Sam Dodson reports on some of the challenges and obstacles facing the growing Chinese coalbed methane sector, as the country looks to reduce reliance on coal.
China, increasingly keen to be seen as making strides towards lower carbon emissions and cleaner energy use, has seen sustained efforts from Beijing to try and make gas production – particularly from coalbed methane (CBM) – financially attractive to investors.
Yet the CBM industry in China has been slower to rise than government officials would perhaps like. A recent article in the New York Times noted that there were numerous practical challenges facing CBM project operators, such as flooded subterranean coal seams, as well as the coal seams being “so cold that gels injected into the wells, which are meant to help release the gas, sometimes become gummy and block the flow instead”. Meanwhile, workers and drilling rig operators must be careful not to hit tunnels and other mine workings of active coal mines, which are often present in places where CBM operations are taking place.
One CBM drilling rig foreman, Jin, said: “The big uncertainty is what’s underground — if there’s a tunnel, that’s a big danger. It would be dangerous for the miners.”
According to the latest data, China’s natural gas production is growing at a slower pace than its decelerating economy – increasing 6% in 2013 and 4.4% in 2012.
The difficulties for the Chinese gas production industry had been predicted, to an extent, by some onlookers. For example, The Guardian noted that tapping into the country’s unconventional gas resources “will be expensive and difficult for a country that is desperately short of water and – until recently – lacking experience in the key technologies.”
Chinese shale gas production fell so far short of expectations that the Asian behemoth quickly turned to CBM. Wu Xinxiong, director of the Chinese National Energy Administration, said that the country’s domestic natural gas production target for 2020 was 30 billion m3 for CBM. The industry must now work hard to ensure this figure is met.
Natural gas from CBM operations may well be needed to offset closures of some coal-fired power plants by the end of 2014. Four coal plants are set to be replaced by gas-fired power plants as the country continues on its mission to reduce air pollution.
Increasing reliance on CBM
CBM may well find itself relied on increasingly by China, as the country looks to offset its coal dependence. The New York Times notes that China’s nuclear programme “slowed after Japan’s triple meltdown in Fukushima”, while efforts “to expand hydroelectric power have run into environmental concerns, as well as the huge cost of resettling people from areas flooded when dams are build to make artificial lakes”.
In short, the Chinese CBM industry must step into the breach.
Yet CBM operators are faced with challenges from coal mine managers and operators, who oppose CBM production nearby to their mines, fearing that the activity might displace gas to their mineshafts and tunnels – which could potentially lead to dangerous explosions.
There have even be inner-industry disputed between CBM companies, which threaten the viability of projects. For example, over the summer contriversy flared up around a CBM production sharing contract between TerraWest Energy Corp. and China National Petroleum Corp.
TerraWest Energy has declared a dispute with CNPC in relation to its Liuhuanggou CBM PSC in China. The company has cited breaches of the PSC on behalf of CNPC, including the breakdown in the relationship between the two companies, as well as the reduction of the CBM exploration area as previously reported and the scale of ongoing coal mining activities. TerraWest also claim the CBM project is no longer financially or operationally viable.
The CBM PSC at Liuhuanggou covered an area of 653.718 km2. However, TeraWest has now taken actions to terminate the PSC, potentially bringing an end to any potential CBM project in the area.
Chinese Government steps in
The Chinese government has, for its part, looked to find negotiated solutions between parties when disputes occur. The government negotiated with mine operators and villages in Shouyang, 220 miles southwest of Beijing, to authorise a large CBM project, led by Far East Energy Corp., which is based in Houston. Michael R. McElwrath, chief executive of Far East Energy, said he believed the project would improve coal field safety by removing explosive gas from subterranean seams.
Far East Energy has, for its part, stepped up CBM operations in China – announcing in July that CBM gas production from the Shouyang block averaged 1.91 million ft3/day.
However, as noted in the New York Times, the company benefits from the fact that the Shouyang coal field has fairly permeable coal, which allows gas to flow underground. McElwrath believes that further discoveries are needed of permeable coal, otherwise the CBM “industry will not take off”.
Work in progress
As the Chinese CBM industry looks to meet its target production of 30 billion m3 in six years time, industry players perhaps first need to acknowledge the differences between projects in China compared to say the US and Australia – where the CBM industry is far more developed.
Chinese CBM operators sometimes must make use of equipment and technology not seen for decades, while worker knowledge is also not necessarily as extensive as that of workers in more developed CBM industries.
Robert Hockert, China country manager for Far East Energy, explained the simple fact that Chinese operators must understand before tackling the challenges and obstacles facing the industry: “you’ve got to work at it”.
Written by Sam Dodson
Read the article online at: https://www.worldcoal.com/cbm/22082014/cbm-in-china-special-report-cbm100/