China Looks to Coal Bed Methane

The country wants to dramatically increase its use of the coal-mining byproduct to meet its surging energy needs

Coal miners wait to cross a road through thick coal dust at the end of their shift at a small mine in the town of Xiaoyi in China's Shanxi province. PETER PARKS/AFP/Getty Images

by Chi-Chu Tschang

As the Chinese economy grows at double-digit rates, satisfying the country's energy appetite is a top priority for President Hu Jintao and his government. While China's oil companies and their search for partners in places like Sudan commands most of the attention in the West, coal is of much greater importance to China than oil.

The country relies on coal to generate roughly three-quarters of its electricity. Imports only account for 1.8% of China's coal consumption, with the rest coming from Chinese mines that employ 7 million coal miners. So it's no wonder that Beijing wants to take advantage of methane, a gas that is a byproduct of coal mining, by using it to power steel mills, heat homes, and fuel public buses and taxis.

China used 1.4 billion cubic meters of coal bed methane, or 3% of the country's total natural gas consumption, in 2006. Beijing has set an ambitious target to increase coal bed methane use to 10 billion cubic meters, or 10% of total gas use, by 2010. "I like to refer to coal bed methane as a silver bullet, so to speak, in terms of addressing both China's energy shortfall as well as China's environmental challenges," says Michael McElwrath, chief executive officer and president of Houston-based Far East Energy (FEEC), which has invested $40 million to exploit coal bed methane in China.

Methane Used to be Wasted

All that coal contributes to air pollution, some of the world's worst, in Chinese cities like Linfen, Beijing, and Shanghai. And poor safety in Chinese mines means many workers die. On Dec. 8, a coal mine explosion in northeastern Shanxi province killed at least 105 coal miners. In 2006, 4,746 Chinese coal miners died in accidents, compared to just 47 in the U.S.

Until recently, most Chinese coal mines have wasted the methane attached to the coal by releasing it directly into the atmosphere. Because methane contains 21 times more carbon than carbon dioxide, releasing that gas does much more damage to the ozone layer than burning coal. "For the coal mines in China, at the moment, safety is one of their top priorities. But you don't have to utilize the gas in order to improve safety. You can just vent it," says Henrik Dalsgard, technical and operations director at Camco International Carbon Asset Consulting (Beijing). "Sometimes it's easier to improve something if you also make money on it at the same time."

In the past 18 months, the Chinese government has rolled out a raft of preferential policies to help the nascent coal bed methane industry achieve that goal. Coal bed methane excavation companies are being showered with tax breaks and subsidies. The government has waived import duties on coal bed methane equipment. Plus, producers are allowed to sell natural gas at market prices instead of the state setting the price. In May, China and the U.S. signed an agreement to jointly develop 15 large-scale coal bed methane projects as part of the second Strategic Economic Dialogue held in Washington, D.C.