China - a strategy for coal bed methane (CBM) and coal mine methane (CMM) development and utilization in China

 69537 A Strategy for Coal Bed Methane (CBM) and Coal Mine Methane (CMM) Development and Utilization in China Formal Report 326/07 A Strategy for Coal Bed Methane (CBM) and Coal Mine Methane (CMM) Development and Utilization in China Formal Report 326/07 Energy Sector Management Assistance Program Energy Sector Management Assistance Program Purpose The Energy Sector Management Assistance Program (ESMAP) is a global technical assistance partnership administered by the World Bank since 1983 and sponsored by bilateral donors. ESMAP's mission is to promote the role of energy in poverty reduction and economic growth in an environmentally responsible manner. Its work applies to low-income, emerging, and transition economies and contributes to the achievement of internationally agreed development goals through knowledge products such as free technical assistance; specific studies; advisory services; pilot projects; knowledge generation and dissemination; training, workshops, and seminars; conferences and round-tables; and publications. The Program focuses on four key thematic areas: energy security, renewable energy, energy poverty, and market efficiency and governance. Governance and Operations ESMAP is governed by a Consultative Group (CG) composed of representatives of the World Bank, other donors, and development experts from regions that benefit from ESMAP assistance. The ESMAP CG is chaired by a World Bank Vice-President and advised by a Technical Advisory Group of independent energy experts that reviews the Program's strategic agenda, work plan, and achievements. ESMAP relies on a cadre of engineers, energy planners, and economists from the World Bank, and from the energy and development community at large, to conduct its activities. Funding ESMAP is a knowledge partnership supported by the World Bank and official donors from Belgium, Canada, Denmark, Finland, France, Germany, Iceland, the Netherlands, Norway, Sweden, Switzerland, United Kingdom, United Nations Foundation, and the United States Department of State. It has also enjoyed the support of private donors as well as in-kind support from a number of partners in the energy and development community. Further Information Please visit www.esmap.org or contact ESMAP via email (esmap@worldbank.org) or mail at: ESMAP c/o Energy, Transport and Water Department The World Bank Group 1818 H Street, NW Washington, D.C. 20433, U.S.A. Tel.: 202.458.2321 Fax: 202.522.3018 Formal Report 326/07 A Strategy for Coal Bed Methane (CBM) and Coal Mine Methane (CMM) Development and Utilization in China Energy Sector Management Assistance Program (ESMAP) Copyright © 2007 The International Bank for Reconstruction and Development/WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Produced in India First printing July 2007 ESMAP Reports are published to communicate the results of ESMAP’s work to the development community with the least possible delay. The typescript of the paper therefore has not been prepared in accordance with the procedures appropriate to formal documents. Some sources cited in this paper may be informal documents that are not readily available. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author and should not be attributed in any manner to the World Bank or its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility whatsoever for any consequence of their use. The boundaries, colors, denominations, other information shown on any map in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to the ESMAP Manager at the address shown in the copyright notice above. ESMAP encourages dissemination of its work and will normally give permission promptly and, when the reproduction is for noncommercial purposes, without asking a fee. Contents Preface .............................................................................................................................. vii Acknowledgments ............................................................................................................... ix Units of Measure ................................................................................................................. xi Conversion Factors ............................................................................................................. xi Acronyms and Abbreviations .............................................................................................. xiii Glossary of Terms .............................................................................................................. xvii Executive Summary ............................................................................................................. xix Introduction .............................................................................................................. xix Government aims and targets ................................................................................... xx Current status of CBM/CMM .................................................................................... xxi CBM/CMM utilization .............................................................................................. xxii Barriers .................................................................................................................. xxiii 1. CBM/CMM Resources and Emissions .............................................................................. 1 CBM Resources .......................................................................................................... 1 CMM resources and emissions ................................................................................... 3 A large contributor to China’s GHG emissions ............................................................ 7 A growing problem .................................................................................................... 7 The problem can be mitigated .................................................................................... 9 2. CBM/CMM Recovery and Utilization .............................................................................. 11 CBM sources ........................................................................................................... 11 VCBM surface extraction in China ............................................................................ 12 CMM extraction in China ......................................................................................... 14 AMM extraction in China ......................................................................................... 15 Utilization of CBM and CMM .................................................................................... 16 Government plans and targets ................................................................................. 19 iii A STRATEGY FOR CBM AND CMM DEVELOPMENT AND UTILIZATION IN CHINA 3. Administrative, Regulatory and Policy Framework ........................................................... 25 Legal framework ...................................................................................................... 25 Administrative framework for CBM and CMM ........................................................... 25 Policy and regulations on CMM drainage in China’s coal mines ................................ 28 Financial and fiscal incentives for CBM/CMM ............................................................ 29 4. Barriers to CBM/CMM Development and Scale-up ......................................................... 33 CBM regulatory regime ............................................................................................ 33 Financial barriers to CMM development .................................................................... 33 Health, safety and environmental barriers ................................................................. 35 Market barriers ........................................................................................................ 37 Technology barriers .................................................................................................. 38 Principal barriers to development of CMM utilization schemes ................................... 41 5. Comparative Experiences of Other Countries ................................................................. 43 CBM and CMM Resource Management .................................................................... 43 Promoting CMM extraction and utilization ................................................................ 46 CBM/CMM extraction, utilization technology and infrastructure ................................. 51 6. Conclusions and Recommendations .............................................................................. 55 Conclusions ............................................................................................................. 55 Recommendations ................................................................................................... 56 Annex I: CMM Extraction from KSOCM in China, (1980-2002) ........................................ 65 Annex II: Comparative Investment Costs US$/t CO2 Equivalent Annual Emission Destruction or Avoidance Capacity ............................................................... 67 Data Used in Calculations ....................................................................... 67 Methane destruction in a CMM Power plant ............................................. 67 CMM destruction by flaring ..................................................................... 67 CMM and CO2 emissions displaced by wind energy ................................. 68 Annex III: CBM/CMM Extraction and Utilization Technology ............................................... 69 CBM Technology Issues ........................................................................... 69 CMM drainage technology status ............................................................ 70 Utilization ............................................................................................... 74 Annex IV: An Overview of Some Major CMM Extraction and Utilization Schemes ................ 75 Jincheng Coal Mining Group (Shanxi province) ......................................... 75 Fushun (Liaoning province) ...................................................................... 75 Hegang (Helongjiang province) ............................................................... 76 Songzao (Chongqing province) ................................................................ 76 Huaibei (Anhui province) ......................................................................... 77 Yangquan (Shanxi province) ..................................................................... 77 Panjiang CMA (Guizhou province) ........................................................... 77 Huainan Coal Mining Group (Anhui province) .......................................... 78 Pingdingshan .......................................................................................... 78 iv CONTENTS Annex V: General Principles of CBM Production-sharing Contracts ................................... 79 Financial Sharing Model of the Standard Contract ........................................ 79 Further Details of the Standard Contract Finance Sharing Model ................... 80 Standard Contract Terms ............................................................................. 81 Annex VI: Preferential Finance and Tax Policies for CMM/CBM ........................................... 83 Policies Encouraging CMM/CBM Development in China ........................... 83 List of Comprehensive Utilization of Resources .......................................... 83 Catalog of the Industries, Products and Technologies Currently Encouraged by the State for Development .......................................... 84 Guidance Catalog of Industries for Foreign Investment ............................. 84 Preferential Policies for Western China Development ................................. 84 Taxation Policies for CBM Exploration and Development Projects ............... 84 Enterprises Income Tax ............................................................................ 85 Value Added Tax, Resource Tax and Royalty .............................................. 87 Tariffs and Other Taxes ............................................................................ 87 Annex VII: Internationally Financed CBM and CMM Projects ............................................... 89 References ........................................................................................................................ 93 v A STRATEGY FOR CBM AND CMM DEVELOPMENT AND UTILIZATION IN CHINA Tables Table 1: Summary of Recommended Strategy and Actions ............................................ xxiv Table 1.1: Major Coal-bearing Regions and Associated CBM Resources ............................. 2 Table 1.2: Comparison of CMM Scale between China and the U.S. in 2004 ....................... 4 Table 1.3: Assessment of CMM Extraction and Usability from Gassy Mines in 2004 ............ 4 Table 1.4: CMM Extraction in 2003 by Major Mining Groups ............................................. 6 Table 1.5: CMM Drained and Coal Produced from all KSOCM (1997-2004) ....................... 6 Table 1.6: China’s Estimated GHG Emissions in 2000 ........................................................ 7 Table 1.7: Structure of Energy Consumption in China ........................................................ 8 Table 1.8: CMM Emissions and Projections – Global and China (Mt CO2 equivalent) ........ 10 Table 2.1: Comparison of CBM Sources .......................................................................... 11 Table 2.2: International Cooperation Projects (PSCs signed by CUCBM to 2004/5) ........... 12 Table 2.3: Principal Uses of CBM from Different Sources in China .................................... 16 Table 2.4: Possible Mine-site Uses for CMM in China ....................................................... 17 Table 2.5: Industrial Uses of CBM ................................................................................... 17 Table 2.6: CMM Extraction and Usability Scenarios for Gassy Mines in 2010 .................... 20 Table 2.7: Projected Annual CBM Demand in Shanxi (Based on Shanxi CBM Report, 2005) ......................................................... 22 Table 3.1: Summary of Preferential Policies for CBM Projects ............................................. 30 Table 3.2: Summary of Preferential Policies for CMM Projects ............................................ 31 Table 4.1: Coal Mining Groups with Current or Pending CDM for CMM Projects ............... 35 Table 5.1: Policies Stimulating Utilization of CMM (Adapted from DTI, 2004) ..................... 46 Table 5.2: Improvement in U.S. CMM Drainage and Emissions Reductions ....................... 52 Table A3.1: Survey of Gas Drainage Problems ................................................................... 71 Table A5.1: Royalty Rates for CBM Cooperation Projects in Three Provinces and Regions of Qinghai, Xizang, Xinjiang and Shallow Sea Region ...................... 80 Table A5.2: Royalty Rates for CBM Cooperation Projects in Other Provinces, Autonomous Regions and Cities ................................................................. 81 vi Preface Globally, Coal Bed Methane/Coal Mine Methane development and utilization, and they are a (CBM/CMM) is attracting growing attention priority in China’s 11th Five-Year Energy mainly from the perspective of climate change. Development Plan. Better control and use of However, China has two additional and very CMM is now the cornerstone of the central compelling reasons for addressing the issue – government’s strategy to step up coal mine reducing coal mine fatalities and developing safety. However, the government has yet to cleaner energy resources to improve air quality introduce and implement specific policy in cities. measures and institutional changes to achieve the desirable results. In 2004, coal production in China resulted in the release of an estimated 18 billion cubic This Energy Sector Management Assistance meter (Bm3) Methane (CH4) (equivalent to 271 Program (ESMAP) activity aims at improving and Million Tons (10 6) Mt Carbon Dioxide [CO2]), understanding the status of the CBM/CMM representing 43 percent of global CH 4 investment and development in China as well released by the coal mining industry, and as the governing legal and regulatory accounting for more than a third of China’s framework, identifying the institutional policy emissions of anthropogenic methane. CH4- and technical barriers which need to be related explosions killed some 2,000 coal addressed and suggesting a series of actions miners, whereas it is estimated that more than which the government needs to take to 400,000 Chinese died prematurely because significantly scale up the development and of urban air pollution. Since coal will continue utilization of CBM/CMM. The report is not to meet most of China’s growing energy intended to provide a detailed blueprint. needs, even with an aggressive fuel However, it does provide recommendations, diversification policy and energy efficiency rationales and options for certain institutional efforts, the amount of CMM released by coal and policy choices which will have to be made mines is bound to increase some 2/3 above as well as suggestions for detailed studies to the present level by 2020. implement them. China has realized that Greenhouse Gas (GHG) In publishing this volume, we very much hope it emissions and other air pollutants will cause proves to be useful to the various government unacceptable local, regional and global agencies and institutes in China as well as the environmental problems unless it makes a major international community which is interested in effort to reduce. The government has shown China’s energy and environment, particularly the strong commitment to CBM and CMM CBM/CMM industry. vii Acknowledgments This report presents the results of a study The team is indebted to Mr. Wu Yin, Mr. Wang undertaken by the Energy and Mining Yang and Mr. Zhao Weiguo from the National Development Sector Unit, East Asia and Pacific Development and Reform Commission (NDRC) Region of the World Bank, with financial support for their support and assistance. . from ESMAP The report was primarily prepared by Mr. David Creedy (independent consultant) The team benefited greatly from fruitful and Mr. Jianping Zhao, Energy and Mining discussions with many government officials, Development Sector Unit, East Asian and Pacific particularly from NDRC, the Ministry of Land and Region of the World Bank, with substantial inputs Resources, the Shanxi Provincial Development from Mr. Shenchu Huang and Mr. Wenge Liu of and Reform Commission (PDRC), Shanxi Finance China Coal Information Institute (CCII). Bureau, Jincheng Municipal Government, Shanxi Energy Enterprise Group as well as The team gratefully acknowledges the review and representatives of many mining groups together valuable comments of the four peer reviewers: with individuals from Sino Gas & Energy, BHP Mr. John Strongman, Adviser, Oil, Gas, Mining Billiton, Chevron, Fortune Oil Plc and Clear World and Chemical Department, The World Bank; Energy in the private sector. Mr. Masaki Takahashi, Senior Power Engineer, Energy and Water Department, The World Bank; The following World Bank staff also provided Mr. Ray Pilcher, President, Raven Ridge Resources advice, comments, inputs and support: Incorporated (Inc.); and Ms. Pamela Franklin, Mr. Robert Taylor, Mr. Charles Leva, Ms. Team Leader, Environmental Protection Agency Veronique Bishop, Mr. Bert Hofman and Mr. (EPA), U.S.A . Insightful comments and Chunxiang Zhang. Editorial, publication and suggestions were also provided by Ms. distribution support was provided by Ms. Dominique Lallement, Adviser, Energy and Water Marjorie K. Araya and Ms. Ananda Swaroop Department, The World Bank. from the ESMAP Communications Team. The Team is grateful for the support and guidance An international CBM/CMM forum was extended to this work by the management of organized by CCII on behalf of the State Coal the East Asia and Pacific Region’s Energy and Mine Safety Supervision Administration Mining Sector Development Unit, the China (SCMSSA) of China, The World Bank and Country Program and the World Bank’s EPA, U.S.A. Energy and Water Department. ix Units of Measure Bm3 Billion Cubic Meters (109) Bt Billion Tons C Carbon CH4 Methane C2H6 Ethane C3H8 Propane CH3OH Methanol CO2 Carbon Dioxide DME Di-Methyl Ether Gt Giga Ton (109 Tons) GJ Giga Joules (1012 Joules) GWh Giga Watt (s) Per Hour km Kilometer km2 Square Kilometer Kt Kilo Tonnes (100 Metric Tonnes) ktpa Thousand Tons Per Annum kW Kilo Watt (s) m Meter m3 Cubic Meter m3/t Meters Cubed Per Metric Tonne Mt Million Tons (106) Mtce Million Tons Coal Equivalent Mtpa Million Tons Per Annum MW Mega Watt (s) MWe MW Electricity MWh Mega Watt (s) Per Hour N Nitrogen N2O Nitrous Oxide PJ Peta Joules (1015 Joules) t Ton Tm3 Tera (Trillion) Meters Cubed (1012) Conversion Factors 66.4m3 Methane (NTP) equivalent to 1 ton CO2 C equivalent to CO2 equivalent, multiply by 3.6667. xi Acronyms and Abbreviations AACI Asian American Company Inc. ADB Asian Development Bank AMM Abandoned Mine Methane ARCO Atlantic Richfield Company (petroleum) ASEAN Association of South-East Asian Nations CAIT Climate Analysis Indicators Tool CBM Coal Bed Methane CCERC Clean Coal Engineering & Research Centre CCGA China Coal Geological Administration CCIA China Coal Industry Association CCII China Coal Information Institute* CCRI China Coal Research Institute CDM Clean Development Mechanism CERs Certified Emission Reductions CHP Combined Heat and Power CMM Coal Mine Methane CMOP Coalbed Methane Outreach Program (U.S.) CNCA China National Coal Association CNPC China National Petroleum Corporation CNG Compressed Natural Gas CSIRO Commonwealth Scientific Industrial Research Organisation (Australia) CUCBM China United Coalbed Methane Company Limited DNA Designated National Authority DTI Department of Trade and Industry (U.K.) * Now renamed National Institute for Occupational Safety (NIOS). xiii A STRATEGY FOR CBM AND CMM DEVELOPMENT AND UTILIZATION IN CHINA EB Executive Board EC European Commission ECBM Enhanced Coal Bed Methane EEG Erneverbare Energien Gesetz EPA Environmental Protection Agency ERI Energy Research Institute EU European Union FIs Financial Institutions FCO Foreign and Commonwealth Office (U.K.) GDP Gross Domestic Product GECs Gas Electricity Certificates (Australia) GEF Global Environment Fund GGAP Greenhouse Gas Abatement Programme (Australia) GHG Greenhouse Gas HSE Health and Safety Executive IGS Institute of Geological Survey Inc. Incorporated IPR Intellectual Property Rights IPCC Intergovernmental Panel on Climate Change JCAO Japan Coal Energy Center JMG Jincheng Mining Group JVs Joint Ventures KSOCM Key State-owned Coal Mine LNG Liquefied Natural Gas MA Mei Anquan (coal safety mark of approval) MDL Methane Drainage License MoLaR Ministry of Land and Resources MOST Ministry of Science and Technology MRI Mitsubishi Research Institute M2M Methane to Markets (Partnership) NAFTA North America Free Trade Agreement NCBP North China Bureau of Petroleum NCCCC National Communication on Climate Change of China NDRC National Development and Reform Commission NGACs New South Wales Greenhouse Gas Abatement Credits NSB National Statistics Bureau xiv ACRONYMS AND ABBREVIATIONS OEM Original Equipment Manufacturer PDRC Provincial Development and Reform Commission PEDL Petroleum Exploration and Development Licenses PSC Production-Sharing Contract PTC Production Tax Credit R&D Research and Development RE Renewable Energy RETs Renewable Energy Technologies SACMS State Administration of Coal Mine Safety SAWS State Administration of Work Safety SCMSSA State Coal Mine Safety Supervision Administration SCWSC State Council Work Safety Commission SETC State Economic and Trade Commission (now abolished at State level) SOCM State-owned Coal Mine (city or county government owned) SOE State-Owned Enterprise STIS Surface to in-seam (drilling) TVCM Town and Village Coal Mine UNDP United Nations Development Programme UNECE United Nations Economic Commission for Europe UNFCCC United Nations Framework Convention on Climate Change USEPA United States Environmental Protection Agency VAM Ventilation Air Methane VAT Value Added Tax VCBM Virgin Coalbed Methane WB World Bank xv Glossary of Terms Abandoned Mine Methane (AMM): gas applied to CH4 recovered from unmined coal produced from abandoned coal mine workings seams using surface boreholes. through abandoned mine entries and from boreholes drilled into underground roadways Coal Mine Methane (CMM): gas captured at or former workings. a working coal mine by underground CH4 drainage techniques. The gas consists of a AMM resources: the volumes of gas remaining mixture of CH4 and other hydrocarbons and in coal seams which have been destressed by water vapor. It is often diluted with air and mining and which could potentially be extracted associated oxidation products due to from abandoned mine workings. Reserves are unavoidable leakage of air into the gas drainage the volumes of gas expected to be recoverable boreholes or galleries through mining induced having taken account of groundwater recovery. fractures and also due to air leakage at imperfect joints in underground pipeline systems. Any gas Capture efficiency: the proportion of methane captured underground whether pre- or by volume captured in a methane drainage post-drained and any gas drained from surface system relative to the total quantity of gas goaf wells is included in this definition. released (comprising drained gas and gas Predrained CMM can be of high purity. emitted into the mine ventilation air) expressed as a percentage. Drainage efficiency can be CMM resources: the volumes of gas in coal determined for a single longwall panel or for a seams which will be released by planned whole mine. longwall extraction over the life of a mine. The technically recoverable CMM reserves are CBM resources: gas in place within all coal the volumes of usable gas which can be captured seams within a designated depth range at which by CH4 drainage systems and delivered to a the gas is potentially recoverable. utilization plant. CBM reserves: gas in coal seams which can be Goaf: broken, permeable ground where coal demonstrated as economically recoverable. has been extracted by longwall coal mining and the roof allowed to collapse thus fracturing Coal Bed Methane (CBM): a generic term for and destressing strata above and, to a lesser the CH4-rich gas naturally occurring in coal seams extent, below. typically comprising 80 percent to 95 percent CH4 with lower proportions of Ethane (CH2H6), Key State-Owned Mines (KSOCMs): coal Propane (C 3H 8), Nitrogen (N) and CO 2 mines formerly under the aegis of the Ministry depending on the coal rank. In common use, it is of Coal Industry of central government. xvii A STRATEGY FOR CBM AND CMM DEVELOPMENT AND UTILIZATION IN CHINA Ownership was transferred to provincial and potentially recoverable gas). regional governments on abolition of the Ministry of Coal Industry. Ventilation Air Methane (VAM): CH4 emitted from coal seams, which is not removed before CH4 drainage: methods for capturing the mining or captured, enters the ventilation air and naturally occurring gas in coal seams to prevent is exhausted from the ventilation shaft at a low it from entering mine airways. The gas can be concentration. Due to safety regulations, the removed from coal seams in advance of mining CH4 concentration is likely to be <0.8 percent in using predrainage techniques and from coal most instances. seams disturbed by the extraction process using postdrainage techniques. Virgin Coal Bed Methane (VCBM): CH4 rich gas recovered from coal seams which have not Natural gas: gas extracted from geological strata been disturbed by mining and which are not other than coal seams. Nevertheless, the gas could likely to be mined in the foreseeable future. This have originally migrated from coal seam sources. term is used to differentiate between surface CBM operations related to mining (CBM) and Technically recoverable gas: the estimated surface operations to produce gas for energy volume of gas that could be recovered using totally independent of coal mining, comparable available technology (sometimes termed to, in principle, with natural gas production. xviii Executive Summary Introduction pipeline infrastructure makes the United States an exceptional case which is not mirrored in The Government of China is planning to increase any other country. None of the other large significantly the development and use of CBM coal-producing countries of China, Russia, India and CMM to meet the growing demand for and South Africa have established significant primary energy sources, contribute to improve CBM production because of geological, the safety of mining operations and help to technology, infrastructure and investment achieve significant reductions in China’s barriers. Low financial margins compared with GHG emissions. conventional natural gas sources, preclude major commercial attention to CBM until China is short of clean energy, particularly strategic resources are in decline. In such cases, conventional natural gas. The proven per capital governments have provided specific incentives natural gas reserve is only 1/12th of the world to stimulate development as in the United States average. However, China has large CBM and Australia. resources with development potential which can be recovered from surface boreholes China’s CMM emissions are immense and are independent of mining and in advance of mining increasing. In 2004, the impact of China’s coal (CBM), and also captured as a part of output was the release of an estimated 18 Bm3 underground coal mining operations (CMM). of CH4 (271 Mt CO2 equivalent), almost 38 However, in order to meet its targets, the percent of China’s emissions of anthropogenic government must improve the administrative CH4. Its CMM emissions represent 43 percent framework for CBM resource management, of global CH4 released by coal mining and will introduce more effective CBM/CMM rise to more than 50 percent by 2020. The scale development incentives, raise the technical of the CMM problem facing China far exceeds capacity of the mining sector, expand gas that of the United States, the world’s second pipeline infrastructure and promote gas markets largest coal producer after China. The U.S. in coal mining areas. underground longwall production is only 14 percent of China’s 10 percent in terms of Most of the world’s production of CBM numbers of gassy mines, and vented CMM estimated at 60 Billion Cubic Meter (10) (Bm3)/ amounts to 25 percent of that in China. year is in the United States with lesser volumes produced in Australia, where gas prices are Total amounts of CMM released will increase by weaker, and rapid growth forecast for Canada more than 65 percent above the present level to satisfy the U.S. market. A unique combination by 2020 due to inevitable rise in coal production, of favorable geology, a mature gas market, but the increase in the volumes vented to the strong demand, good prices and well-developed atmosphere could be limited to a much lower xix A STRATEGY FOR CBM AND CMM DEVELOPMENT AND UTILIZATION IN CHINA rate by improving capture, utilization and utilization by identifying them as a priority in destruction of the gas at coal mines. This is a China’s Eleventh Five-Year Energy Development major challenge for China which requires Plan (2005-10). attention at the highest level of government, otherwise, the sustainability of the energy However, no new, specific implementation sector will be undermined. measures have been introduced. Financial and fiscal policies previously introduced to encourage Despite installing gas drainage systems development and utilization of CBM and CMM, in most of the large gassy mines, and have had limited impact as is evident from the constructing more than 60 CMM utilization slow progress. projects in the last decade, only about 10 percent of the total CH4 released from coal Enhancing control and utilization of CMM is the mines in China in 2004 was captured. Of the cornerstone of the central government’s strategy total CMM released, only 4.3 percent was to improve coal mine safety and an utilized and the emissions thus avoided. interministerial coordination and guidance group Coal mines are draining increasing volumes has been established to set objectives and of CMM from underground, but utilization of provide oversight. the gas is not increasing at the same rate. Ambitious targets for CMM drainage quantities, Most of the CMM of usable quality is already drainage efficiency and utilization have been set. being exploited as a large, and probably By 2010, capture efficiency should reach increasing proportion of drained CH4 is of too 50 percent, the CH4 extraction volume 10 Bm3 low a quality to use safely and is vented. CMM and the total gas utilization in China should which is drained and surplus to use is also exceed 5 Bm3. Achieving these targets will be vented as flaring is not actively encouraged challenging. For example, major government by the government in contrast to New South programs to improve the environmental Wales, Australia, where a more stringent performance of the coal mining sector in the environmental protection regime has been United States resulted in whole mine gas established and venting of drained gas is not drainage efficiencies increasing from 32 percent permitted and must be flared. in 1990 to 42 percent in 2003. However, with There are large numbers of mines in China the support of government and international which release CH4 into the ventilation air but agencies, implementation of new policies, where gas quantities are insufficient to justify investment in new technologies, and setting installation and operation of CH4 drainage emission reduction as the primary goal, the systems. In 2004, 15 Mt CO2 equivalent of target for utilization, including destruction of unused drained CH 4 was vented into the CH 4, will be approachable by 2010, but atmosphere in China together with a massive failure to act will limit the potentially usable 244 Mt CO2 equivalent of CH4 exhausted at low CMM to just over 1 Bm3. concentration in Ventilation Air Methane (VAM) The government is committed to reducing GHG in 2004. VAM emissions will rise to 271 Mt CO2 emissions, including CMM, and fully supports the by 2010 unless action is taken to capture and Clean Development Mechanism (CDM) process, use more gas and also to tackle the problem of but has yet to develop detailed climate removing CH4 from ventilation air. change policy. Government aims and targets At present, there is no reliable sectorwide The government has shown its strong inventory of CMM emissions, there is no commitment to CBM and CMM development and incentive to encourage large-scale use and xx EXECUTIVE SUMMARY destruction of CMM, and the effectiveness of the foreign technical assistance and founded the CDM process as a market-based instrument to China United Coalbed Methane Company drive change is being limited by government Limited (CUCBM) in 1995 with the sole right to rules which do not allow revenue-sharing and form foreign cooperative CBM ventures. CUCBM participation of Joint Ventures (JVs) with foreign subsequently attracted more than US$150 majority ownership. million of foreign investment, but many of the choice exploration prospects were denied The government recognizes the potential to foreign JVs. Although more than 400 importance of CBM as a valuable energy resource exploration and pilot CBM wells have been and has set ambitious development targets. drilled since 1995, little commercial production has been achieved, current utilization projects The aim was to produce 3-4 Bm3/year by 2005 being largely demonstration. increasing to 10 Bm3 by 2010 and doubling by 2015, but these projections were too optimistic New drilling technologies are being introduced due to the vast drilling resource which would from the United States and Australia which will have been required and the limited number of allow the exploitation of low permeability coal favorable sites. By 2010, about 1.8 Bm3 could than could previously achieve commercial be produced annually and success with Surface production. However, CBM development will To In-Seam (drilling) (STIS) technologies could remain slow and concentrated in only a few perhaps increase this to 3.6 Bm3 or more. geologically favorable areas with market access A high proportion of the surface CBM unless the processes for obtaining rights are production in China in 2010 will probably be made more open, competitive and transparent, concentrated within Shanxi province where the and the large gas resources tied into existing geological conditions appear to be among the excessively long-term coal mining leases and are most favorable in China; there are large CBM separated and released. Lessons can be learned resources and provincial government policy is from Australia and the United Kingdom in to expand its exploitation to increase clean managing the regulatory issues and overlap with energy supply. mining activities. Current status of CBM/CMM A large increase in the quantity of CMM drained from KSOCMs has been achieved from 100 Mm3 The estimated CBM resources in China Tera in 1950 when the technology was first (Trillion) Meters Cubed (1012) at 300 Meter (m) introduced to 1.8 Bm 3 in 2004 – possibly -2,000 m below the surface of 31.5 (Tm3) are reaching 2.2 Bm3 by the end of 2006. Gas comparable with the total estimated resources utilization has also increased with some 700 Mm3 of 38 Tm3 for conventional natural gas, but the being used in 2004. Gas availability is increasing economically recoverable reserves of CBM are but improvements are needed. much lower due to geological, technological, market, regulatory and institutional constraints. Nearly 206 out of 621 KSOCMs now have CMM drainage systems, but average CH4 capture Surface CBM exploration and drilling started in efficiencies are only 23-26 percent. Growing the early 80s in China but little success was concerns about continuing mining accidents in achieved until 1996, when a pilot well field was China led the State Council to allocate US$265 developed as part of a United Nations million for expenditure in 2004 to help improve Development Programme/Global Environment coal mine safety, particularly by installing gas Fund (UNDP/GEF) capacity-building project. drainage and gas monitoring systems, and The government recognized the need for enhancing existing systems. The potential xxi A STRATEGY FOR CBM AND CMM DEVELOPMENT AND UTILIZATION IN CHINA recoverable CMM reserves have thus been pipeline gas unable to satisfy the shortfall. increased. Installation of more gas drainage Greater use of CBM/CMM will reduce the systems, enhancement of existing systems, quantity of expensive Liquefied Natural Gas increased mining depth, and adoption of gas (LNG) imports. drainage techniques by merged, expanded and The estimated combined availability of CBM new local community-owned and private and CMM for utilization in 2010 is 5 Bm3 longwall mines means the volume of CMM equivalent to 179.5 PJ compared with a available for use will continue to rise over the projected natural gas demand of 3,570 next few years. However, poor gas drainage PJ. The expected CMM capture only represents standards, lack of investment in CMM utilization 15 percent of the total estimated gas release projects and grid access difficulty by from coal mines so there is substantial scope CMM-fired power generation means that too for increase. The CBM/CMM industry, little of this gas is of usable standard or is therefore, has potential for scaling up and being used, and GHG emissions from coal continued growth over a period of years. mines are rising annually. CMM is used widely in some coal mining areas Coal mines continue to emit gas after coal where it is distributed via pipelines to mining extraction has ceased. Abandoned Mine communities and neighboring cities for domestic Methane (AMM) extraction schemes have use, some is also used in colliery boilers and for proved a commercial success in many European small-scale power generation. About 90 MW countries, but no major AMM sites have been Electricity (MWe) of CMM power generation identified in China as mined out areas are equipment has been installed at KSOCM, generally less extensive than in Europe, and most and a further 150 MWe is planned or under mines flood quickly after closure. However, prior construction. Some gassy, local government and to closure of large mines in China, especially privately-owned mines are also installing gas where dewatering will be continued to protect capture and utilization systems. Nevertheless, neighboring mines from water inrush risks, the utilization of drained mine gas in China the potential for extraction and use of the gas remains low with more than half of the total should be examined. gas extracted released directly into the atmosphere. CBM/CMM utilization Commercial production and exploitation Coal in China is substantially cheaper than of the gas extracted from surface natural gas but great efforts are being made to CBM boreholes is limited to a few sites reduce coal-burning in cities and introduce more where gas is compressed and transported clean energy to improve air quality. CBM/CMM by truck to city consumers, used for small-scale can play an important role. power generation or piped a short distance to consumers. LNG is being investigated as an An estimated annual gas consumption of alternative to Compressed Natural Gas (CNG) 800-900 PJ/year in China is expected to grow Technology, and also gas-to-liquids chemical to 3,570 PJ by 2010. Natural gas transmission conversion technologies. infrastructure is being developed to serve major A lack of pipeline infrastructure, the immature cities, but there will be large local markets for gas market and the underdeveloped economy CBM. The demand for natural gas is expected of CH4-intensive areas are three major factors to reach 120 Bm3 by 2010 and 200 Bm3 by which need to be addressed in developing 2020. By then, the shortage in natural gas will China’s CBM and CMM utilization industry, and be 40 Bm3 and 80 Bm3, respectively, with Russian to attract the necessary investment. xxii EXECUTIVE SUMMARY Barriers Drained CH4 concentrations in Chinese coal mines tend to be highly variable and Improvement is hindered by institutional, legal purities of 10 percent and less are not and regulatory barriers together with technical unusual. At too many mines, drained CH4 and technology barriers. concentrations are below the prescribed legal safe minimum for utilization of 30 percent. The legal framework currently applicable to CBM The problem of maintaining CH4 purity is a and CMM exploitation is nonspecific, and is significant factor in finding CMM markets and encompassed by the state’s coal and mineral optimizing use. Poor CH 4 quality is often resources laws and petroleum production traceable to use of drainage methods regulations. The Ministry of Land and Resources which do not match the mining and geological (MoLaR) is revising its minerals allocation methods conditions and poor housekeeping and replacing them with more transparent bidding underground – poor sealing of drainage and auction procedures, but this reform has not boreholes from air ingress, inadequate drilling yet extended to CBM licensing and the processes equipment, leaking gas transport for allocating CBM exploration blocks still lack infrastructure in the mine, a lack of technical transparency and competition. knowledge of gas emission and control processes and ineffective management. Some CBM and CMM management suffers from the KSOCMs are looking for methods for utilizing dispersion of responsibilities between various low concentration gas rather than addressing organizations and departments after the the inadequacies of their drainage systems. Ministry of Coal Industry was abolished in 1998, Such a response is counter productive to the and CBM and CMM have not featured as improvement of mine safety and to the significant administrative issues in subsequent maximization of CH4 capture and utilization. coal mining sector reforms. Development and use of CMM is an “encouraged