China United Coalbed Methane Corp Ltd has teamed up with the London-headquartered Reflection Oil & Gas Partners Ltd to explore, develop, produce and sell coalbed methane in China, a move that could help alleviate the energy supply shortage and pollution as well as improve coal mining safety.

 

The contract signed in Beijing yesterday was the third one for China United involving foreign investors within less than four months, suggesting foreign companies may be able to speed up their entrance into China's vast coalbed methane market.

 

China United signed similar contracts with two Canadian firms TerraWest Energy Corp and the Verona Development Corp last December and November, respectively.

 

The latest agreement covers about 1,011 square kilometers and is located in the Luliang area of North China's Shanxi Province.

 

The block, named the Shilou South, is estimated to contain a potential resource of 6.7 trillion cubic feet of coalbed methane, according to China United's President Sun Maoyuan.

 

The block is also close to the west-east gas pipeline, which will facilitate the transportation and sale of coalbed methane beyond Shanxi Province into larger industrial and residential energy markets in the country, he said.

 

Sun said development of this resource has great strategic significance for China, as it could help narrow the growing energy supply and demand gap, while reducing environmental pollution in the country.

 

At the same time, the emergence of the coalbed methane industry in China will help reduce the high incidence of coal mine accidents, Sun said.

 

For instance, China has rich coalbed methane reserves. It is estimated that the country has around 37 trillion cubic meters of coalbed-methane resources, located no deeper than 2,000 meters underground.

 

Coalbed methane is methane found in coal seams, the key energy source of natural gas.

 

In China, natural gas is currently a minor fuel in the overall energy mix.

 

However, China is rapidly expanding infrastructure to facilitate the consumption of gas throughout the country.

 

According to the US Energy Information Administration, overall natural gas consumption in China is projected to grow at an average annual rate of 7.8 percent, from 1.2 trillion cubic feet in 2002 to 6.5 trillion cubic feet in 2025.

 

Robert Lee, Reflection's president, said the Shilou South block was one of the most promising coal fields for production of coalbed methane.

 

"We are excited about starting exploration of this resource in collaboration with China United in the coal field," he said.

 

According to the contract, Reflection, a coalbed methane exploration, development and production company, will shoulder risks and expenditure during a five-year exploration period.

 

The two companies will share production during the development and production periods according to their share of investment.

 

China United was officially established in 1996 to speed up the country's coalbed methane development.

 

China's State Council granted the firm the exclusive right to explore, develop and produce coalbed methane in cooperation with overseas companies.

 

It also granted favorable policies for the coalbed methane industry's development, such as tax reductions, duty exemptions on imported equipment, and the use of free market pricing for the sale of coalbed methane.

 

(China Daily February 23, 2006)