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CUCBM has been actively developing China’s coal bed methane industry by drawing upon the expertise, technology and capital of its foreign partners. “More high level technologies need to be deployed to ensure reliable power supplies,” Ma Songde, China’s vice minister of science and technology told Associated Press in late February. “By developing these technologies, we can resolve issues restricting growth and enhance growth.” China is actively seeking foreign investment and cooperation in power generation, particularly in clean energy.

As a light hydrocarbon, coal bed methane is among the cleanest sources of energy. Published reports show that China’s coal bed methane (CBM) resources, buried within a recoverable depth of 2000 meters, are estimated at approximately 36.81 trillion cubic meters. China has the world’s third largest CBM resource. Following behind the United States, it is the second country to have conducted large-scale field exploration of coal bed methane.

According to a March 9th article in People’s Daily, “China’s coal bed methane industry made important headway in 2005.” About 340 CBM wells were drilled across the country. That may not sound astonishing compared to the number of wells drilled in Canada, during the same year, which surpassed the 3,000 level for the first time. In that context, China remains nearly a virgin territory for CBM. CUCBM has been actively partnering with the world’s giant oil companies and others to explore their vast CMB reserves. In 1998, Texaco (now Chevron-Texaco) was the first to partner with CUCBM and resulted in geological studies, exploratory wells and development contracts.

Since then, CUCBM has been extremely selective in choosing its joint venture partners to develop the ultra-valuable Production Sharing Contracts (PSCs). After attracting oil majors such as Texaco and Conoco-Phillips, only a total of 26 Production Sharing Contracts have been awarded to foreign-owned companies. Total coverage of those contracts now extends about 34,000 square kilometers of China’s below surface coal basins. Foreign companies have investment more than $150 million in the contracted blocks. CUCBM hopes to ramp up coal bed methane output by 2010 to help meet the national gas growth target of 10 billion cubic meters.

Pacific Asia Energy Corporation’s CBM Contracts in China.

• The first Canadian publicly traded company awarded a Production Sharing Contract was Pacific Asia China Energy Inc (PACE), which holds the PSC through its wholly owned subsidiary, Asia Canada Energy Corp. Pacific Asia China Energy, which trades on Toronto’s Venture Exchange under the ticker symbol of PCE, also holds a second PSC through another wholly owned subsidiary China Canada Energy Corporation. It was the former which interested us, the company’s Guizhou Project in southern China.
• In talking with Dr. David Marchioni, one of Canada’s leading CBM geologists, he said of CUCBM, “The Chinese government doesn’t want to hand out resources to people who don’t do anything with them. They want them developed. They want to have gas. They want to have energy.” Dr. Marchioni helped co-author “An Assessment of Coalbed Methane Exploration Projects in Canada,” published by the Geological Survey of Canada. He is also president of Petro-Logic Services in Calgary, whose clients have included the Canadian divisions of Apache, BP, BHP, Burlington, Devon, El Paso Energy, and Phillips Petroleum, among others. He is also a director of Pacific Asia China Energy and is overseeing the company’s CBM exploration program in China.
• But what is the strategy here? If Alberta is now turning the corner and putting itself on the map as a serious CBM contender, why would one of Canada’s top CBM geologists get excited and pursue a property in southern China. “We got access to a huge resource for little money,” said Dr. Marchioni. “Instead of paying hundreds of millions for a concession this size, we paid a small fraction of that. Comparably, the project at Guizhou would have cost up to $200 million to acquire in Alberta.”

China needs to attract foreign capital, and may be generous up front, but did PACE buy a pig in the poke? We questioned him about the potential size of the resource. Marchioni responded, “The layman may think those are really big numbers, but you only have to look at the official reports. These are the numbers those guys think.” He was referring to the Sproule assessment of the resource, which offered a three-case scenario, starting at nearly 1 billion cubic feet and reaching the upper limit of more than 11 trillion cubic feet. Still, their assessment for a “most likely scenario” was a hefty 5.2 trillion cubic feet. Marchioni added, “They were numbers we originally thought we had, and they’ve been confirmed.”

• How big is big in this case? “I think we could fully support some large plant of some sort,” Marchioni explained. “This is more of a long-term thing where you would be looking at a major industrial development. You’d be looking to either have enough money yourself or you bring in partners to do things like liquefied natural gas or major gas-fired power station, liquefaction of coal.”
• Marchioni was quite excited about the CBM project in Guizhou, “These are all big projects, but the resource is there to support such a project. Because the resource is so huge, you could support a project like that. There also are a lot of potential industrial users for gas in the region.” China Daily reported South China, where the Guizhou province is located, is facing gas shortage problems because of the high energy demands of Guangdong province.