Energy and Environment Programme 中国-欧盟能源环境项目 Feasibility Study of Coal Bed Methane Production in China (EuropeAid/120723/D/SV/CN) China University of Petroleum, Beijing March 2008 Project Name Feasibility Study of Coal Bed Methane Production in China Project No. EuropeAid/120723/D/SV/CN Contracting Authority EU-China Energy and Environment Programme Project Manager Bert Bekker Wang Shenghui Consultant China University of Petroleum, Beijing Team Leader Luo Dongkun Key Experts Luo Dongkun Wu Xiaodong Zhang Baosheng Li Gensheng Other Experts Chu Wangtao Sun Xudong Haohong Li Weichao Peng Xianqiang Xia Liangyu Other Participators Xi Changfeng Chen Yongguang Li Lisong Guoyi Li Changzhuo Shijin Guo Jianhai Zhang Fengxi Fangxiang Tongyan Pingyang Research Period 25 June 2007 to 25 March 2008 Preface This report is a very special, if not, unique report, in that it represents the results of a very comprehensive study and survey of all prospective Coal Bed Methane (CBM) production sites in China. As far as we can ascertain, this is the first time that on such an unprecedented scale, prospective CBM sites have been investigated in terms of their geological structure, gas production possibilities, exploration and production costs, suitability of various drilling techniques, remoteness from markets, overall economy and impact on society. This also included taking a view on fiscal policies and incentives from the Government. In this respect, the most outstanding product of this study is that the study has been able to identify the most attractive sites for CBM production in China and, in fact, make a ranking in terms of overall attractiveness and the amount of any subsidy required to make CBM production feasible. The report also shows that any such subsidy is recovered quickly from the benefits that that CBM production brings for China. The study is not limited to China. In fact, a great deal of the research has been aimed at finding the most productive CBM sites in the world, understanding why they are so productive and drawing lessons therefrom for application in China, as far as conditions in China would allow. In order to understand why foreign sites have been successful in CBM production, it was necessary to delve into the geological characteristics of foreign sites (as far as available), the drilling and production technologies applied, the infrastructures available and any fiscal policies that the corresponding foreign (local) Governments would apply to foster the development and expansion of CBM production. Given the above, it was only natural that the study also embarked on a technological and financial comparison of various CBM drilling technologies as well as a study into historical and still existing bottlenecks in the development of CBM prospects in China. In a market driven economy, the question whether CBM production is feasible, is determined by economics. For all the sites studied, therefore, economic analyses have been made, bringing together all determining factors such as investment, exploration and production costs as well as remoteness from markets, the presence of infrastructure and fiscal policies, resulting in an overall assessment of a site’s “attractiveness for CBM production”. In all this, it goes without saying that this report is predominantly aimed at the Chinese Government in order to assist it in the decision making process related to the development of CBM production sites, as well as at any oil and gas companies that want to explore for and produce CBM. However, this report is also meant for all of those (students, experts and managers in related industries) who want to get a better understanding of CBM, CBM production and the factors that govern its feasibility. I Acknowledgements Although the project of The Feasibility Study of CBM Production in China is carried out by the China University of Petroleum, Beijing, this work would not have been possible without the contribution and support from others. In this respect we would like to mention: - The experts that have already been working on CBM before us and to whose research we are referring and whose results we are quoting in this report. Among these pioneers who initiated the CBM industry in China and to whom we are greatly indebted, we particularly like mention: Jie Mingxun, Li Jingming, Zhao Xianzheng, Liu Xianfa, Sun Maoyuan, Zhang Xinmin, Ye Jianping, Zhao Qingbo, Qin Yong, Wang Hongyan, Zhang Suian, Fan Zhiqiang, Zhang Fudong - Mr. Bert Bekker, EU Manager Natural Gas of the EU-China Energy Environment Programme to whom we are very grateful for his great support and assistance. Mr. Bekker’s friendly encouragement and professional guidance has accelerated the completion of the project, and has even influenced the direction of our future research. - Mr. Wang Shenghui, China Manager Natural Gas of the EU-China Energy Environment Programme to whom we are very grateful for his great hard work for the successful implementation and finish-up of the project with his excellent professional quality and diligent, pragmatic work style. - The Energy Bureau of the NDRC for its advice and support - PetroChina Research Institute of Petroleum Exploration and Development-Langfang and China United Coal Bed Methane Corp. Ltd. for their supports. - The leaders and their related departments of the China University of Petroleum, Beijing for their encouragement and support. Project Team Feasibility Study of Coal Bed Methane Production in China China University of Petroleum, Beijing March 2008 II Project Introduction The EU-China Energy and Environment Programme Established by an agreement between the European Community and the Government of the People’ Republic of China signed on April 3rd, 2002, the EU-China Energy and Environment Programme (EEP) is a reflection of both sides’ desire to further strengthen EU-China cooperation in the energy sector. Within the above context, the overall purpose of the EEP is to promote “a sustainable use of energy, whereby Chinese energy users will have a secure energy supply at improved economic, social and environmental conditions, thus contributing to improved environmental quality and healthy conditions”. The EEP aims to achieve the following: z to foster the cooperation between Chinese and EU industries in China’s energy markets z to strengthen the security of energy supply in both China and Europe z to protect the global environment in line with international objectives (in particular in the context of climate change), and to ensure sustainable development The EEP is designed to support these overall strategic aims. Within this context, the EEP is represented by four components: z Energy Policy Development (EPD component) z Improving Energy Efficiency (EE component) z Increasing the use of Renewable Energy (RE component) z Increasing the use of Natural Gas (NG component) Feasibility Study of Coal Bed methane Feasibility Study of Coal Bed Methane in China is one of the projects which are funded by the EEP and whose research team has been selected by inviting public bids. The purpose of the program is to evaluate the technical and economic feasibility of CBM production in China. This project began on 25 June 2007 and ended on 25 March 2008 with total budget of €433,000. The project was managed by the NG component of EEP. The execution of the study was awarded to the China University of Petroleum, Beijing. Research Background The rapid economic growth in China has led to a tremendous increase in its energy consumption. As a net oil importer since 1993, China’s dependence on foreign oil supply has been rising continuously and reached 47% in 2007. The heavy dependence on the foreign oil III has brought about two challenges to the Chinese economic development: Firstly, the dramatic fluctuations of the international oil prices are impacting on China’s economic development; secondly, international political or economic events may lead to interruptions in China’s foreign oil supply, and as these have become so substantial, these events may have dire consequences for China’s economy, These two challenges are of national strategic importance, in the sense that they may impact the country’s destiny and even threaten its political and social stability. The increasing demand for energy combined with an insufficient domestic supply of crude oil and increasing dependence on international energy compel China to use energy sources other than of oil, such as coal, natural gas, nuclear energy, hydropower, wind power, solar energy and coal bed methane. Apart from coal, natural gas resources are most abundant but are used at a very low scale in China. However, as natural gas is a reliable, economic and, above all, clean energy source, it is expected that the exploration and production of natural gas will grow substantially in the near future. The development of nuclear energy is still in its initial stages. As it will take a long time and massive investments to develop nuclear energy, it is unlikely that it will play a dominant role in near future. Hydroelectricity is a clean source of energy, but the construction time is long and the required investments are great, moreover its application may not be without environmental problems. Therefore, the application of hydroelectricity on a large scale also seems unlikely. Wind power, solar energy and coal bed methane gas are currently used in very limited amounts and these are therefore merely regarded as a supplementary source of energy. Thus, in order to support the economic development, the abundantly available coal has remained and will be the most important source of energy in China’s energy structure for the foreseeable future. China’s current production amounts to more than 2 billion tons per annum. China’s coal reserves, from energy sufficiency point of view, can meet the demands of its economic development. However, the rapid development of the coal industry and the enormous coal production has caused serious social and environmental problems.