|Map of Coal Bed Methane Resources in China||China's Petroleum Industry|
|Offshore Oil and Gas Industry||China Gas|
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|ARCO and China United
Coalbed Methane Corp
Oil&Gas Journal July 6, 1998
Two ARCO units and China United Coalbed Methane Corp. (Cucmc) signed production-sharing contracts authorizing ARCO to evaluate commercial potential of three coalbed methane prospects in China's Shaanxi Province. The concessions cover 1,930 sq miles in the Hedong coal basin about 370 miles southwest of Beijing and are called Sanjiao, Sanjiao Bei, and Shilou. ARCO China Inc. and ARCO Ordos CBM Ltd. plan to begin an appraisal program this summer. Development would proceed if appraisal efforts are successful, with start-up possible by 2003. Gross development costs of the Phase 1 appraisal program are expected to total $52 million.
Shanxi China coalbed methane reaches turning point
Scott H. Stevens Advanced Resources International Inc. Arlington, Va. Oil&Gas Journal January 25, 1999
Phillips Petroleum Co. conducts wire line coring operations at the LXC-003 coalbed methane exploration well in Shanxi Province, China.
Whereas 1.1 tcf of coalbed methane (CBM) was produced in the U.S. during 1997, some 6% of total U.S. natural gas production, E&P efforts overseas have yet to achieve a major commercial success for this promising natural gas resource.
conventional natural gas production is small,
about 2.0 bcfd.
the past decade, China has promoted development
of its CBM resources. Over 100 test wells have been drilled by Chinese
and foreign operators in coal basins throughout eastern China. However,
most early efforts-clustered around gas-prone but low-permeability coal
mines-were not successful.
<>Challenges still face CBM developers in China, including complex reservoirs, restricted permeability, and few gas pipelines. But the upside includes favorable prices for clean-burning natural gas in China's growing cities, attractive resource concentrations, and limited competing conventional gas supplies. Local Chinese service companies have improved their ability to provide the specialized well drilling, completion, and testing services needed to bring CBM onstream.
Will China share in the impressive success of the U.S. coalbed methane industry? Or will China turn to large-scale LNG imports for its gas supplies, as other East Asian economies have? This billion-dollar dilemma will influence natural gas investment throughout Asia. Answers could come soon from E&P testing now taking place.
Prior to 1995, administration of coalbed methane in China was ambiguous, with several government organizations claiming control. During this period, the Ministries of Coal Industry (MOCI) and Geology & Mineral Resources (MGMR), and China National Petroleum Co. (CNPC), as well as several provincial and municipal entities, conducted independent CBM development programs and signed preliminary contracts with foreign partners.
in 1995, the Chinese government resolved this
uncertainty by establishing the China United Coalbed Methane Corp. As
independent entity governed by the new Ministry of Land and Resources,
CUCBM administers coalbed methane production contracts with foreign
and also operates its own active exploration and development
exploration blocks range up to 2,500 sq km; multiple
blocks can be leased to cover larger areas.
The operator can then decide whether to proceed with further work, which might involve long-term production testing of one or more five well pilots. If the project goes commercial, CUCBM has the option to back in for majority ownership by contributing its share of total project costs. Gas prices and fevelopment costs are market determined.
Uniquely for China, foreign operators are free to identify their own coalbed methane exploration areas. This process is more flexible than China's current conventional petroleum terms, under which only areas pre-selected by the government are offered for bid.
a total of 10 to 30 m of coal occurs within
a half dozen potentially completable seams. The coal is generally
rich in vitrain, and well cleated, unlike duller Gondwana coals of like
age. Gas content varies with coal rank and depth, from about 200
in sub-bituminous coals, to over 700 scf/ton in anthracites.
Additional coal targets include the Jurassic Yanan formation and equivalents, but seams in these units tend to be thinner and stratigraphically more dispersed, as well as lower in rank (sub-bituminous).
Some exceptional Jurassic areas have 20 m thick individual coal seams with gas contents of 200 scf/ton. Recent commercial successes in the low-rank Uinta and Powder River basins of the western U.S. suggest that China's Jurassic coal deposits deserve greater attention.
While CBM resource concentrations can be favorable in China, reaching 30 bcf/sq miles or higher, locating high permeability is challenging. Well testing in eastern China indicates widespread restricted permeability, generally well below 1.0 md. But most tests took place in high-rank and structurally complex coal mining areas, such as the Jincheng coal field in Shanxi4 and Anyang coal field in Henan,5 where coal mine degasification was a primary objective.
the exception of the Ordos basin, Chinese coal basins
are structurally more complex than the commercial U.S. CBM areas.
some active, compartmentalize the coal reservoirs into isolated blocks
that are difficult to develop. In addition, erosion of the coal section
and re-burial during Quaternary time have affected gas saturation in
China coal basins.
Much of the central Ordos is deeper than 2,000 m, but the perimeter of the basin is of suitable depth for CBM development. Structure is simple with few faults and shallow regional dip into the basin. Coal rank increases gradually clockwise from the northeast, reaching optimal bituminous rank along the basin's eastern edge. Accessible CBM resources from Permian coals in the Ordos are estimated to be 50 to 100 tcf; Jurassic coal targets could add further to this.
The primary challenges to developing the Ordos basin are poor infrastructure, rugged topography within the eroded loess plateau, and a near absence of local natural gas markets. However, access to gas markets improved recently with the completion of three major gas pipelines, discussed below.
This large coal region comprises numerous small, fault-bounded coal fields that stretch from Anhui Province in the south to Liaoning Province in the north. Coal rank varies rapidly, although most is of favorable bituminous rank. Structure is generally complex; closely spaced faults and steep to overturned dips occur locally.
Early CBM testing in China was concentrated in this region, due to the presence of numerous gas-prone coal mines.8
Surface conditions are quite favorable: Gas markets are abundant, infrastructure relatively advanced, and the topography is level. Areas tested included the Hongyang, Huainan, Jiaozuo, Pingdingshan, Shenbei, Tangshan, and Tiefa coal fields.
Texaco's Huaibei block is located in a relatively less complex southern portion of this basin.
The "First Wave" of CBM exploration in China took place roughly between 1990 to 1996 (see table [73,236 bytes]). Chinese and foreign companies evaluated a number of diverse areas and helped to define the high-potential plays, although none of these projects attained commercial status. Early projects tended to focus on coal mining areas with thick coals and high gas content; permeability in such areas frequently was poor.9
was most active, drilling or evaluating a total
of 16 test coreholes and production wells throughout North China.
program helped to identify the eastern Ordos basin as a prospective
Arco acquired this area from Enron in 1996 and continues to test.
Chinese operators during this first phase included the Shenyang (Municipal) Gas Co., the Ministry of Coal Industry, Ministry of Geology and Mineral Resources, and CNPC. The largest project was MGMR's six-well, hydraulically stimulated production pilot at Liulin in the eastern Ordos basin, which achieved peak gas rates of as much as 250 Mcfd/well from shallow (1,100 ft) coal seams during long-term production testing.10
First-wave projects encountered numerous operational problems as the Chinese oilfield services industry struggled to adopt modern CBM drilling and testing techniques and adapt them to local geologic conditions. A technology transfer program conducted by the United Nations Development Program helped equip Chinese operators and service companies with modern CBM test equipment and train their staff at U.S. facilities. Today, wellsite services such as wireline core retrieval, injection/falloff testing, and methane desorption are of higher quality and more widely available.
The "Second Wave" of coalbed exploration is currently reaching a crest. With newly approved coalbed methane contracts in hand, Texaco, Arco, and Phillips have kicked off ambitious testing and evaluation programs in their respective blocks. These companies all operate highly productive coalbed methane projects in the San Juan basin "Fairway;" Texaco is also developing the Ferron trend within the Uinta basin. And CUCBM is testing several of its own areas in China, applying U.S.-developed coalbed methane E&P technology.
Current projects target the Permian coal seams and show potential for multiple trillion cubic foot gas discoveries. However, significant variations exist among these projects in regard to local geologic and gas market conditions. Operators accordingly have adopted a range of testing strategies.
was the first to sign a CBM contract with CUCBM,
commencing on Mar. 1, 1998.
5,000 sq km CBM contract in the Ordos basin was
approved on Oct. 1, 1998, comprising three separate blocks. Previously,
Enron Exploration had drilled eight test wells in this area, reporting
favorable permeability in the Shanxi and Taiyuan formation coal
Phillips Petroleum is testing the Hedong CBM Contract area just north of Arco's lease in the Ordos basin. Following acquisition of high-frequency seismic data during 1997, Phillips has tested gas content and permeability at three wells within its 3,120 sq km block. Coal rank and gas content are somewhat lower than in the southern Ordos, but the coal reservoirs here are thicker. Phillips' block is located about 100 km south of the newly completed 36 in. Ordos-Beijing natural gas pipeline and 120 km west of Taiyuan, a major industrial city.
CUCBM's operations group has drilled a total of 10 wells, including two at Fushun mine in Liaoning Province and several each at the Jincheng, Tunliu, and Shouyang areas of Shanxi Province. These areas range from low-rank sub-bituminous coal at Fushun to high-rank anthracite at Jincheng and Shouyang. CUCBM also employs a combination of test coreholes and hydraulically fractured production wells for low-cost evaluation and relies entirely on local supply and service capabilities.
CUCBM's areas are adjacent to active coal mines and potential natural gas consumers. CNPC is testing a five spot CBM pilot in the high-rank Jincheng mining areas of the southern Qinshui basin, close to CUCBM's pilot.
China's government is promoting natural gas fuel for certain high-value uses, such as power generation in coastal cities. All of north China's CBM potential lies within 300 km of a major urban market. Wellhead prices will be market-driven and are likely to be favorable.
gas pipeline infrastructure is concentrated in
Sichuan province, far from the CBM areas of north China. But three new
long-distance gas pipelines completed within the last year have
improved the marketability of CBM resources in the Ordos basin. These
transport natural gas from CNPC's 7 tcf Shanganning low-permeability
field in the central Ordos near Jingbian, Shaanxi Province (Fig. 2).
Southern Ordos gas production could be transported to the major city of Xian via a new 489 km pipeline that currently transports 54 MMcfd. The third gas pipeline, a 293 km connector transporting about 50 MMcfd to the Ningxia provincial capital of Yinchuan, commenced operation in fall 1998. These lines operate solely on natural reservoir pressure (600 psi initially), and capacity could be increased several-fold by adding compression.
of China's largest cities-such as Beijing/Tianjin,
Shanghai, and Shenyang-have gas reticulation systems, although volumes
are small and many were designed for low-Btu manufactured coke
Contract terms for natural gas sales are still evolving in China. Once tightly regulated, administrative natural gas prices are being phased out.
Delivered prices range widely, from $1/MMBTU for heavily subsidized fertilizer manufacturers to over $6/MMBTU for low-quality methane captured from coal mines for residential use. Urban residential consumers pay up to $7/MMBTU for LPG. High-value end-users in China are likely to include urban industrial and peak-load power generation. Wellhead gas prices in China's coalbed basins are anticipated to be in the range of $1.50 to $3/MMBTU. Should CBM development prove to be successful in China, the marketing outlook for this new gas resource is bright.