By Hepeng Jia/Beijing, China

The world's largest coalbed methane (CBM)-based power station kicked off in China in early July, together with the country's largest CBM exploration project. The development of the promising sector is, however, still plagued by legal and technical barriers.

With an investment of US$98 million, the Ganghua CBM gasification project in Jincheng in coal-rich Shanxi Province, celebrated the completion of phase I construction and the launch for phase II on 6 July. 

The project was jointly developed by Hong Kong-based Towngas and local mining firm Jincheng Coal Mining Group. Meanwhile, the two companies' 120 megawatt CBM-based Sihe Power Plant also began to supply power to local residents. In March, the power plant was successfully registered as a CDM (Clean Development Mechanism) project, receiving cash from the World Bank.

Alternative energy

CBM has long been a major killer gas, killing thousands of people in mine accidents across China. In 2008, 778 lives were lost due to poisoning and explosions from the gas. Previously, CBM was pumped out and released to the air before coal mines were explored.

But the killer gas is also a good untapped energy resource. 

According to estimates from the National Development and Reform Commission (NDRC), China's CBM reserves could be as much as 36 trillion cubic metres, more than 10 times the country's proved reserves of conventional natural gas, which was found to be 2.4 trillion cubic metres in 2006.

Utilising CBM could not only reduce accidents and bring extra cash to mining firms, but slash the emission of greenhouse gas methane into the atmosphere. 

Policy boosts

A series of moves have been made to further develop the CBM industry in China.

In January 2007, the country allowed CBM producers to enjoy a full rebate of the 17 per-cent value-added tax.

The policy was boosted in November 2007, when the government loosened its previous restrictive policies on foreign investors who had been asked to form joint ventures only with China United Coalbed Methane Co Ltd (CUCBM). Under the new rule, foreign investors could cooperate with State-owned conglomerates to explore the CBM business in China, including PetroChina, Sinopec, and Shenhua Group.

Since its debut in 2008, the National Energy Administration has issued a series of beneficial measures, ranging from research funding to technical supports.

The policy boosts play a role. In May, PetroChina announced that it was investing 1.58 billion yuan (US$232.5 million) over two years to tap CBM in the city of Hancheng in Shaanxi Province, providing a daily gas supply of 200,000 cubic metres to local residents.

International energy giants like Shell also moved in. In December 2007, the company bought a controlling stake in a 30-year production-sharing CBM project, originally operated between American firm Verona Development and CUCBM.

Barriers remain 

Despite substantial potential and preferential policies, China's CBM output was estimated at just 5 billion cubic metres in 2008, only 7 per cent of its natural gas production.

Wu Jinhu, a senior researcher at Taiyuan-based Institute of Coal Chemistry, the Chinese Academy of Sciences, says the technological difficulty is to collect enough CBM to meet the threshold of economical utilisation.

What's more, 'the CBM development attempt has been blocked by the separation between coal mining firms and CBM developers like CUCBM, PetroChina and Sinopec,' Wu told Chemistry World. 'Mining firms have the resources, but lack the capital and equipment owned by the [CBM developers].'

In the high-profile Ganghua case, Jincheng Coal Mining Group was able to access the market through its cooperation with Towngas. Outside the joint venture, Jincheng Group cannot make similar efforts despite the group's repeated protests.

So far, there are few similar partnerships between mining firms and CBM developers in China. 

'A major difficulty is that CBM exploration enjoys favourable tax rates while coal mines do not. But it is often very difficult to distinguish between the two if the mining firm is given permission for CBM exploration,' says Luo Zuoxian, a research fellow at the Exploration and Production Research Institute of Sinopec.

NDRC has repeatedly released circulars forbidding coal mine exploration in the name of developing CBM.

In addition, the authority to approve CBM belongs to the Ministry of Land and Resources, while coal mine exploration has to be approved by provincial governments.

'Now, small scale exploration makes CBM utilisation profitless. And the products based on it, such as electricity and heat, are often refused by downstream users like power grids due to their high costs,' Luo told Chemistry World.

Looking into the future

To solve the dilemma, a market that breaks the barriers between different sectors is needed, Luo says.

To bet on large scale application of CBM in the beginning is not technically realistic, according to Wu. He suggested CBM could first be used to supply power and heat within coal mine areas and for small coal chemical projects.

A study led by Wu found that CBM mixed with water could be an important source for coal chemicals. As methane has a higher hydrogen content than water, this technology could be used to save water in coal chemical processing.

'Only with diversified use in accordance with local situations, can the clean energy be effectively tapped to meet our demands,' Wu says.