Beyond China’s Coal Fields: Expanding Its Gas Resources

In the primary half of 2006, China’s complete energy consumption reached 1.3 trillion kilowatt-hours, a rise of 12.89 per cent over the identical interval a 12 months in the past. But the nation solely generated 1.23 trillion kilowatt-hours throughout the first six months of this 12 months – a shortfall of 700 million kilowatt-hours. According to China Electricity Council Secretary-General Wang Yonggan, energy shortages will proceed to plague China, however he hopes they are going to considerably ease. At the start of 2005, twenty-five Chinese provinces suffered energy shortages. This had been diminished to 9 provinces this previous January, and just lately the variety of provinces struggling energy shortages had fallen to 4.

China relieved its widespread energy shortages over the previous six months due to its new energy stations, however officers insist the facility trade should attempt to scale back power consumption per unit of GDP by 20 % to adjust to the most recent five-year plan by 2010. Power deficits are nonetheless anticipated in East China, North China and a part of South China throughout peak summer season months although China spent greater than $9 billion within the first half of 2006 to enhance its energy transport capability.

But how will China proceed to gasoline its energy stations to allow them to generate electrical energy? Nearly 84 % of China’s energy is thermally fueled, largely by coal. China’s 30,000 coal mines produced greater than two billion tons in 2005. This isn’t more likely to be drastically diminished over the subsequent twenty years, however China is making an effort to use different assets. Drawing nearly 14 % of its power from hydroelectricity, the nation plans to dam up all 5 of Asia’s main rivers with the intention to preserve its turbines going. China has helped drive up the value of uranium with its plans to dramatically improve its nuclear power program.

Reducing the Coal Consumption Rate

Slowly, China is attempting to wean itself off coal. Over the primary six months of this 12 months, China diminished its coal consumption fee, as measured by kilowatt-hour, by lower than two % in comparison with the primary half of 2005. While China has acknowledged it plans to develop its hydro, nuclear and renewable power packages to extend their share {of electrical} energy manufacturing, the nation ambitiously hopes to greater than double the quantity of pure gasoline in its power combine. Currently offering slightly greater than three % of the power combine, the Chinese have typically introduced they need pure gasoline to offer eight % or extra, by the point the Eleventh Five Year Plan ends in 2010.

“It’s doable,” Phil Flynn of Alaron Trading Corp instructed us. “It’s going to be tough and very expensive, but I think they can reach that percentage.” However in February of this 12 months, the China Daily newspaper reported the majority of China’s gas-fired energy vegetation could possibly be closed down due to a pure gasoline scarcity. For instance, 4 gigawatts of put in capability weren’t utilized in Eastern China, within the latter a part of 2005, as a result of the nation couldn’t get hold of adequate gasoline provides to energy the vegetation. China’s National Development and Reform Commission plans to extend the nation’s gasoline energy capability to 30 gigawatts, however the head of China’s Electricity Council introduced that gasoline shortfalls would in all probability make this goal not possible to realize.

Husky Energy’s Recent Gas Discovery Spurs More Exploration Activity

It isn’t for lack of attempting. In June, Husky Energy introduced a deep gasoline discovery beneath the South China Sea, about 155 miles south of Hong Kong. The space had been deserted a long time earlier when shallower wells had come up dry. Fu Chengyu, Chairman of Husky’s Chinese accomplice China National Offshore Oil Corp (CNOOC) known as the gasoline discovery “a tremendous breakthrough for us.” The discover might reportedly comprise 3.5 trillion cubic ft of gasoline. Last week, Husky Energy and CNOOC signed three new production-sharing contracts to drill for oil and gasoline in deepwater blocks within the japanese and western South China Sea.

While Husky Energy could also be Calgary-based, it stays managed by Hong Kong billionaire Li Ka-shing. China’s large announcement in mid July invited the extra autonomous overseas oil corporations to discover in as many as 9 blocks in northwestern China. The goal is the Xinjian’s Tarim Basin, which has confirmed reserves of six billion tons of oil and eight trillion cubic meters of pure gasoline. Analysts heralded this as China’s largest step ahead in cooperating with main overseas oil and gasoline corporations since 1994. China is keen to maneuver these tasks additional with the intention to preserve its 2200-mile pure gasoline pipeline working at capability to provide its main coastal cities in japanese China.

Australian LNG Helping China’s Energy Mix

In late September, the town of Shenzhen, in China’s southern province of Guangdong, will start producing electrical energy powered by Australian gasoline. Northwest Shelf Australia LNG PTY plans to yearly ship over three million tons of Liquefied Natural Gas (LNG) for the subsequent 25 years. The LNG contract valued at $25 billion is Australia’s largest useful resource contract. It angered many Australians when CNOOC grew to become the primary overseas nation to personal a stake in Australia’s gasoline reserves. The gasoline had been allotted for home use in Australia. The deal entitled the Chinese agency to personal about 1.1 trillion cubic ft of gasoline and one other 210 million barrels of liquids of Western Australia’s gasoline venture. Because of earlier long-term contracts with Japan, China might not be capable of signal new gasoline offers with Australia till after 2010.

“Right, we see in the LNG (liquefied natural gas) business a kind of unprecedented situation: unprecedented demand from not only new emerging buyers China and India, but also the U.S.” China plans to construct over a dozen extra new LNG terminals alongside its southern coast just like the one in Guangdong province, which is able to serve cities within the Pearl River Delta, Hong Kong and energy vegetation within the Delta area. Several LNG tasks, underneath building or ready for approval, would influence Shanghai, Beijing and different multi-million inhabitants facilities. Despite the dimensions of this and different offers, it isn’t sufficient. “The actual demand is so big that neither onshore nor offshore gas or LNG will be able to meet the demand on its own, said Azfar Shaukat, director of Mott MacDonald Group’s oil and gas studies. “It needs to be a mixture of them.”

China’s Coalbed Methane Development

What can China do about its coal mines which drive the country’s electrical production? Although official figures are lower, as many as 6000 Chinese die in the country’s 30,000+ coal mines every year. More suffer from air pollution and black lung. By comparison in the United States, the American Lung Association estimates about 24,000 premature deaths are caused every year by air pollution from coal-fired power plants. About 40 percent of the emissions of carbon dioxide, which contribute to greenhouse gases and global warming, come from coal burning. Imagine how much larger a problem this has become for the Chinese?

Nonetheless, coal mining will stay with China for at least the entire 21st century. More uses from China’s coal mines could make these resources indispensable. Rising petroleum costs have forced China to move forward to convert coal to oil products. Thirty coal liquefaction projects are now in the detailed planning or feasibility study stage. The Chinese plan to spend more than $15 billion in order to produce 50 million tons of oil from coal liquefaction by 2020.

Chinese Premier Wen Jiabao, a former mining engineer, has been sympathetic to the plight of coal miners. New restrictions and regulations have increased the safety for coal miners. One of those upon which there is greater emphasis is capturing the methane from coal seams before the mining process begins. Methane gas in coal seams is the culprit behind widespread pollution and coal mining deaths. Nearly a decade ago, China United Coalbed Methane (CUCBM) was formed to capitalize upon the wasted methane released into the atmosphere during the mining process. Following the developments in New Mexico’s San Juan Basin and Wyoming’s Powder River Basin, the Chinese are determined to utilize the ‘unconventional gas,’ also known as coalbed methane (CBM) as an important energy source.

In early July, Jimmy Rogers told us, “Longer time period, pure gasoline manufacturing is declining in North America.” A few weeks later, in our interview with Sprott Asset Management CBM research analyst Eric Nuttall he echoed those remarks, saying, “North American pure gasoline manufacturing has been in decline for a number of years.” Nuttall added, “Most incremental manufacturing is coming from smaller, extra expensive-to-drill, thinner financial, increased decline swimming pools and reservoirs.” He pointed to CBM as where the action would be, “The development areas have largely been unconventional.” And that is where the Chinese may be headed in order to obtain additional gas reserves.

A researcher for China United Coalbed Methane (CUCBM) wrote, “By 2010 and 2020, the scarcity for the pure gasoline provide in China might be 30 billion to 40 billion cubic meters and 90 billion to 100 billion cubic meters respectively.” Professor Sun Maoyuan wrote on behalf of the CUCBM, “It is estimated that the coalbed methane useful resource is between 30 trillion and 35 trillion cubic meters, which is equal to the useful resource of pure gasoline. In China’s 13 main coal-bearing basins, 10 coal-bearing basins are situated in North China with 22.27 trillion cubic meters of coalbed methane useful resource, accounting for 68% of the entire coalbed methane useful resource in China.” He explained China’s goal was to reach 10 billion cubic meters by 2010 and double that goal five years later. He wrote, “It is estimated conservatively that coalbed methane will account for 20 – 25 % of the gasoline power.”

Since 1998, when CUCBM signed its first production-sharing contract (PSCs) with Texaco, nearly thirty such CBM concessions have been awarded. Major oil companies, and those with the closest connections to Chinese government officials, were the earliest awarded, such as Arco, Phillips, Greka and Australia’s Lowell oil. Smaller U.S. firms, such as Far Eastern Energy, were later invited to participate.

One Example: Pacific Asia China Energy

By 2005, Canadian public companies were awarded CBM concessions – the first Canadian publicly traded firm to obtain not one, but two, production-sharing contracts was Pacific Asia China Energy (TSX: PCE). This has worked out well for this young company. An evaluation by leading CBM appraisal firm, Sproule International of Calgary, assessed the “most certainly case” scenario for the company’s Guizhou property in southern China at 5.2 trillion cubic feet. Since then, the company has been drilling to confirm this estimate, and recently announced recent drill results “strongly correlate” with the independent technical report.

We asked the company’s vice president of exploration, Dr. David Marchioni about China’s view on CBM as part of the energy mix away from coal. He told us, “The central authorities is pushing arduous for CBM exploration and mine degasification, which is able to yield CBM. They have introduced a brand new formal coverage selling CBM and beginning research for brand spanking new gasoline pipelines.”

Has CBM registered on the radar screen yet? “CUCBM themselves is actively exploring,” Marchioni said. “And CUCBM has manufacturing at current, however at pretty low volumes.” Pacific Asia China Energy (PACE) may become an important test case, with its massive 970 kilometer square concession in south-central China’s Guizhou province, in which the company would earn 60 percent by funding the exploration and pilot program. Would this help China’s energy mix? “What would have influence is that if PACE or some other gamers may produce CBM at excessive volumes and that ‘it really works’ in an enormous manner,” Marchioni explained. “The technological studying from this and the information of success would encourage others.”

There are other reasons why a small company, such as PACE, would find enormous opportunity in China. “We wouldn’t be capable of afford a sizeable concession (like this) in Canada or the western world,” Steve Khan, executive vice president of the company told us. Our investigation showed a comparable CBM concession, to what PACE holds in China, could cost more than $100 million in one of Alberta’s prolific coalbed methane areas.

A concession this size is not something the Chinese government didn’t want. Nor is it far removed from a population center. Within a radius of 500 miles, there are in excess of 240 million people. “The development is so vital that any supply from power, together with CBM, is being secured by the Chinese authorities,” Khan said. “The uniqueness about PACE is that we’re not seeking to produce gasoline and promote it into the market. We can produce and promote it to the market which we’re in. Industrial shoppers there are wanting gasoline to run their factories. Many of them are in search of out corporations like us to contract for the safe supply of gasoline.”

One of the problems, which companies developing energy relationships in China face, is convincing investors to focus on the positive aspects of the country’s dramatic GDP growth and its insatiable asset to obtain sufficient energy to maintain this rate. “North Americans are rather less attuned to what’s occurring in China than the Europeans,” Khan explained. “When we go to the London fund managers, they take a look at this as a terrific alternative, and they’re investing extra funds into that a part of the world.”

Those who appear to be most eager in what PACE has are the Chinese. The company presented at a provincial coal symposium earlier this year. Because the national government has mandated the reclassification of existing coal areas before they can be mined, and because PACE has a joint venture with Mitchell Drilling of Australia, and their proprietary Dymaxion® drilling technology, one major door could open later this year. “We hope to have the ability to put in a pilot venture on a kind of coal mines,” Khan said. “The Chinese coal mines are very actively pursuing us to push that agenda ahead as a result of they’re in want of that reclassification.”


By 2010, it is a good wager China can have invested tens of billions to construct up its power portfolio. Many warn of a slowdown in early 2007, and it’d give a much-needed breather to China’s runaway development. Or this could be a quick pause in China’s exceptional transformation from an agricultural economic system into an industrial superpower. The United States had some fifteen depressions because the nation entered and handed by its personal Industrial Revolution. It wouldn’t be shocking if China skilled volatility throughout this vital five-year plan. Four years from now, China may very effectively avert its potential power disaster. In the in the meantime, this may suck up a substantial amount of the world’s power sources, or drive power costs to file highs. Nonetheless, it is going to be an thrilling and erratic interval whereas the remainder of the world watches China out-perform the remainder of the world’s economies.

COPYRIGHT © 2007 by InventoryInterview, Inc. ALL RIGHTS RESERVED.

Spread the love
Subscribe To Our Newsletter

Subscribe To Our Newsletter

Join our mailing list to receive the latest news and updates from our team.

You have Successfully Subscribed!