in which to reduce air pollution by increasing the use of gas in their energy mix.
Coal represented 84.6 percent of Shanxi's energy mix in 2017 and local authorities plan to reduce the share to 80 percent in 2020 in a bid to fight pollution.
China recently announced plans to build two large coalbed methane production areas in coal-rich Shanxi - one in the Qinshui Basin and the other in the eastern Erdos Basin. Each basin has recoverable gas reserves of 1 trillion cu m, with a combined annual production capacity of 8.3 billion cu m.
By 2020, Shanxi plans to raise its annual coalbed gas output to 20 billion cu m and transport 6 billion cu m of gas from the two bases to other parts of the country through pipelines.
According to Na, coalbed methane development was previously held back by exorbitant pipeline tariffs, mining rights disputes overlapping with the coal mining industry, and lengthy project approval processes.
"With these barriers gradually being lifted or eased by ongoing market reform and further technological breakthroughs, producers are motivated to increase investment and output to meet the surging gas demand," she said.