China Economic Review: China's Coal-bed Methane Prospects

With coal-bed methane garnering more attention and investment in China, CLSA’s Simon Powell sits down to dispel some of the hype and explain how the sector will likely unfold in the years ahead

To what extent is coal-bed methane a viable industry in China on its own? Is what we’re seeing now mostly due to outside support, say from the government, or is it motivated more by an urge to get away from other energy sources that are now maybe more problematic, like coal?

Coal-bed methane in China was never going to be easy. And people who thought it was the same kind of coal-bed methane that we saw in America or Australia were sadly mistaken from an investor point of view. Coal-bed methane in China is pretty difficult. The coal is extremely wet, and the porosity is really low. And what you find is that for a lot of coal-bed methane producers, all they produce for the first few years is water. So there’s been significant amounts of de-watering, and as far as I can see very few coal-bed methane producers have produced any meaningful amounts of coal-bed methane.

So what’s been behind the drive of recent years?

Well I think there’s a few things. One, when you look at China’s overall demand for gas versus its ability to supply that gas domestically, there’s a shortfall. So that’s what the push has been, and that’s why they put in subsidies for both shale and coal-bed methane. But those subsidies haven’t resulted in huge amounts of volume. MORE