CBM to play an increasingly important role in China’s gas supply

According to Wood Mackenzie’s Upstream Service report “China’s CBM industry on the lauchpad”, China’s coalbed methane (CBM) growth is currently slow but will make up one third of unconventional gas supply to the country in the long-term. This leaves room for emerging leader, PetroChina, to position itself either independently or with foreign partners as a player in the future of global unconventional gas.

Leslie Lie, upstream analyst for Wood Mackenzie and author of the report, says: “The industry has opened up to increased competition between state companies as both CUCBM and PetroChina plan to accelerate their CBM efforts. PetroChina sees unconventional gas as core to its portfolio and is seeking international partnerships to acquire the requisite technical expertise. We see PetroChina as the emerging leader, either independently or through partnerships with International Oil Companies (IOCs) in the next phase of CBM development, as it can leverage its dominant position in the gas business.”

China’s CBM progress so far has been gradual, not dramatic. Lie explains: ”[Wood Mackenzie’s] recent China Gas Multi-Client Study finds that CBM holds huge potential in meeting the country’s long-term gas supply needs, making up the second largest domestic unconventional gas supply to shale and accounting for 14% of total domestic supply by 2030. However, China will not meet the current 11^th Five-Year Plan target of 5 billion m³/year by 2010, as this year’s production of 120 million /day (mmcfd) will be less than 25% of the target.” Lie continues: ”The next 12^th Five-Year Plan (2011 - 2015) is likely to remain ambitious as CUCBM and PetroChina aim to fast track development within their working areas. It is unlikely that both state companies will meet their similar targets of 5 billion m³/year by 2015 and 10 billion m³/year by 2020.”

The major basins of Qinshui, Ordos and Junggar are believed to hold CBM resources of 664 trillion ft³, of which we estimate about 260 ft³ (40%) can be recovered. The largest uncertainty lies in the timing of its development and the investment needed to bring CBM to market. However, the cost of this supply, albeit higher than domestic conventional gas projects, would be lower than contracted oil-indexed gas imports.

Three key challenges impede near-term growth.

• A lack of pipeline access for CBM operators: PetroChina and Sinopec dominate onshore gas production and hold monopoly positions in transmission pipeline infrastructure, rarely yielding to third party access.
• A need for large scale investments to accelerate CBM exploration and prove up reserves.
• A need for basin-specific technology to address unique geological conditions in China implies the need for more advanced development techniques.

Lie says: “Foreign companies with skills honed in North American unconventional gas exploration and production will want to consider exporting their expertise to China based on their potential as a major player in the global unconventional gas business. China will require partnerships and technology in the initial phase of development, creating a window of opportunity for qualified foreign players. Their involvement is now publicly recognised by PetroChina and other companies as critical.”

The Chinese government is determined to stimulate domestic exploration and development to reduce reliance on oil-indexed imports, says Wood Mackenzie. Gas price reform will be a catalyst for change, as the government makes adjustments to reflect the reality of the country’s gas supply mix. With reforms in place, the economics of the CBM projects could attract major new investments and reduce the need for higher cost imports.

Lie summarises, ”While CBM is significant in meeting China’s unconventional supply, challenges stand in the way of near-term exponential growth. Meanwhile, PetroChina is positioning itself as a leader in the CBM industry and will seek to leverage IOC technical expertise and experience in order to secure a role in the global unconventional gas business.”

Read the article online at: https://www.worldcoal.com/coal/25082010/cbm_to_play_an_increasingly_important_role_in_china%E2%80%99s_gas_supply/