CBM Opportunity Emerges as Natural Gas in Short Supply

By Guo Yi, Natural Gas Development Strategy Research Center, Hefei University of Technology

China’s import volume of natural gas was about 950 million cubic meters in 2006, equaling about 1.62% of the domestic output of natural gas in the same year. By 2010, the import volume had soared to about 16.61 billion cubic meters, accounting for 15.70% of domestic natural gas consumption and equaling 17.58% of the domestic output in the same year. The output, consumption and import volume of China’s natural gas from 2006 to 2010 are shown in Table 1.

Table 1 Output, consumption and import volume of natural gas in China (million cubic meters)
Year    Output    Consumption    Imports of nature gas    Import volume    Import-to-output ratio
2006    58553    56141    950    1.62%
2007    67736    70520    4020    5.93%
2008    77050    81290    4600    5.97%
2009    84310    89520    7630    9.05%
2010    94480    105810    16610    17.58%

   Between 2011 and 2020, the gap between supply and demand of natural gas in China is expected to widen rapidly, as shown in Table 2. The gap-to-output ratio was 26.82% in 2011, while it will reach 46.24% in 2015, 50.46% in 2016, 60.84% in 2018 and 71.32% in 2020.
   The huge gap between supply and demand of China’s natural gas from 2011 to 2020 will not only provide a continuously growing market for foreign natural gas but also develop a sufficient users to support the exploration and utilization of China’s coal-bed methane (CBM) reserves.

I. Prominent advantages of CBM development and utilization

a. Abundant reserves. China’s CBM reserves at the depth of 0 - 2 000 meters are about 36.8 trillion cubic meters. This figure is close to the amount of natural gas reserves, which is 38 trillion cubic meters. Abundant reserves indicate that the development and utilization of CBM have a bright future.
b. Low exploration risk. Natural gas exploration has a relatively high risk, especially in its early stages. The success rate of oil and gas exploration in the East China Sea is nearly 70%, which can be considered a great achievement in the natural gas industry. But for CBM exploration, to achieve a success rate of 70% is not so hard.
c. Fast development. In 2011, the output of CBM increased 54.06% year-on-year, while that of natural gas increased only 12.1 year-on-year. The CBM industry has become the fastest-growing energy industry.
d. Reserves located mainly in central China. Unlike natural gas reserves, whose locations are far away from major consumption markets, CBM resources are mainly located in central China, close to users. Therefore, CBM resources have an obvious location advantage.
e. Strong policy support. The development of CBM can enjoy many policy privileges such as VAT refund and financial subsidies because it not only supplies clean energy but also reduces the risk of coal mines.

II. Status quo of China's CBM production

Trial exploration and development of CBM have been carried out in several provinces such as Shanxi, Shaanxi, Henan, Anhui, Liaoning and Guizhou since the 1990s. From 2005 to 2010, China launched the construction of two industrial bases – one in the Qinshui Basin and the other in the eastern edge of the Ordos Basin – to implement the high-tech industrialization demonstration project of CBM development and utilization. The total LNG processing capacity constructed in the two bases is 2 million cubic meters per day. Several long-distance pipelines including the Duanshi-Boai line were built for CBM transmission. Now, large-scale commercial development of CBM has been preliminarily achieved, and an integrated industrial structure including CBM exploration, development, production, transmission, sales and consumption has been formed. As of the end of 2010, there are over 5 400 CBM wells across China with a total capacity of 2.5 billion cubic meters per annum and a total output of 1.557 billion cubic meters per annum. The CBM output of China United Coalbed Methane Co., Ltd (CUCM) was 250 million cubic meters in 2011. New CBM reserves found between 2006 and 2010 amount to 220 billion cubic meters, a 193% increase compared to the period between 2001 and 2005.
   In 2010, the domestic gas drainage volume was 7.6 billion cubic meters, a 230% increase compared to 2005; the CBM utilization volume reached 2.4 billion cubic meters, a 400% increase compared to 2005.

III. Perspective of China's CBM industry

From 2011 to 2015, technological problems in CBM development will be tackled faster and the scale of CBM production and utilization will be expanded in China based on the current two industrial bases in the Qinshui Basin and the eastern edge of the Ordos Basin. By 2015, domestic CBM output will reach 21.5 billion cubic meters per annum, of which 9 to 10 billion cubic meters per annum from surface wells and 12 to 13 billion cubic meters per annum will come from coal mines; the utilization rate of CBM that exists in coal mines will exceed 60%; installed capacity of CBM power generation will exceed 3 MW; newly proven CBM geological reserves will reach 850 billion cubic meters; thirteen pipelines with a total length of 2121 km and a total transmission capacity of 18 billion cubic meters per annum will be built in the Qinshui Basin, the Ordos Basin and northern regions of Henan province. Meanwhile, CBM production capacity of CUCM is expected to reach 4 to 5 billion cubic meters per annum, and its output will reach about 4 billion cubic meters per annum. The overall commercialization rate of CBM will reach about 95%.

IV. Suggestions

* Accelerate construction of the Qinshui-South Pipeline and develop CBM pipeline networks
According to the 11th Five-Year Plan on CBM Development and Utilization, CBM will be used mainly in central China, i.e. the Central Plains Economic Zone. The feasibility research report is finished for the Qinshui-South Pipeline of Henan Sichuan-East Natural Gas Co., Ltd. This 844-km-long pipeline, which has a total investment of RMB 5 billion and a transmission capacity of 4 billion cubic meters per annum, starts in the Qinshui Basin in the north, passes by Luoyang, Danjiangkou Reservoir, Xiangfan, Yueyang and Changsha, and extends southward to Shenzhen and the Pearl River Delta. As the backbone of the CBM pipeline network, the Qinshui-South Pipeline will provide the most important infrastructure support for the exploration and market development of CBM.
*Strengthen efforts to provide policy support and government funding
*Provide more fiscal policy support
*Establish CBM development fund
*Establish centrally administered SOEs for the CBM industry
* Develop carbon dioxide capture technology

Table 2 The expected supply/demand status of China's natural gas from 2011 to 2020 (million cubic meters)
Year    Demand    Output    Gap between supply and demand    Gap    Gap-to-output ratio
2011    121722    103315    27705    26.82%
2012    140337    114031    36569    32.07%
2013    160224    125364    46143    36.81%
2014    181759    137320    56798    41.36%
2015    205715    149900    69306    46.24%
2016    230715    163098    82296    50.46%
2017    261033    176918    100037    56.54%
2018    290541    191353    116410    60.84%
2019    326734    206415    138896    67.29%
2020    360497    222095    158390    71.32%