Asian Development Bank Supports Coalbed
Methane Development in China

Dou Qingfeng£¬Huang Shengchu

      Yangquan mining area has abundant coalbed methane resources being one of the main target areas for coalbed methane development in China. The Asian Development Bank actively supports coalbed methane development in China and has supported two related projects in China. The first one is the ¡°Coalbed Methane Production in the PRC¡±, which has been completed early in 1998. The second project will begin shortly, including (1) Feasibility Study of a Coalbed Methane Power Generation Demonstration Project at No 5 Mine in Yangquan and (2) Pre-feasibility Study of Surface Coalbed Methane Development in Yangquan Area (Hanzhuang Mine-Shouyang District). The papers presents the findings of the first project and the main contents of the second project.

1 Introduction
      According to the finding in the ¡°China Coalbed Methane Resource Evaluation¡± supported by the UNDP, coalbed methane resources in Yangquan mining area reaches ª©868.3ªª billion m3 being the third largest nationally. Comprehensive evaluation of development potential in the area put Yangquan in the second favorable category. In 1997, Yangquan drained a total of 115 million m3 of coalbed methane from underground mines being the largest in the country. Yangquan Coal (Group) Co. Ltd produced 16 million tons of raw coal from 5 mines. Coalbed methane drainage systems have been built in all the five mines, thus greatly enhanced coal mine safety.
      Coalbed methane development potential in Yangquan is great. Yangquan Coal (Group) Co Ltd has placed coalbed methane development as its second pillar industry and established the Coalbed Methane Development Company. Up to the present, a total of 4 coalbed methane wells have been drilled in the area and water discharge for gas production is underway.

2 Project Description
      To promote coalbed methane development in China, ADB sponsored the ¡°Coalbed Methane Production in the PRC" (TA No. 2662-PRC). The ADB engaged the British Geological Survey to carry out the project and China Coalbed Methane Clearinghouse (CCMC) and Star Mining Corporation (SMC) were entrusted by the former Ministry of Coal Industry (MOCI) to assist the foreign consultants in the project. According to the requirements of the ADB contract, international consultants from the British Geological Survey and Gas Technology Center of the Netherlands carried out field investigation in China from 8 to 25 February 1998. Accompanied by domestic consultants from the China Coalbed Methane Clearinghouse and Star Mining Corporation, the international consultants visited Huaibei CMA, Yangquan CMA and Jingcheng CMA.
      The team of consultants have been charged with advising the ADB on the technical, economic, institutional and regulatory aspects of CBM production in China. The terms of reference included, but not limited to, the followings:
      (i) Review the present status of CBM production in the PRC and make an inventory of the present activities with regard to CBM production in China as carried out by the government, the private sector, and bilateral and multilateral donor agencies;
      (ii) Review available studies related to the potential role of CBM production in the PRC;
      (iii) Review the government's plans and policies with regard to promotion of CBM production;
      (iv) Review in consultation with the Ministry of Coal Industry (MOCI) the targets for further development of CBM production in the PRC and assess whether these targets are reasonable given the present level of available technology and estimates financial resources;
      (v) Assess and quantify the overall potential for CBM production in the PRC and estimate the potential contribution of CBM production to meeting the energy needs of the PRC in the next five to ten years;
      (vi) Review the status of present CBM production plants in the PRC and determine the technical efficiency and commercial viability of these plants;
      (vii) Identify the various institutions, organizations and ministries in the production of CBM and the transportation and marketing of the methane and review their operations, including those of the national company for the production, transportation and marketing of the methane;
      (viii) Review the legal and regulatory framework which governs CBM production in the PRC and identify legal and regulatory impediments to development of CBM production and utilization in the PRC, and recommend the action required to address such impediments;
      (ix) Identify in order of priority the areas where further technical assistance is required to promote the further development of CBM in the PRC;
      (x) Prepare a comprehensive report of findings and recommendations including an executive summary and submit three copies of the final report to each of   (a) the People's Bank of China, (b) MOCI and (c) the ADB.

2.1 Visitingªª the MOCI and organization concerned

      On 9 February 1998, the team of consultants visited the MOCI and   China United Coalbed Methane Corp. Ltd (China CBM). Mr Sun Maoyuan, Vice President of China CBM, made a presentation on policies, regulations and plans for CBM development.
      At the China Coalbed Methane Clearinghouse, the consultants were given a comprehensive introduction by staffs of the Clearinghouse on coalbed methane development and utilization prospect, status of projects, regulations and policies related to coalbed methane in China. The international consultants were very interested in the report ¡°A Study of Legal Framework and Policy Suggestions to Promote Coalbed Methane Development in China" completed by the China Coalbed Methane Clearinghouse in 1997. Sections of the report were also translated and incorporated into the report prepared by the consultants for the ADB. Further discussions and classification of information gathered were held with the Clearinghouse after the field trip.

2.2 Fieldªª trip to Huaibei CMA
      On 13 February 1998, the team of consultants visited Huaibei CMA. Deputy Director of the CMA Mr. Zhang Zhenyi and Senior Engineer, Mr. Liu Huamin introduced the present status of coalbed methane development and utilization in the CMA. Special introduction was made on their cooperative project with the US company Texaco to jointly explore and develop CBM in the CMA. The contract for the project was formally signed in Beijing at the beginning of 1998. The contract covers an area of 26.63 kmª¬2 with a recoverable CBM resource in exceeding 60 billion m3. It was planed to drill 300 exploration and production wells with a total investment of US 500 million. The consultants regarded that Huaibei has favorable resource and marketing conditions for large scale CBM development and utilization employing surface wells.

2.3 Fieldªª trip to Yangquan CMA
       On 17 February 1998, ADB experts visited Yangquan CMA. On this occasion, Mr. Shi Shengkui, Deputy General Manager of the CMA, gave adetailed introduction on the current underground CBM drainage and utilization activities in the CMA. Mr. Shi also presented information on the planed surface CBM development project in Shouyang District in the CMA and a tour was arranged to enable the experts to visited the mine gas drainage sites and drilling site in Shouyang. Yangquan CMA currently produces 16 million tons of raw coal annually and gas drainage systems have been installed at 5 mines under the CMA. The CMA currently recovers approximately 260 million m3 of CMB (CHª­4 content 40%) annually, of which only 107 million m3 is being utilized for household use and the rest is vented to the atmosphere. The CMA plans to set up CBM fired power generation plants with a total planed capacity of approximately 28 MW. CBM resource in Yangquan area reaches 868.3 billion m3. In March 1997, MOCI approved the ¡°Prefeasibility study report for CBM development in Shouyang District of Yangquan CMA¡±. In Shouyang District, CBM resource reaches 68.76 billion m3. The planed annual CBM production from the area is 200 million m3 with a total investment of 1000 million Yuan. The experts regarded that potential for CBM development in Yangquan is great and the existing CBM development and utilization facilities in the mining area and market conditions are favorable. In particular, the part of the recovered CBM which is currently discharged to the atmosphere should be fully utilized for power generation to provide environmental and economic benefits.

   2.4 Fieldªª trip to Jincheng CMA
          On 19 February 1998, the team of experts visited Jincheng CMA. The General Manager of Shanxi Jin-dan Energy R&D Company Ltd made detailed introduction on the cooperative project between the CMA and Sino-US Energy Corp. of US to develop CBM from the new mining area. Shanxi Jin-dan Energy R&D Company Ltd is a joint venture between the two sides. Total CBM resources in Jincheng CMA amounts to 61.6 billion m3. Currently, 7 production wells have been drilled in the demonstrating area with single well daily production reaching 12000 m3. The CMA has established a small CBM fired power plant with an installed capacity of 1120 kW. The ADB experts regard CBM development and utilization in Jincheng CMA are successful and progress to date is satisfactory. Although detailed evaluation has to wait till the completion of the 2nd phase of the demonstration project, present situation indicates that potential for large scale commercial production of CBM in Jincheng is great. The main barrier for CBM development in Jincheng is the market as the development area is some distance away from large-medium cities and considerable resources have to be put in to establish CBM utilization facilities.
      ADB experts are very satisfied with the arrangements for this investigation and with information gathered from the investigation. The ADB experts are very appreciative of the abundant information relevant to the project provided by the Clearinghouse and give high regard to the contribution of the Clearinghouse. The Clearinghouse also reviewed the interim report prepared by the international consultants and made comments. The final report will be available in early April and will be submitted to the ADB, the People's Bank of China and the MOCI.

2.5 Recommendations
      After the investigation, ADB experts made the following recommendations:
      · The highest priority should be given to supporting utilization of surplus drained mine gas. This medium quality gas is currently being vented to the atmosphere, yet it is available at no extra cost at the pit-head. It has a proven track record in many CMA's as an excellent fuel for town gas supply. It is also used for electricity generation. Because of the high concentration of impurities, it is not economically feasible to use mine drained CBM as feedstock for chemical production.
      · It is cheaper to transport methane than electricity, but mine gas contains up to 60% air. It is also cheaper to generate electricity using coal than CBM. Furthermore, it is likely that greater reductions in atmospheric pollution could be achieved by local household and small scale industrial usage of CBM rather than by using it for generating electricity. Thus it appears that town gas supply may be a preferred utilization option, all other things being equal.
      · Yangquan CMA vents by far the largest amount of drained mine gas and has among the largest resources of CBM, ensuring the long-term security of supply. Therefore, it is recommended that a feasibility study for a mine gas utilization project based at Yangquan CMA should be undertaken. This should examine all aspects of mine gas supply and utilization, including resource base, reserves, security of supply, security of markets and utilization options, including electricity generation and town gas supply.
      · Secondary priority should be given to supporting the surface CBM development at Jincheng CMA. This should be a long-term commitment directed at demonstrating that under typical North China geological conditions, CBM surface wells can produce a stable supply of methane at an economically viable rate over a sufficiently long term to make the wells profitable.
      · If the exploration phase of the international joint venture project at Huaibei CMA is successful, consideration should be given to providing soft loans to support CUCBM and Huaibei CMA in the large scale rolling development of CBM. The Huaibei project is placed as the third priority for ADB assistance not because the project is less likely to be successful compared to the previous two projects but the need for technical assistance is smaller because Texaco has the necessary financial and technical strength to carry out the project. In any case, large capital investment for commercial development will not been need in the next two years.

3 Feasibilityªª Study of the Coalbed Methane Demonstration Project in Yangquan
      On 24 February 1998, ADB official Mr. Edu Hassin visited the Clearinghouse and was given an account of the findings of the investigation by the consultants. Mr. Hassin expressed that the ADB is very supportive to CBM development in China. The ADB has decided to support a pre-feasibility study of a CBM utilization demonstration project at a coal mine in Yangquan. If the feasibility study proves feasible, ADB plans to make a favorable loan of US50 million to finance the construction of the demonstration project.
      From 4¡«8 May 1998, a TA Fact-finding Mission comprising C. J. Johnson, CBM expert/staff consultant, and E. H. Hassing visited the SCIB and the ª©People'sªª Bank of China to discuss the arrangement for the second phase of the project. Accompanied by Mr. Huang Shengchu and Mr. Wang Qinghua, the delegation visited Yangquan for field investigation. The delegation inspected the coalbed methane drainage facilities at the No. 1, 3 and 5 mines in Yangquan and the gas storage tanks as well as the Shouyang coalbed methane development area. The team regarded that Yangquan has very good coalbed methane drainage facilities suitable for establishing the coalbed methane demonstration project. During the visit, Yangquan Coal (Group) Co. Ltd. introduced the plan for the development of coalbed methane in the Shouyang area noting that the construction of the new No. 7 mine in Hanzhuang mine field will begin this year. Coalbed methane resources in the new mine field are very abundant and conditions for development are excellent. The company has decided to drain the coalbed methane prior to mining. Currently, preliminary exploration and development work is also underway. The delegation inspected the SY002 well drilling site. In the area, drilling of the SY001 well has already been completed and water discharge for gas production is on-going. Mr. Hassing was very interested in the coalbed methane development work in the new area and expressed that ADB would consider to placed the prefeasibility study of coalbed methane development in the new area into the TA project. It is also possible that ADB will consider to provide loans for the development of coalbed methane from the area in the future.
      After the field investigation and discussion, a Memorandum was produced by the ADB, SCIB and the People's  Bank of China noting that the second phase of the ADB sponsored TA project including:
      (1) Feasibility study of coalbed methane recovery and utilization demonstration project at the No. 5 mine in Yangquan;
      (2) Prefeasibility study of coalbed methane development and utilization in Hanzhuang mine field and Shouyang District.

3.1 Coalbedªª methane power generation demonstration project
      The No.5 Mine in Yangquan, which went into operation in 1992, has a designed production capacity of 4.9 Mt. In 1997, the mine produced a total of 2.03 Mt raw coal and the amount of coalbed methane drained in the year was 54.1 Mm3 (CHª­4 100%). However, only 4 Mm3 of the methane drained was utilized as town gas. There is a surplus of approximately 50 Mm3 of methane could be used for power generation. There is already a 2¡Á2.8MW coalbed methane fired power plant being planed. The second phase comprises of 13 MW. When the coal mine reaches its designed capacity in the next few years, the amount of coalbed methane drained from underground will increase greatly.
      The feasibility study of the first phase of the power plant had already been approved by the former MOCI on 10 October 1997. It is planed to use the 16V25SG gas engines manufactured by Wartsila of Sweden. The State Development Planning Commission and the Ministry of Foreign Trade and Economic Cooperation have approved to place the project into the loan plan by the Swedish International Development Agency.
      The proposed ADB TA project is the feasibility study of the second phase of the coalbed methane power plant. Main contents of the feasibility study include:
      (1) Coalbed methane resources estimation;
      (2) Coalbed methane drainage and recovery system;
      (3) Coalbed methane utilization: electricity generation option;
      (4) Coalbed methane utilization: other options;
      (5) Coalbed methane utilization economics;
      (6) Safety and risk factors;
      (7) Environmental and social aspects; and
      (8) Economic and financial analysis.

3.2 Pre-feasibilityªª study of coalbed methane in Hanzhuang coal field-Shouyang District
      Prospect for coalbed methane development in the Hangzhuang mine field is good. After the completion of the prefeasibility study of coalbed methane development in the area, the former MOCI submitted the ¡°Coalbed Methane Resources Exploration Evaluation Plan for Huangzhuang mine field and Shouyang District in Yangquan" to the State Development Planning Commission. In April 1998, the SDPC formally approved the coalbed methane development plan in the area. China United CBM Co., Ltd., China Administration of Coalfield Geology and Yangquan Coal (Group) Co., Ltd. will cooperate to develop the coalbed emthane resources in the area. It is planned to drill 4 exploration wells and 165 km seismic reflection data. Capital required for the exploration will be shared by the three parties and the investment is risk investment. If the exploration proves commercial development is feasible, capital input in the exploration stage will be recovered in the development phase or turned into registered capital.
      The development of coalbed methane in the new area will require a great sum of money. Financial support by the ADB will have great significance in promoting the progress of the project. In the ADB sponsored TA project,prefeasibility study of coalbed methane development in the new area includes:
      (1) Coalbed methane resources estimation;
      (2) Coalbed methane development plan;
      (3) Coalbed methane utilization plan;
      (4) Coalbed methane market analysis;
      (5) Safety and risk factors;
      (6) Environmental and social impact evaluation; and
      (7) Economic and financial analysis.

4 Conclusions and Recommendations
      (1) Yangquan mining area has very abundant coalbed methane resources. The conditions for development and market are favorable. As a result, Yangquan mining area  can be placed as one of the key target areas nationally for coalbed methane development. Coalbed methane exploration and evaluation are already underway in the area.
      (2) Yangquan CMA drains a great amount of coalbed methane from underground mines. In particular, the NO. 5 Mine has large surplus of coalbed methane which can be used for power generation. In order to provide stable and sufficient gas supply for the first and second phases of the proposed power plant, underground coalbed methane drainage system will need to be improved.
      (3) Although coalbed methane power generation has already wide use abroad, it is considered a new technology in China. The establishment of the coalbed methane power generation project in Yangquan will have great demonstrating effect in coalbed methane utilization in mining areas nationally.Coalbed methane power generation is only one of the options of coalbed methane utilization. In many cases, coalbed methane power generation is more expensive that other options such as residential use. In cases such as the Hanzhuang-Shouyang project, residential use should be considered first for better economics.
      (4) The ADB is very supportive towards coalbed methane development in China. Capital support should be actively sought to promote coalbed methane development. However, loans even soft loans will have to be repaid at some stage. Therefore, it is essential to considered the project economics and repayment ability of the project carefully. Coalbed methane development and utilization has great environmental benefit and demonstrating effect.International financial aide should be sought to reduce the pressure of repayment.

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