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China Coalbed Methane Clearinghouse
October 2001 Beijing

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Executive Summary
Background
Jiaozuo Coal Group is one of the largest coal enterprises in China. The total confirmed
capacity of coal production is 3.46 million tons/a. By 2015, the planned production will be
4.50 million tons /year. In 2000, the coal production of Jiaozuo Coal Group reached 2.99
million tons.
Jiaozuo mining area has abundant co3albed methane resources. The total coalbed
methane resources within the depth of 2000m are 173.3 billion m3. The coal-bearing
area in Jiaozuo mining area is 350 k m2. The gas content is averaged at 10 ~ 38 m3/t. The
average resource density is 231 million m3/km2. Coals in Jiaozuo mining area have many
advantages such as good performance of adsorption, high gas content and high gas
saturation, etc, which are favorable to coalbed methane development.
Currently Jiaozuo mining area has 7 high gassy or gas outburst coal mines. In 2000, the
methane emissions from Jiaozuo mining area reached 60.16 million m3. Up to 2000, 7
in-mine methane drainage systems have been built in Jiaozuo mining area, with a total
methane drainage of 11.42 million m3/a. If technical retrofit is done, the methane drainage
amount could be increased up to 20 million m3/a. CBM surface development tests have
been also conducted. So far, 10 surface boreholes and other 4 coalbed methane surface
wells have been drilled. The peak production of a surface borehole reached 1307 m3/d,
which shows a commercial potential for surface coalbed methane development.
Currently the annual methane utilization in Jiaozuo mining area is approximately 6 million
m3, which accounts for 53% of the total methane drained. At present, the demand of
residential use in Jiaozuo City is 30 million m3/a. It is predicted by experts that by the year
of 2010, the total demands for natural gas in Jiaozuo City will reach 564 million m3 and
100 million m3, respectively.
Investment Opportunities
The Jiaozuo Coal Group has identified two coalbed methane projects that would improve
mine safety and provide revenue from the sales of coalbed methane. Following is a
summary of the two potential CBM/CMM projects for which the Jiaozuo Coal Group is
seeking investment:
(1) Jiaozuo CBM residential use project Currently, CBM drainage in Jiaozuo mining area
is mainly aimed at coal mine safety. Jiaozuo mining area now has 4 coal mines from which
coalbed methane recovered is supplied to the city residents. This project will expand the
drainage amount and increase the methane utilization from current 6 million m3/a to 20
million m3/a. The project will include the retrofitting and perfecting of the existing in-mine
drainage systems, set up new gas holders, gas transport and distribution pipelines and
other necessary facilities. Total investment of the project is 53 million yuan (US$ 6.39

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million) including the investment 30 million yuan (US$3.61 million) of the existing gas
transport and distribution system. For the newly added investment, Jiaozuo Coal Group
will contribute 30% of the project investment and the remaining 70% will be raised through
loans or outside investment. Based on the total investment of 53 million yuan, the
estimated net present value (NPV) would be 19.79 million yuan (US$2.38 million), the
internal rate of return (IRR) would be 23%, and the payback time would be 7 years.
Jiaozuo Coal Group proposes to start the project in 2002 and anticipates that it would be
fully implemented by the end of 2003.
(2) Encun CBM surface development project. The project will use vertical well method to
recover coalbed methane in Encun Block. The project includes the construction of 100
surface wells, and the annual gas production is 100 million m3 . The service life of the
project is 30 years. Coalbed methane recovered from the project will be mainly supplied to
some major industrial users in Jiaozuo City. Project engineering will consist of surface well
drilling and construction of the CBM gathering system. With regard to total investment 200
million yuan, Jiaozuo Coal Group will be responsible for the raising of 35% of the total,
and the remaining is expected to obtain from outside investment. Based on the total
investment of 200 million yuan, the estimated NPV of the project would be 98.66 million
yuan (US$11.89 million ) , the IRR would be 24%, and the payback time would be 8
years. Jiaozuo Coal Group proposes to start the project, and anticipates that it would be
fully implemented by 2005.
Jiaozuo Coal Group recognizes that investment in these projects may have certain risks.
The variation of CBM price and CBM production may affect the project economics.
Jiaozuo Coal Group is ready to help determine the market risk for potential foreign
investors and willing to answer any important question investors may concern.
Jiaozuo Coal Group is also ready to consider every possible way for cooperation and
various means for capital raising to carry out the above projects. Representatives of banks,
foreign companies and overseas financial organizations are welcomed to review the
attached marketing package and contact us for more information.
Zhang Guangde
Chief Engineer
Jiaozuo Coal Group
239 Jianfanzhonglu, Jiaozuo
Henan 454002, China
Tel: 0086-391-3531087

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1. Overview
Jiaozuo mining area is located in the northwest part of Henan province, which
traverses Xiuwu county and Huixian county of Jiaozuo city. The mining area is 60 km
long from east to west. The coal-bearing area is 350 k m2. The proven coal reserves
are 2.665 billion tons. Jiaozuo mining area enjoys very well developed transportation
systems. The Xinxiang railroad station of Jingguang trunk railway line is just 63 km
away to the east of the mining area. It is 140 km from west of the mining area to the
Luoyang railway station of Longhai trunk railway line. Xinjiao railway and Jiaotai
railway go through the mining area (see Fig. 1).
Zteitgrncm cc*l inm
Fig. I Location of Jiaozuo Mining Ares
The Jiaozuo coal mining area is rich in coalbed methane resources, with total
resources as high as 173.3 billion m3, and reservoi r conditions are favorable for
development.
Currently only underground drainage is used in Jaozuo mining area. Total methane
recovery reached 11.41 million m3 in 2000. In 1990s, 4 surface coalbed methane wells
were drilled and tested.
For the near future, two projects are proposed in Jiaozuo mining area including a
CMM recovery and residential use project and a CBM surface recovery project. The
purpose of the above two projects is to obtain economic benefit from sales of the gas
recovered, while improving safety conditions in coal mines. Major technical economic
indices of the two CMM projects are shown in Table 1.
2. Introduction to the Enterprise
Jiaozuo Coal Mining Administration was founded in 1949. In March of the year 2000 it

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was restructured as Jiaozuo Coal Group, which is one of the large coal enterprises in
China. Jiaozuo Coal Group has 7 active coal mines with the confirmed production
capacity 3.46 million t/a. In the end of 2000 Jiaozuo Coal Industry Group had total
assets of RMB 2.28 billion yuan and 41,000 employees. The annual revenue reached
RMB 1,21 billion yuan.
Table 1. Major Technical and Economic Indices of Coal Mine Methane Projects
Indices
Jiaozuo CMM recovery
and use Project
Encun surface CMM
recovery project
Construction period
2 years
3 years
Size of project
20 million m3/a
100 million m3 /a
Project life
30 years
30 years
Total investment
53 million yuan
200 million yuan
Annual profit
14 million yuan
50 million yuan
IRR
23%
23%
NPV
19.79 million yuan
98.66 million yuan
Pt
7 years
8 years
Fig. 2 Location of Coal Mine* ir> Jiaozuo W(wn§ Aim
The Jiaozuo Coal Group has a coal production history for over 50 years. At present,
the annual coal production is always around 3 million tons. In 2000 the production
reached 2.99 million tons. In accordance with the plan for coal production of Jiaozuo
Coal Group, the coal production will be 3.30 million t/a by the year of 2010, and will
reach 4.50 million t/a by 2015. The coal mine distribution of the Jiaozuo mining area is
shown in Fig. 2.

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3. Coalbed Methane Resources
Jiaozuo mining area is rich in coalbed methane resources. The total coalbed methane
resources in Jiaozuo mining area within the depth of 2000 m are 173.3 billion m3. The
total accumulated thickness of coal-bearing formation in Jiaozuo mining area is
approximately 740 m containing 3 recoverable coal seams. Total coal seam thickness
is from 8 to 10 m. Coal type in the mining area is anthracite. Coal seams of Jiaozuo
mining area is noted for its good adsorption property, high gas content, high gas
saturation and high coal seam permeability, which are favorable for coalbed methane
development. The main development characteristics are shown in Table 2.
Table 2 Jiaozuo Mining Area CMM Development Potential Evaluation Parameters
Parameter
Value
CBM resources
Calculated depth
Main coal type
Vitrinite reflectance
Gas content
Porosity
Maximum absorption capacity
Absorption pressure
Permeability
Reservoir pressure
Gas saturation
173.3 billion m
<2000m
Anthracite
3.21%-4.82%
4-33 m3/t
7-12%
38 m3/t
0.5-1.OMPa
0-3.6 md
0.88-11.OMPa
60-99%
4. Coal Mine Methane Development and Utilization
4.1 Coal Mine Methane Emission, Recovery and use
Currently Jiaozuo mining area has 7 active mines, all of which are high gassy or gas
outburst ones. In 2000, the annual methane emissions in the mining area reached
60.16 million m3.
The coalbed methane recovery in Jiaozuo mining area started in 1964. In 1990, the
CBM drainage amount exceeded 10 million m3. By 2000, 7 gas drainage systems
were set up in Jiaozuo mining area. The CBM drainage amount reached 11.42 million
m3 in 2000 . The in-seam boreholes and cross-measure boreholes are mainly
employed to drain coal mine methane.
The CBM surface recovery started during period of "the 9th Five Year Plan". Since that
time, 10 surface boreholes were drilled in Zhongmacun Mine. The average single
borehole gas production was 195 ~ 613 m3/d. After water scouring for the borehole
and fracturing, the coalbed methane production increased rapidly. The gas production
from No. 5 borehole reached 1307 m3/d. In 1995, Zhongyuan Oil Field and Jiaozuo

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Coal Group agreed to jointly develop coalbed methane resources in Guhanshan coal
field of Jiaozuo mining area. Under the cooperative project, 4 surface wells were
drilled, and well testing and trial gas production tests were also performed.
Coalbed methane recovered in Jiaozuo mining area is mainly used as residential fuel.
In 2000, approximately 6 million m3 of pure methane was utilized. At present, 4 coal
mines of Jaiozuo Coal Group supply gas to the Jiaozuo Gas Co.. The total length of
the gas pipeline is 24.8 km.
A medium sized coalbed methane residential use system has been established in
Jiaozuo mining area. A gas holder of 10,000 m3 and a gas holder of 5000 m3 has
been constructed in Zhucun Mine and Jiulishan Mine, respectively. A 100 m3 of
compressed tank was also set up in Weicun Mine. And gas was also transported to
the gas holder in Jiulishan Mine. Additionally, a 30,000 m3 of gas holder and a 54,000
m3 of gas holder were established in Jiaozuo Gas Co.. At present, 41,500 households
are using coalbed methane as fuel gas. The annual mixed gas consumption is 20
million m3, or the pure methane of 6 million m3. The mixed gas price for the end user is
RMB 0.50 yuan/ m3 (30% CH4).
4.2 Analysis on Coalbed Methane Production Capacity
Currently the annual coalbed methane emissions in Jiaozuo mining area has reached
60.16 million m3. With the mining depth increasing and coal production going up, the
coalbed methane emissions in Jiaozuo mining area will further increase. At present,
coalbed methane recovery systems have been built in 7 coal mines of Jiaozuo mining
area. However, the drainage rate is very low, less than 20%. According to the plan for
Jiaozuo mining area coalbed methane development, by the year of 2006 it is
expected that the underground coal mine methane production could reach 20 million
m3 annually through improving CMM drainage method and perfecting surface CMM
utilization facilities.
The coalbed methane surface development will be mainly concentrated at Encun
Block, Yanmazhuang-Jiulishan Block and Guhanshan Block. Conditions of coalbed
methane resources in Encun Block is the best. And it is also close to potential
users .Encun Block is located 5 km in the south west of Jiaozuo city covering an area
of 79 k m3. The Block's CBM resources are as high as 28.8 billion m3. Assuming that
the surface recovery project needs to drill 100 CBM surface wells with a single well
output 3000 m3/d, the annual gas production would be 100 million m3.
5. Coal Mine Methane Residential Use Project in Jiaozuo Mining Area
5.1 Project Description
The project is aimed to utilize the methane drained from in-mine drainage systems in
5 coal mines. Coal mine methane drained will be supplied to household users in
Jiaozuo city and mining area through pipelines linked to each mine. The project size
for pure methane supply is 20 million m3/year, or mixed gas 57 million m3/year (35%

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CH4). The project will increase CMM recovery up to 20 million m3/a by perfecting the
recovery and utilization system and improving drainage methods. The project
engineering will include the gas drainage engineering, the construction of 2 gas
holders each 20,000 m3, and 5 km of gas pipelines and necessary equipment and
facilities. The total project investment is RMB 53 million yuan including the existing
transport and distribution systems. The service life of the project is 30 years.
Since Hanwang Mine, Fengying Mine and Zhucun Mine will be closed soon, the CMM
recovery and utilization for Macun Mine and other 4 coal mines will be mainly taken
into account. Table 3 shows the coalbed methane resource conditions and service life
for candidate coal mines.
All the above 5 coal mines have permanent CMM recovery systems. In 2000, the total
CMM drainage was 10 million m3, however, the average drainage rate was only 19%.
Therefore, there will be large potential for the increase of CMM drainage. With the
increase of the depth of coal mining and Guhanshan Coal Mine being completed and
put into operation, the coalbed methane emissions from the above coal mines will
further increase.
Table 3 CMM Resource Conditions and Service Life for
Candidate Coal Mines.
Coal Mine
Coal Resources
CMM Resources
Average Gas Content
Service
Life





(million tons)
(billion m3)
(m3/t)
(year)
Zhongmacun
92.09
1.8421
15 6

Yanmazhuang
125.02
2.750
11 42

Jiulishan
126.26
3.030
9 6

Weicun
17.07
0.386
11
16
Guhanshan
156.38
3.753
15
60
Total
516.82
11.761


5.2 Coal Mine Methane Market
Coal is now dominating over the energy consumption market in Jiaozuo city. Coal
consumption accounts for more than 90% of the total. Such unreasonable energy
structure has resulted in serious air pollution. Therefore, replacing partial coal by coal
mine methane as fuel can effectively improve local air quality.
The CMM market in Jiaozuo will be mainly residential use fuel and industrial fuel.
Jiaozuo mining area has sufficient power supply. Electricity generated in CMM power
plants have to be supplied to the power grid. The grid power price is only 0.27
yuan/kWh. However, there are big demands for coal mine methane in Jiaozuo gas

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market and good price can be obtained. The CMM price for residential use has
reached 0.50 yuan/ m3 (30%CH4). Currently Jiaozuo city has 150,000 potential
residential users. If all the residential users are fueled by coal mine methane, the
annual demand for the mixed gas will be 100 million m3, or 30 million m3 of pure
methane. Therefore, the main purpose of the project is to supply gas to residents in
Jiaozuo city and mining area.
5.3	Project Options
Currently two gas drainage methods are widely used in the mining area, i.e.
pre-drainage from the working coal seam, and draining gas while coal is mined. This
method has a low drainage rate, and the concentration of the coal mine methane
drained is low. Therefore, during the construction of the gas drainage systems, it is
necessary to use new drainage technologies such as in-mine horizontal long hole
drilling and gob well drainage, etc. so as to increase the efficiency of gas drainage,
and raise the CMM concentration through improving the borehole sealing method and
strengthening the management to the underground gas pipelines.
The main purpose of the project is to supply gas to residents in Jiaozuo City and
mining area. At present, the coal mine methane drained from Jiulishan Mine,
Yanmazhuang Mine, Zhongmacun Mine and Weicun Mine is transported, via a
compressed tank, to three gas holders, of which the gas holder of 5000 m3 is in
Jiulishan Mine. Jiaozuo Gas Co. has a gas holder of 30,000 m3and a gas holder of
54,000 m3. This project will make full use of the existing transport and distribution
systems, and will build 2 new gas holders with 20,000 m3 each in Macun and
Zhongzhan, respectively. A gas compressing station (in Guhanshan Mine), and 5 km
of gas pipeline will also be built.
Coal mine methane drained from each coal mine will be firstly compressed, and then
be transported to each gas holder from which the gas will be supplied to residents, via
the medium and low pressure gas supply system.
5.4	Project Construction
The project is planed to start construction in 2003. It is expected that the capacity of
gas drainage and supply reach 20 million m3/a, or mixed gas 57 million m3 by 2005.
With regard to the project funding, the loan application, investment, fund raising and
self-funding and other forms will be applied to get funds for the project construction.
The construction period of the project is 2 years. Major technical and economic
indices of the project are shown in Table 4.
5.5	Financial Evaluatin
1) Analysis on Financial Profitability
The discounted cash flow method is used to analyze the profitability of the CMM
project. Now assuming that the real dicount rate is 12%, inflation rate is 3%, the
income tax rate for the first 5 years is 0%, after the fifth year is 33%. The hosehold use

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gas price in Jiaozuo City is 1.40 yuan/ m3 of pure methane, and the total cost 0.70
yuan/ m3, which includes all the expenses incurred from CMM pump station to end
users. Total investment of the project is 53 million yuan, of which additional
investment is 23 million yuan, the equivalent value of the existing CMM transport and
distribution system is 30 million yuan. Through calculations, major technical and
economic indices of the project is shown in Table 5.
Table 4. Major Technical and Economic Indices of the CMM Residential
Use Project In Jiaozuo Mining Area
Item	Unit	Quantity
Methane drainage	million m3/a	20
Transport capacity	million m3/a	20
CH4 concentration	%	35
of mixture gas
CapQcity of new gas holders!	1000 m3
Additional gas pipelines	km	5
Table 5. CMM Residential Use Project in Jaiozuo Mining Area
Item
Quantity
Total Investment
Project Scale
Transport and Distribution Capacity
Total Cost
Gas price for residential user
IRR
NPV
Pt
53 million yuan
20 million m3/a (pure methane)
57 million m3/a (mixed gas, 35%CH4)
0.70 yuan/ m3 (pure methane)
1.40 yuan/ m3 (pure methane)
23%
19.79 million yuan
7 years
5.6 Energy Savings and Environment Protection Results
This project uses coal mine methane as fuel in place of coal. The thermal efficiency
can be raised and the greenhouse gas emission can be greatly reduced. When coal
mine methane is used as residential fuel, the CMM thermal efficiency will be 4 times
that of coal. One m3 of methane gas can replace 4.72 kg of coal equivalent. After the
project is put into operation, 94,000 tons of coal equivalent can be saved, or 83,000
tons of local coal (the raw coal ash content, sulfur content and heating value is 17%,
0.34% and 8200kcal/kg, respectively). The implementation of the project will prevent
environmental pollution caused by coal combustion, see Table 6.
With regard to the reduction of the greenhouse gas emissions, utilizing coal mine
methane as fuel for residential use could reduce 20 million m3 of methane (14,000
tons) emissions, or reduce emissions of C02 294,000 tons. Burning 20 million m3 of
methane will emit 39,000 tons of C02. On the other hand, this project will save 94,000

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tons of coal equivalent. Burning per kg coal equivalent will emit 2.66 kg of C02.
Therefore, the project could avoid the emissions of C02 250,000 tons caused by coal
combustion. In general, this project could actually reduce emissions of 507,000 tons
of C02.
35%
— Gas price
30%
—

—
2(5%
— Operating costs

Project investment
15%
—
10%
—
5%
I I
I I
-20% -10%
0%
10%
20%
Fig. 3 Sensitivity Curve of Jiaozuo CMM Recovery and Use Project
Table 6. Emissions Reductions of Jiaozuo CMM Recovery and Use Project
Type of Emissions
Amount reduced annually
Sulfur dioxide
Fly ash
Slag
Greenhouse gases (C02 equivalent)
4515 t
2822 t
11300t
507,000 t
The entire operating cost of the project is 0.7 yuan/ m , the annual operating cost is 14
million yuan. The C02 emission reduction of the project will be as high as 507,000
tons, thus the cost for C02 emission reduction is as below:
1400/50.7 = 27.6 (yuan/ton C02)
5.7 Analysis of the obstacles to Project Implementation
1) Lack of Funds
In the past few years, due to coal supply over demand, coal enterprises encountered
economic difficuty. It is hard for coal enterprises to have extra funds for CMM project.
Jiaozuo CMM recovery and utilization project requires additional investment 23 million
yuan, of which 16.10 million yuan needs a bank loan or outside investment from

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domestic and foreign companies.
2)	Lack of Advanced Technology
In order to promote CMM development and utilization in Jiaozuo mining area, it is
necessary to introduce the technologies of surface face vertical well, gob well, in-mine
horizontal long hole and other technologies to increase CMM drainage efficiency. In
the aspect of underground gas drainage, the existing in-mine borehole and
cross-measure borehole has very low drainage efficiency, averaged at only 20%.
Therefore, introduction of new technologies will notably increase CMM production.
3)	CMM Price
Currently Jaiozuo Coal Group is in charge of CMM production, and Jiaozuo Gas Co.
is responsible for the gas supply. However, there is too much difference between the
CMM wellhead price and end user price. The CMM price at the gas holder entrance is
just 0.20 yuan/ m3 (mixed gas 35% CH4), but the end user price is as high as 0.50
yuan/ m3 (mixed gas). Such big price difference will cause negative influence on the
coal mine methane production of Jiaozuo Coal Group.
5.7	Project Implementation: Demand and Ready Conditions
Partners desired for the project mainly include investors and technology providers.
Since the total additional investment is 23 million yuan, outside investment is required
to the implementation of the project. Technical requirements mainly include the
introduction and use of directional horizontal long holes and gob wells.
At present, the following favorable conditions exists for the project:
(1)	Rich coalbed methane resources in the Jiaozuo mining area and generally
favorable conditions for development;
(2)	A coal mine methane recovery and use system has been in operation for several
years, the system can be used for transport of the increased coal mine methane
production;
(3)	There is a huge demand for coal mine methane in the city of Jiaozuo, all the
methane recovered can be supplied to household users.
5.8	Risk Analysis
Risks of this project mainly lies in technical and market aspects. Application of
directional drilling long holes and gob wells will have to be tested and popularized.
Coal production of these mines may also affect the coal mine methane production. As
to the market risk, the price and supply of natural gas from Tarim , Xinjiang may affect
the price of coal mine methane, so as to affect the economics of the project.
6. CBM Surface Development Project in Encun
6.1 Project Description
The surface vertical well will be used for the Encun surface coalbed methane
recovery project. The project needs to drill 100 surface wells with annual gas

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production of 100 million m3. The project service is 30 years. Conditions for the
market and resources of Encun Block are favorable for coalbed methane
development.
Encun Block is located 5 km south east of Jiaozuo City. The general structure of the
Block is an axial syncline going nearly from east to west. And there are several
big-angle positive faults developed. The CBM reservoirs are No.2.1 and No. 1.1 coal
seams. The thickness of No.2.1 coal seam ranges from 0.71 to 12.69 m, generally 3
~ 8 m, on the average 6.26 m. Coal type is anthracite. Coal cleats are not so
well-developed. After fracturing, the coal seam permeability can be increased greatly.
Coal reservoir's Langmuir volume is 59.5 m3/t, Langmuir pressure is 0.91 MPa. The
average gas content of coal seams is 25.6 ~ 32 m3/t. The CBM resources in this area
are 28.778 billion m3. The resource density in the whole area is as high as 364 million
m3/k m3.
Encun Coal Mine with designed capacity of 1.20 million t la will be put into operation in
2015. Gas disasters will be thoroughly eliminated through pre-drainage.
6.2	Development Options
CBM surface development technology, the well completion technology for two coal
seams and coal seam stimulation technology to increase CBM production will be used
for the Encun Block CBM development.
Based on the characteristics of the coal seam development, the target seams are
mainly No.2.1 and No.1.1 coal seams. Therefore, the multi-seam casing and
perforation technology will be used for well completion , and water fracturing is
adopted for the coal seam fracturing.
According to the conditions of the coal reservoir in Encun Block, the average daily
production of the CBM well could reach 3000 m3/d. To achieve the production of
270,000 m3/d and annual gas production 100 million m3, 90 ~ 100 wells need to be
drilled. If a well covers 0.24 k m2, then 100 wells will require at least 24 k m2 of the
development area. Considering there are probably rivers and residential area, the
actual area of the development block should be more than 24 k m2.
Coalbed methane development in Encun Block will be carried out in stages. At first 5
to 10 wells will be drilled in the first two years for gas production and test so as to
collect sufficient parameters. If the first stage development trial is successful, it will go
to the next stage for rolling development. The remaining 90 wells will be completed in
3 years.
6.3	Coalbed Methane Market
Coalbed methane recovered by the project will be supplied to major industrial users in
Jiaozuo City through the gas transporting and distribution system. The first priority for

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the industrial users should be the Jiaozuo Chemical Plant and the Jiaozuo Chemical
Power Group. By 2005, the natural gas demands of the above two users will reach
100 million m3. The Chemical Plant is 12 km away from Encun Block and the
Chemical Power Group is 15 km away from Encun Block. Based on investigation, the
acceptable gas price to the above two enterprises is 1.30 yuan/ m3.
In addition, after completion of the project West-East Gas Pipelines Project", the
natural gas price at the exit in Jiaozuo is 1.20 yuan/ m3. Therefore, CBM price in the
future will be about 1.20 yuan/ m3. With people's living standard going up and stricter
requirements to the environment protection, demands for natural gas in Jiaozuo City
will increase rapidly. It is predicted by experts that the natural gas demand in Jiaozuo
City will be increased from 240 million m3 in 2003 to 564 million m3 in 2010. Major
natural gas users and their predicted demands in Jiaozuo City is shown in Table 7.
Table 7. Major Natural Gas Users and Predicted Demands
Main users	Demand for natural gas (million m3)
2005	2010
Chemical Plant	80.00	80.00
Chemical Power Group	16.80	29.40
Xinmei Company	10.00	10.00
Zhongyuan Axle Factory	4.00	20.00
Residential Use	51.95	100.28
6.4 Project Construction
The Encun Surface CMM Recovery Project will start in 2002, with a designed
production capacity of 100 million m3. The effective service life of the coalbed
methane well is averaged at 20 years. The exploration of the project is 2 years and
its construction period is 3 years. When all the surface wells are put into operation, it
is expected that the gas production would reach 100 million m3. For detailed
technical and economic indices of the project, see table 8.
Item
Table 8. Major Technical and Economic Indices of Encun CBM
Surface Recovery Project
Amount
Total Investment
Project size
Number of production well
Single well investment
Surface pipeline investment for single well
Well spacing
Single well production
200 million yuan
200 million yuan/a
100
1.70 million yuan
300,000 yuan
0.2 km2
3000 m3/d
6.5 Financial Analysis
The total project investment contains the investment for exploration and assessment,

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the investment of the development and engineering and the investment of the surface
facilities and engineering. Based on the summary for the surface CBM well
construction in Jiaozuo mining area done by Zhongyuan Oil Field, the CBM drilling
and well completion costs were approximately 1.70 million yuan including the surface
gas drainage facilities. On the average, the investment for a single well gas pipeline
was 300,000 yuan. Total investment within the project construction period is
approximately 200 million yuan. The CBM production cost includes the depreciation
cost and operating costs. Assuming depreciation period is 10 years, total amount of
depreciation is 2 million yuan, then the annual depreciation cost for a single well is
200,000 yuan. On the other hand, the operating costs for a single well is 300,000
yuan including salary, power charge, management and maintenance expenses and
land lease fee, etc. Within the stable production period, the annual production per well
is 1.0 million m3. Therefore, the CBM production cost is approximately 0.5 yuan/ m3.
Based on the current status of the gas fuel market, the CBM wellhead price could be
set at 1.00 yuan/ m3.
Regarding the project investment, 65% of the project investment is expected to get
from bank loan or obtain investment from foreign companies. The total project
investment is 130 million yuan. The remaining 35% investment will be raised by
Jiaozuo Coal Group. The loan interest rate is 6.5%.
The discounted cash flow method is used to analyze the profitability of the CBM
project. Now assuming the real discount rate is 12%, the inflation rate is 3%. The
value-added tax of CBM production for the project is 5%. The income tax is 33%.
CBM wellhead price is 1.00 yuan/m3. Through calculations, the project technical and
economic indices are shown in Table 9.
Table 9. Economic Evaluation Results on Encun CBM Surface Recovery Project
Item
Amount
Total Investment
200 million yuan
Production size
100 million yuan
CBM wellhead price
1.20 yuan/m3
IRR
23%
NPV
98.66 million yuan
Pt
7 years
Financial analysis results show that the project is very profitable, and the sensitivity
analysis (Fig.4) indicates that wellhead price is the most significant factor affecting the
project economics.
6.6 Analysis of Emissions Reduction
Coalbed methane recovered in the project will be used to replace coal as industrial
fuel. Calculated on heating value basis regardless of thermal efficiency, the project will
annually produce 100 million m3 coalbed methane, which could replace 118,100 tons

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of coal equivalent, or raw coal 103,7001. Therefore, using coalbed methane instead of
raw coal will remarkably reduce pollution caused by coal burning. See Table 10.
35%
30%
Gas price
Operating costs
Project investment
15%
10%
5%
-20% -10% 0% 10% 20%
Fig. 4 Sensitivity Curve of Encun CBM Surface Recovery Project
Using coalbed methane instead of coal as fuel can remarkably reduce the
greenhouse gas emissions. Burning 100 million m3of coalbed methane will have an
emission of 195,000 tons of C02. However, burning 118,100 tons of coal equivalent
will release 314,000 tons of C02. Therefore, the project could reduce emissions of
119,000 tons of C02.
Table 10. Emission Reductions of the Encun CBM Surface Recovery Project
Type of Emissions	Amount reduced annually
Sulfur dioxide	5641 t
Fly ash	3526 t
Slag	2261 t
Green house gas reduction	119,000 t C02 equivalent
The wellhead cost of the CBM production is 0.50 yuan/ m3. The annual operating
costs are 50 million yuan. Thus, the cost for C02 emission reduction is as below:
5000/19.5 = 256 (yuan/t C02)
6.6 Analysis of Obstacles to Project Implementation

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(1)	Lack of Funds
The project will require a huge amount of investment, and Jiaozuo Coal Group
does not have enough money to implement the project. Bank loans or outside
investment is urgently needed to start the project, so as to promote the
development of coalbed methane industry in Jiaozuo coal mining area.
(2)	Lack of Technologies
Although the Zhongyuan Oil Field have drilled 4 surface wells in Jiaozuo mining
area, but all the wells failed to produce coalbed methane due to technical and
economic reasons. Anyway, the surface recovery technology needs to be tested in
the Encun Block, so as to provide basic engineering parameters for further
commercial development.
6.7 Requirements of the Project and Conditions in Places
Both investors and technology providers are required for the implementation of the
project. Investors could contribute 65% of the total project investment, and the
technology providers are welcome to demonstrate the surface recovery technology
and provide necessary technical training.
Resources available to the implementation of this project includes:
(1)	Jiaozuo Coal Group could contribute 35% of the total investment of the project,
and can provide skilled technical personnel to the implementation of the project.
(2)	The coalbed methane market is huge enough for the project, and the coalbed
methane sales prices can be kept at high level;
(3)	Both local government and Jiaozuo Coal Group actively support the establishment
of the project.
6.7 Risk Analysis
Risks involved in this project mainly include technical issue. As surface coalbed
methane recovery technology has not been successfully demonstrated so far, it needs
to perform necessary tests to confirm if the designed single well gas production level
can be achieved.
7. Conclusions
(1)Jiaozuo	mining area has abundant CBM resources. Total resources in the whole
area is 173.3 billion m3. The coalbed methane content in Jiaozuo mining area is
10-38 m3/t. Gas saturation and coal seam permeability is high. The resource
density is also high, which are favorable to coalbed methane development.
(2)	Jiaozuo mining area is situated in China's middle part plain where is in shortage of
nature gas supply. The nearby Jiaozuo, Zhengzhou, Luoyang and other cities
have large demands for fuel gas. Therefore, the coalbed methane market
conditions are pretty good here. Additionally, several coal mines in Jiaozuo
mining area have had the gas pipelines connected, and CBM residential use

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system has been built to some extent, which has created a good condition for
CBM development and utilization for the next step.
(3)	There is large potential for CBM production in Jiaozuo mining area. It will make the
underground drainage capacity increase to 20 million m3 annually if the existing
drainage system is retrofitted and new drainage system is built. After the
completion of Encun surface CBM recovery project, it will achieve the annual
production capacity of 100 million m3.
(4)	Based on the potential of CBM production and market conditions in Jiaozuo
mining area, the priority to the coalbed methane in Jiaozuo would be residential
use and used as industrial fuel. All coalbed methane produced in the mining area
is supplied to users in Jiaozuo City.
(5)	The CBM project in Jiaozuo mining area can be carried out through PSC contract,
joint venture and other methods. With regard to the project funding, financial
source would include foreign investment, fund raising by enterprise itself and
bank loans, etc.
(6)	Currently, the main obstacles to the project implementation are lack of funds,
technology and reasonable CBM wellhead price. The risks to the project
implementation include the application of new CBM recovery technologies and the
changes of CBM sales prices.
In order to speed up the implementation of CBM projects and promote the
development of CBM industry in Jiaozuo mining area, suggestions are made as
follows:
(1)	Introduce foreign funds and techniques to speed up the implementation of CBM
projects in Jiaozuo mining area. It is necessary to combine coal production with
coalbed methane development and work out a plan for comprehensive
development.
(2)	Establish a special organization in charge of CBM development and utilization to
unify the management of both CBM surface development and in-mine drainage.
(3)	Jiaozuo City should be the priority for coalbed methane market. Efforts should be
made to develop more and more household users, commercial users and big
sized industrial users.

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Tbore are 7 underground
gas drainage systems in
operation in Jiaojuo
mining area, with total
annual gas drainage ever
11,4 million m3.
Rootos blows rs are
employed to supply
middle pressure coal
mine methane to the
town gas supply system.
Jiaczuo mining area has
a. wel -established coal
mine methane transport
and distribution system
which is supplying coal
mine methane lo more
than 5€,000 household
users,

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n	¦ * ~? 't'ry^a
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Overview of Jiaozuo Mining Area
Jiaoziw Coal Group
£39 Jlanifanzhonglu, Jlaozuo
Henan 4&1002, China
Tel: 0086-391-3531067
Fax: OOB6-M1 -2923274
China Coaibed Meihane Clearinghouse
35 Shanyanju, Cnaoyang Oistncl
Beijing 1QOQ29. China
Tsl'Fax: 0086-10-84610779
Email: cbmcfflpubiic.bta.net.cn
Website: ht1p:,'Vwww.coa into.nRi. nn

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