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1. Project Summary and Relationship to China's Agenda 21

This project is to catalyse the development and utilisation of CBM in China, to build a basis for the demonstration of development, to establish a database of national CBM resources and to evaluate these resources.

This project is based on programme areas 13C and 13D of Chinaís Agenda 21, and related to programme areas 8A, 17A and 18C.

2. Background

The main component of Coal Bed Methane (CBM) is methane (CH4). Each cubic meter of CBM can generate over 8,000 kc of heat. It may be used for city gas, electricity generation and for many types of chemical products. CBM resources in China are abundant. CBM reserves at a depth of less than 2,000 m below surface level total 35,000 billion m3, equivalent to 45 billion tons of standard coal. The amount is approximately equal to the volume of conventional natural gas reserves in China. Many coal-producing countries are paying increasing attention to CBM, primarily because it is a clean energy source. Although CBM resources in the USA are about one-third of China's, the development and utilisation of CBM has advanced rapidly in the USA; its annual production increased from 0.87 billion m3 in 1983 to 28.5 billion m3 in 1995, and a complete CBM industry has formed. Other major coal-producing countries, such as Australia, Russia and Poland, are also trying to develop CBM. The development of CBM has numerous benefits: it can contribute to improved mine safety; it can help reduce coal mine construction costs; to the extent that it replaces coal it greatly reduces the production of acid rain and other forms of air pollution. The two development and utilisation demonstration projects are located in the poor region of Shanxi province; the implementation of these projects will help promote the economic development of the region and eliminate poverty.

This project is included in the Ninth Five-Year Plan (1996-2000). The Ministry of Coal Industry (MOCI) formally proposed in 1994 that CBM be developed in a major way. Specifically, the development of CBM is one of the four long term strategic projects of the Ninth Five-Year Plan. It is hoped that a new energy industry based on CBM will partially replace coal and improve the structure of China's energy industry.

With the approval of the State Council, the Ministry of Geology & Mineral Resources (MGMR), MOCI and China National Petroleum Corporation (CNPC) jointly established China United CBM Corporation, Limited. This corporation has the exclusive right of international co-operation. As the foundation of China's CBM industry, it is inter-departmental and inter-regional, and brings the exploration, development, transportation, sales and utilisation of CBM under the control of one entity. The establishment of this corporation indicates that the development and utilisation of CBM in China will have entered a new era.

Some relevant divisions and units, including MOCI, MGMR and CNPC, have drilled a total of nearly 70 test wells and carried out CBM jointly or in co-operation projects with foreign companies in 16 blocks. Since 1992, China has received US$ 11.7 million financial aid from GEF funds under the UNDP for two CBM projects. One is the evaluation of shallow layer CBM resources, including 3 surface and underground demonstration gas-drainage programs. It has clarified the resource situations of 17 mining areas including Kailuan and Jincheng. The results have helped to established a CBM database and determined a set of important technical parameters. In addition, the project has tested and verified relevant CBM data. The other is an experimental program for deep CBM, which had preliminary success in the Liulin mining area. In addition, an international CBM conference was held in Beijing in October of 1995, which introduced the extremely huge development potential of CBM in China, the economic evaluation and investment opportunity of CBM development, the influence of CBM on the global environment, and allowed the exchange of CBM development and utilisation techniques. This conference attracted much domestic and international attention.

China has made progress in the development and evaluation of CBM: a group of technical and administrative personnel has been trained in surface CBM exploitation technologies; a CBM exploration and development team has been formed; equipment and software necessary for CBM exploration have been introduced. The foundation for carrying out pilot production of CBM on a large scale has been laid.

3. Objectives

3.1 Long-term Objective

The Ninth Five-Year Plan and Long-term Targets for the Year 2010 for the national economic and social development of China aims for national CBM production of over 10 billion m3 by the year 2010. The foundations of an advanced CBM industry will have been firmly established.

3.2 Immediate Objectives

• Development and application of advanced CBM prospecting methods, clarification of the structure and distribution of CBM resources, a comprehensive scientific evaluation of the resources;
• Study to develop the CBM exploitation technology appropriate for China's geological conditions, selection of two mining areas that are developing their potential for comprehensive industrial development and construction of CBM fields;
• Complete the feasibility report for developing CBM in a mining area with an existing industrial base for CBM exploitation.

4. Outputs and Activities

4.1 CBM resource evaluation of China

• Study the geological conditions, distribution characteristics and block division of China's CBM;
• Evaluate national CBM resources from data collected from CBM testing wells;
• Search for expert services, software support and financial help from abroad, establisha classification standard for CBM resources and reserves that fits with the geological conditions of China;
• Establish a CBM database for China covering geological conditions, areas, coal types and reservoir permeability.

Monitoring Indicators: a set of classification standards and CBM database

Implementing Agencies: China United CBM Co. Ltd., Xi'an branch of Coal Academy, Star Mining Co. and relevant mining administrations.

Time Schedule: January 1997 - December 1999

4.2 CBM development and utilisation demonstration at Panzhuang, Jincheng Coal Mining Administration of Shanxi

• On the site of the existing 3 pilot wells, drill another 3 wells for a pre-feasibility report for the whole project;
• Complete the gas-tapping experiment in 1997 and submit a feasibility report for developing CBM;
• Complete 20 production wells by the end of 1998 with daily production of each well averaging up to 3,500 m3 and daily total production reaching 70,000 m3;
• Build a CBM liquefaction plant with an annual capacity 4,000 tons by the end of 1998.

Monitoring Indicators: a feasibility report for developing CBM, construction of a CBM liquefaction plant.

Implementing Agencies: Jincheng Coal Mining Administration, China United CBM Co. Ltd.

Time Schedule: January 1997 - December 1998

4.3 CBM development and utilisation demonstration of Liulin, Shanxi.

• Using data collected from the 7 pilot wells, complete a feasibility report for the whole project;
• Complete the gas-tapping experiment in 1997 and submit a feasibility report on CBM development;
• Complete 14 production wells by the end of 1998, with daily production per well averaging up to 3,500 m3 and daily total production up to 49,000 m3;
• Build 28 km of gas pipelines to Lishi city and construct related facilities to supply city gas by the end of 1998.

Monitoring Indicators: submission of the feasibility report on developing CBM; complete gas pipeline project for supplying gas to Lishi.

Implementing Agencies: North China Bureau of Petroleum Geology of MGMR, China United CBM Co. Ltd.

Time Schedule: January 1997 - December 1998

4.4 Feasibility research on the development of CBM at Yonghong, Shanxi

• Study the geological conditions and distribution characteristics of the CBM;
• Drill 6 CBM testing wells to evaluate CBM resources;
• Complete a feasibility report on development of the CBM in the year 2000.

Monitoring Indicators: submission of the feasibility report on CBM development

Implementing Agencies: Huaxian Development Co. Ltd., Shanxi, Yonghong Coal Mine

Time Schedule: January 1997 - December 1999

5. Inputs

5.1 Chinese Inputs

Chinese inputs are mainly used for engineering and equipment costs of the demonstration programs, fees of Chinese experts, the training of technical personnel, and contingencies.

5.2 International Inputs

Funds to cover the costs of: inviting foreign experts and technical advisors; training abroad; engineering and equipment of foreign companies on CBM development programs; introducing advanced CBM testing apparatus from abroad.

5.3 Budget

The total capital needed for this project is US$ 29.20 million. The Chinese side will raise US$ 10.80 million from domestic sources, while foreign aid and investment will cover the other US$ 18.40 million.

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Table 1. Budget by Item (in million US dollars)

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Table 2. Budget by Output (in million US dollars)

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6. Benefits

This is a multi-disciplinary project that will bring China closer to the path of sustainable development. By the time it is completed, China's ability to find and develop this important source of efficient clean energy would be much improved. Once the two demonstration programs are put into production, the direct investment may be recouped within 4-5 years. The project will make a major contribution to reducing the risk of explosion in coal mines. In summary, the project has significant economic and social benefits.

7. Risks

In the course of organisation and enforcement of the project, it is possible that the money may not be in place as planned. This would certainly affect the schedule of the project. The organising agencies will make every effort to persuade related ministries and commissions for preferential policies such as tax relief to attract investments from various directions and successfully complete this project.

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