With world's third biggest reserve of coalbed methane, China holds a special attraction to foreign energy companies.

On March 9, 2006, China United Coalbed Methane Corp. Ltd. (CUCBM) and the Canadian-based Ivana Ventures Incorporation signed a production sharing contract in Beijing for cooperative exploitation and development of coalbed methane resources in east China's Anhui Province.

It's the fourth such contract signed between CUCBM and foreign companies in less than four months. So far 13 foreign firms have signed contracts to explore coalbed methane in China. The investment in 25 blocks which cover an area of some 34,000 square kilometers totaled 1.2 billion yuan (US$150 million).

Coalbed methane is found in coal seams and China -- following Russia and Canada -- has the third largest reserves of the gas in the world.

"The large-scale development of coalbed methane can help reduce the high incidence of explosions in mines and meet a demand for clean and green energy," said Zhang Xianpeng, a researcher with Energy Economy Research Center of North China University of Technology.

However, due to geological issues and technology and machinery considerations, the domestic exploration and utilization of coalbed methane has not reached any significant scale despite more than ten years in development.

"The technology is the problem," said Yang Jian of CUCBM. Though foreign countries have tested methods of extracting the gas, these are not suited to the geological structures in China.

With the world's energy shortage becoming a real issue, domestic corporations are paying a lot more attention to coalbed methane. And many technical breakthroughs have been made in recent few years, according to Zhang.
The Jincheng Anthracite Mining Group in Shanxi Province has invented a system of coalbed methane exploration which has been given a patent. It will soon go into large-scale development.

"The success of domestic projects builds up confidence with foreign companies to invest in China." said Yang.
A pilot project undertaken by CUCBM was a success at the end of last year in Shanxi and resulted in a series of contracts with foreign partners.

China's State Council granted CUCBM rights 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 reductions on value added tax and income tax. In addition, imported equipment are exempt from customs duties.

"So far the cooperation between CUCBM and foreign companies is at the stage of prospecting," said Yang.

"Once exploration begins revenues will be shared according to the contracts." The Chinese share varies from 30 percent to 50 percent as stipulated in the contracts.

The CUCBM has signed the supply contracts with the Hong Kong and China Gas Co. Ltd and Shanxi Provincial Natural Gas Co. Ltd. In the future the coalbed methane will be transported by way of pipes connecting the west-east gas pipeline.

Besides the CUCBM, the China National Petroleum Corporation, China Petroleum and Chemical Corporation and local mine bureaus have also been involved in coalbed methane exploration and development.

Coalbed methane output will reach 10 billion cubic meters in 2010 with half of this being produced by surface development. 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 in 2025.

(China.org.cn by Li Shen, March 29, 2006)