INVESTMENT GUIDE FOR CHINA COAL MINE METHANE/COALBED METHANE

Perface

China is a bog coal producing country in the world. CBM is a non-conventional natural gas associated with coal. Based on the latest statistics, the national CBM resources at a depth above 2000m are 310 trillion m3, which are equivalent to resources of the conventional natural gas. CBM is one of the clean energy resources. Development and utilization of CBM may improve energy supply, mine safety and global environmental protection.

Underground CBM drainage and surface development ahs made a great progress in this country. Since 50¡¯s in the 20th century, underground gas drainage technology has been applied in China and the quantity of gas drained has been rising year by year. By the end of 2002, 193 mines in China has been set up gas drainage, the total quantity of gas drained reaching 1.146 billion m3.

Currently, China has possessed good basic conditions for international cooperation in development of CBM in China. Since early 90¡¯s in the 20th century China has attached importance to development of CBM by surface wells. Up to now, China has drilled 210 wells for various purposes. 79 out of over 200 wells prospected have been jointly developed with foreign countries. China has consecutively signed eleven Production Sharing Contracts (PSC) with six foreign companies, including Texaco, Phillips, Virgin, Greka, Lowell etc., covering a total area over 20,000 km2. The data of proven CBM reserves issued recently have indicated that there is a broad prospect for CBM industry in China. For example, the workable reserves of CBM in south of Qinshui Basin in Shanxi reach 21.8 billion m3, which have laid good foundation for development of CBM Industry.

As compared with developed countries, there is a big gap in development and utilization of CBM in China. For example, USA developed tremendously CBM in early 80¡¯s in the 20th century. CBM production reached 38.3 billion m3 in 2000.The total quantity of CBM drained underground was 1.13 billion m3 in 2001 in US. The utilization rate of drained CBM reached 80%.

Introduction of advanced technologies and foreign funds from developed countries is favorable to development of CBM industry in China. At the same time, the government has formulated a series of preferential policies to encourage development of CBM in China. CBM projects entered the list of ¡°Directory of key industries, products and technologies encouraged by the State¡±, ¡°Directory of industries for foreign investors¡±. Projects within the directories will enjoy a number of preferential terms.

While CBM is developed vigorously in China, the size of CBM utilization grows increasingly and has obtained remarkable success. The CBM-fired 120 MW power generation plant developed by Jincheng Coal Group in Shanxi Province will be largest in the world. The construction of this power plant has led a number of coal enterprises in this country to develop actively the CBM power plant projects. For example, Fuxin Mining Group Ltd Co. in Liaoning and Shuicheng Mining Group Ltd. Co. in Guizhou have set up CBM power plant within a short period.

The aim of this guidebook is to describe CBM resources and the state of art in China, the preferential policies, market analyses, modes of international cooperation, etc. for development of CBM resources in China. The purpose is to let the foreign investors understand the great market potential for development of CBM in China, and their investment in CBM industry may be repaid. Compilation of the guidebook is one of the contents of a cooperative project between CCII and USEPA, entitled ¡°Commercialization of CBM/CMM¡±. In the Third International Workshop of CBM/CMM Utilization, co-sponsored by USEPA and China Coal Industry Association in 2002, the editors solicited opinions of the participants on outline of the guidebook and requirements to the authors. Many experts put forward some constructive suggestions, which played an active role in perfection on the contents of the guidebook. The editors should like to express thanks to experts and scholars at home and abroad. Mr. Karl Shultz, the former Director, Mr. Clark Talkington, Program Manager of Coalbed Methane Outreach Program of USEPA, and Mr. Ray Pilcher, President of Raven Ridge Resources Company, checked and proved carefully the English issue and made suggestions on amendments and made great efforts on this guidebook. We would like to extend heartfelt thanks to them. China Untied Coalbed Methane Co. Ltd contributed to accomplishment of this book, and we would like to thank them too. There is not doubt about this guidebook has shortcoming, and we hope that the readers may make comments.

CONTENTS

PART 1 OVERVIEW ON CHINA CMM/CBM INDUSTRY
Chapter 1 CMM/CBM Resources in China
1.1 Energy Production and Use in China
1.2 Coal and Coalbed Methane Resources
1.3 China¡¯s Approach to Developing These Resources
1.4 Distribution of Coalbed Methane Resources
1.5 Abundant CMM Resources in Abandoned Mines
1.6 CMM in Working Coal Districts
1.7 CMM Extraction from Coal Mines in China, to Date
1.8 CBM Surface Recovery

Chapter 2 CMM Utilization and Transportation
2.1 CMM Utilization in China
2.2 CMM/CBM Use in Coal Mining Areas
2.3 Transporting CMM

Chapter 3 The Market for Gas
3.1 The Gas Market
3.2 Forecast for the Natural Gas Market in China
3.3 China¡¯s Power Sector
3.4 The Market for Electricity Generation in China

PART 2 THE INVESTMENT AND DEVELOPMENT IN CHINA
Chapter 4 Economic Development Climate in China
4.1 Summary
4.2 Development of Coalbed Methane Resources Calls for Participation of More Investors and Foreign Investments
4.3 Incentives for International Investors
4.4 The Impact of Greenhouse Gas Emission Reduction Initiatives

Chapter 5 Preferential Finance and Tax Policies for CMM/CBM Projects
5.1 Policies Encouraging CMM/CBM Development in China
5.2 Current Taxation Policies for CBM Exploration and Development Projects
5.3 International Cooperative Experience of CBM Projects in China
5.4 Obstacles to Project Development

Chapter 6 Financing CMM
6.1 International Financial Institutions and Lending Programs
6.2 Environmental Protection Related Funds

PART 3 STEP BY STEP: DEVELOPING A PROJECT
Chapter 7 Procedures for Planning, Approval, and Implementation of Coalbed Methane Projects
7.1 History of International Partnership Formed for CMM/CBM Development
7.2 China United Coalbed Methane Company Limited (CUCBM)
7.3 Types of Foreign Cooperation for CMM/CBM Exploration/Development Projects
7.4 Coalbed versus Coal Mine Methane Projects
7.5 CMM Development Projects
7.6 CBM Development Projects

Chapter 8 Laws and Regulations Applicable to the Development of CMM/CBM Resources

Chapter 9 Contracts for CMM/CBM International Cooperation
9.1 Summary
9.2 Foreign Cooperation Policies
9.3 Standard Contracts for CBM International Cooperation
9.4 Current Active Standard Contracts
9.5 Preferable Model for Coal Mine Methane (CMM) International Cooperation

Part 4 USEFUL REFERENCE INFORMATION

Key Contacts in China CMM/CBM Development
Organizations and Institutions Involved in CBM Development, R&D, and Consultation
Construction Entities
Institutions for Testing, Lab Tests, and CBM Reservoir Simulation
Appendix 1: Regulations for Registering to Explore for Mineral Resources Using the Block System
Appendix 2: The List of Minerals That Fall Under the Jurisdiction of the Department in Charge of Geology and Mineral Resources Under the State Council
Appendix 3: Regulations for Registering to Mine Mineral Resources
Appendix 4 Regulations for Transferring Exploration Rights and Mining Rights
Appendix 5 Regulations of the People¡¯s Republic of China Concerning the Exploitation of On-Shore Petroleum Resources in Cooperation with Foreign Enterprises
¡¡

¡¡