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Chairman: Wang Vinong
President; Wanes Tixuan
Dear Colleague,
Situated in Ific east ot Sharixi province, YajKjquan Cm
Group Co., Ltd.(YCG), a stats owned enterprse. is
reformulated Irom Yangquan Coa; Mining Adm mstration.
vs+iich is folded in 1050.
After a0 years development, YCG has developed into ono
of the s^pe'-iange state owned eiler prises affirmed in the
f rst bateh, being cneolthe b£C Iarges1 ircustral enterprises
in CUiraj. il is the l;r"[|M.yl anlhrsicilij prottixtfon base in Chiivi
The company has beer' tn prorfil for continuous 8 years
and l/v: sell rig Income In 2Cd r'riolh/ir-C: tfiSSOUCOftS ii- .4 billion
m! within SfiZO km: to a depth of 1500m below surface.
For ensuring mining safety. 11 shafts are all equipped wnh
CMM dra-age systems 1he-s are 8 CMM drainapa stations.
5 storage tacililles wilh total capacity of 11G.GGQ rr. In recent
years, the nelhane raccvared is about 12D million m3, and
only 40 million rr> is utilized in the Yangquan City n
favorable area In Yanecuan raining area, 1he coal seam is
deposited al astJ'Offlase depth, with rich gas content, are)
coal seam permeat'tity is around 1 rnd This area is ahnut
50 ten from Taiyuan, Use capta! city of Shanxi province,
urban population of none 1han 2 0 rr on There has huge
and urgent dean energy demand, therefore, fere is bright
commercial development pnospect o'l the ccalbed nelhane
resources development project.
With Die developmoni ssrategy of oral asihe taste business
and diversifec! economy sharing eeual importance. coalbed
¦nohane development and ulHizaBcn has become one of
the Jour important sectors. The recent CBM/CMM precis
are the Shouyang CBM sudace development project, the
extension of CWM recovery project l"n CMM power
generabon projapt. With good CMWCBM '©sources and
market conditions there is br^hl devek>pm
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are 14.1 billion ton, while the coalbed methane resources 687.4 billion m3. The 11 shafts in 6
production mines are all gassy shafts while the average gas content of main mineable coal
seams is 17.2 m3/t. The annual methane emission in Yangquan mining area is over 4 billion
m3 in recent years. With the more coal produced and deeper seam mined, the methane
emission will increase year by year. At present, there are 8 methane drainage stations in
operation, and 120 million m3 methane recovered annually. With more input, the methane
will recover more and more.
Investment Opportunities
At present, the annual utilized methane is about 40 million m3 in YCG, which is only about
one-third of the recovered methane. Based upon this, for fully utilizing the excess methane,
YCG proposed a methanol plant and a power plant fueled with CMM, of which the CBM
power plant is to be built by using foreign capitals. YCG underground CMM recovery is
mainly to solve the mine safety, so the recovery rate is low. The extension of CMM drainage
can not only increase the recovered CMM, but also increase the coal productivity. It has the
characteristic of less investment, fast step and better effect. Therefore, YCG planned to take
CMM comprehensive development as a sector.
Besides, there is opportunity in Shouyang block of Yangquan mining area. In this block, the
coal seam is deposit appropriate shallow, with rich gas content, and the resource density is
151 million m3/km2. With developed cleat and fracture, the permeability of reservoirs is
medium. While the adjacent cities have huge demand on clean energy. So, YCG proposed
the CBM surface development project in this block, which is hopefully supply CBM to
Taiyuan City. Following is a summary of these three potential CMM/CBM development and
utilization projects, for which YCG is seeking investment.
1) CBM surface development project. This project will use vertical well method recover
coalbed methane in Shouyang block. The project includes the construction of 184 surface
wells, and the coalbed methane recovered will be supplied to Taiyuan City. The annual
gas production is 200 million m3. The service life of the project is 20 years. Total cost of
the project is estimated at about 700 million yuan (US$ 84.34 million), among which,
exploration cost 4.38 million yuan (US$ 528,000) will be provided by foreign company in
the form of venture exploration, other investment source and proportion are to be
determined by discussion. Based on the total investment, the estimated NPV of the
project would be 120 million yuan (US$14.46 million), the IRR would be 18%, and the
payback time would be 12 years. YCG proposes to start the project in early 2004 and fully
complete in 2009.
2) Extension of underground CMM Recovery project. The project is to take underground
CMM development as a sector. The production scale of the project is 60 million m3/a and
all the gas production will be provide to Yangquan City using as town gas. The service life
of the project is 20 years. Total cost of the project is estimated at 90 million yuan (US$
10.84 million), among which, YCG would provide 35%, and is seeking the remaining 65%
(US$ 7.05 million) from outside investment and fund sources. Based on the total
investment, the estimated NPV of the project would be 32 million yuan (US$ 3.86 million),
the IRR would be 12%, and the payback time would be 10 years. When the project will be
3
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started depend on the availability of the capitals.
3) CMM power plant project. It is proposed that a CMM power plant set up in Xinjing Coal
mine, the capacity of which is 11 MW, with annual 73.26 X106 kWh power supplied. Total
cost of the project is estimated at 64.6 million yuan (US$ 7.78 million), among which, YCG
would provide 35%, and is seeking the remaining 65%(US$ 5.06 million) from outside
investment and fund sources. Based on the total investment, the estimated NPV of the
project would be 14.95 million yuan (US$ 1.8 million), the IRR would be 23%, and the
payback time would be 7 years. YCG proposes to start the project in 2002 and fully
complete in 2003.
The YCG recognizes that investment in these projects may have certain risks. The variations
in CMM/CBM price and production, and the applicability of technology may affect project
economics. The YCG is ready to help determine market risk for potential foreign investors
and is willing to answer any important questions investors may have.
YCG is also ready to consider every possible way of cooperation and various means for
raising capital to carry out the above projects. Representatives of banks, foreign companies
and overseas financial organizations are welcome to review the attached marketing package
and contact us for more information:
Mr. Li Baoyu
Chief Engineer
Yanguqan Coal Group Co. Ltd.
Yangquan City
Shanxi 045000, China
Tel/Fax: 0086-353-7070897
Email: ycgcbm@public.yq.sx.cn
4
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1. Overview
Situated in the East-central of Shanxi province, north part of Qinshui coal field, Yangquan
mining area is consisted of production block, Shouyang block, Pinxi block and Hezuo block.
The total area cover 3020 km2, containing an estimated 13,2 billion ton of coal reserves.
Most of the coal reserves in the mining area are anthracite, with high coalbed methane
generation, storage capacity and rich methane content. It is estimated that the total coalbed
methane resources are about 687.4 billion m3 within the 3020 kmz area to a depth of 1500m.
Although located in the mountainous area, the mining area enjoys very convenient transport
facilities in that both highways and railroads running in all directions (Fig. 1).
For ensuring the coal mine safety, there set 8 methane drainage stations in 6 active mines.
The annual recovered CMM approximately reached 120 million m3, of which only about 40
million m3 was utilized in the Yangquan city gas system. Due to the shortage of utilization
facilities, the CMM drainage is maintained at a low level, even though there is about
two-third of the CMM drainage vented to atmosphere.
Based upon the CMM recovery potential and the market situation, Yangquan Coal Group Co.
Ltd. (YCG) planned to set up the projects of the CBM Surface Development, the Extension
of Underground CMM Recovery and the CMM Power Generation.
The CBM surface development project is based upon the CBM resources locally, and it will
supply the CBM to adjacent cities, to reach an aim of fully utilizing CBM resources. The
project can supply CBM 200 million m3 annually with service life of 20 years.
The extension of underground CMM recovery project takes the CMM as a sector. The
project will provide CMM to Yangquan City using as town gas. The project will supply CMM
60 million m3 annually with service life of 20 years.
The power generation project is based the exist methane drained from coal mine No.3 and
Xinjing mine, and without further infrastructure investment, there set up a power plant with
Talvuan
ShouyaiiE,
Shijiiiliujfis
Ynngquiia
Xin£tai
Fig.1 The communication map of Yangquan mining area
5
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capacity of 11 MW. The project will serve the mining area to make profit.
The above mentioned three projects are to be organized and implemented by YCG as a
commercial project. Results of a preliminary financial analysis are shown in Table 1.
Table 1. Results of the financial analysis for Yangquan mining area CMM/CBM projects
Projects
Fixed investment
(million yuan)
Production cost
(million yuan/a)
Sale income
(million yuan/a)
IRR
(%)
Pt
(year)
CBM surface development
694.68
93.47
240.0
18
12
Extension of CMM recovery
90.0
18.0
36.0
12
10
Power generation
64.60
15.84
20.51
23
7
2. Introduction of Enterprise
YCG is reformulated from the Yangquan Coal Mining Administration, which is founded in
1950. After more than 50 years development and construction, it has developed into a
super-large state-owned enterprise with products mainly coal, chained by
coal-power-aluminum, covering the construction, construction material, magnet material,
mining machinery, light industry, trade and coalbed methane. At present, the coal production
is 14 million ton, which ranking the seventh largest coal producer in China.
There are 11 shafts and 6 coal washing plant in 6 mines administrated by YCG. The
designed capacity of raw coal production and coal washing are 16 million ton. The location
of the mines is shown in Fig.2. It belongs to medium aged mining area, with stable coal
production around 14-16 million ton. According to the coal production development plan
(Table 3), the coal production will be stable and will increase gradually in the future 15 years.
Table 2. Coal production capacity of YCG
¦j
Mine name Designed/determined capacity [10 t) Remarks
Mine No.1
240/350
Mine No.2
435/400
Mine No.3
250/300
Mine No.4
90/110
will be abandoned in 2004
Mine No.5
400/150
Xinjing mine
200/200
put into operation in 1999
Total
1615/1510
YCG is among the largest 520 enterprises in China, and has been profitable since the
government didn't restricted coal price in 1993. In recent years, affected by the weakened
coal marked, the enterprise profit decreased to some extent. But, there is less impact on the
total economy of the enterprise. In 2000, the coal production is 13.37 million ton, with total
income of 5.7 billion yuan and fixed assets of 8.47 billion yuan. It is qualified as a "AAA" of
grade enterprise in band qualification and credit. At present, part of the high quality assets of
YCG is planned to go to stock exchange, and hopeful to be on stock market in early 2002.
Table 3. Coal production plan of YCG in future 15 years
Year
Schemed coal production (Mt)
2001
15.00
2002-2005
16.50
2006-2007
19.50
2008-2010
22.50
2011-2015
22.50
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Sfaunyadgdang Pnllinlniry Eipkfritiun District
Kipamlin Dirtrietof Ynjhiftaing Mi«c
Pmptoo Prrilrabwry fcjpJorfltloa [M»irlct
QUitie Miitc
' Yujiariiiijnj Vliw
Retervc district irtNliuhlwn* *,int
EipsnsJun District cf Mln* Nit S
EipilVilon District uf \iJiuzku;i«K Mint
llretiun Cual Proipcctfiig District
Fig.2 Location of coal mines in Yangquan mining area
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3. Coalbed Methane Resources
In Yangquan mining area, the geological structure is mainly gentle syncline and anticline. In
generally, the geological structure is simple. The coal bearing strata is mainly Carboniferous
Period and Permian Period containing 16 coal seams with total thickness of 13-15m. In
active mines, the main recoverable seams are No.3, 12, and 15 seams with thickness of 2m,
1.4m and 6m respectively. In Shouyang block, the main recoverable seams are No.3, 9 and
15 seams. The coal seams in the mining area are in moderate depth, with high gas content.
The measured permeability of most recoverable coal seams is 0.5~6.7md, but in the
favorable area, the permeability of coal seams is high than measured. So, methane will be
comparatively easy to drain. The CBM resources are shown in Table 4.
Table 4. CBM resources in Yangquan mining area
Item Index
Seam depth Normally <1500m
Main coal types Anthracite
Gas content Average13~15m3/t
Coal seam permeability 0.5~6.7md
CBM resources 687.4 billion m3
Recoverable CBM resources 137.5 billion m3
4. Current Statue of CMM Recovery and Utilization
The 11 shafts of 6 mines are all high gassy shafts, or coal and gassy burst shafts. There set
8 methane drainage stations in 6 mines and the underground methane pipeline is over 120
km.
The Yangquan mining area started underground CMM drainage in 1957. At present, there is
one forth of CMM emissions in Yangquan mining area are drained. The annual drainage is
about 120 million m3, which is in the top of coal enterprises in China. In CBM surface
development, there are 8 test and evaluation wells drilled, through which much useful data
have been gained. The test results shown that single well can produce CMM 4000 m3/d.
Table 5. CMM emissions and recovery in Yangquan mining area
Mine name Methane vented (m57min) Methane drained Methane total (m*J/min)
(m3/min)
Mine No.1 10672 67J24 173^96
Mine No.2 150.31 16.11 166.42
Mine No.3 123.34 42.84 166.18
Mine No.4 38.78 6.10 44.88
Mine No.5 62.28 87.38 149.64
Xinjing mine 39.17 17.89 57.06
Total 520.6 237.56 758.14
The underground CMM drainage in Yangquan mining area is for the purpose of mine safety.
So, beside coal mine No.5, the average efficiency of gas recovery is around 25%. If
developing more underground CMM drainage work, there will capture much more CMM
without more infrastructure investment. Then the annual CMM captured will be over 150
million m3.
The CMM utilization in Yangquan mining area is started in 1958, and the large-scale
utilization is in 1970s, when the connected methane utilization systems were set up in coal
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mines No.1, 2 and 3. At that time, more than 5000 households use CMM as fuel. There also
set up a carbon black plant with annual capacity of 300t, and a formaldehyde plant with
annual capacity of 500t. In 1980, for the Yangquan City began to build city-gas system, the
two plants shut down. The city-gas system in Yangquan has a storage capacity of 160,000
m3, with distribution pipeline more than 160 km and 90,000 households, more than 250,000
populations. In 2000, about 40 million m3 CMM was utilized, which is about one third of the
total CMM drained. The other two third of CMM drained is vented into atmosphere.
5. CBM Surface Development Project
5.1 Project overview
This project will develop CBM with surface vertical well in Shouyang area. The total project
includes 184 surface wells, designed capacity 200 million m3/a, with service life 30 years.
The topography of this area is suitable for surface development.
This block is located in the west part of Yangquan mining area, with an area of 557km2.
There are 16 coal seams in this area, of which the main target seams are No.3, 9, and 15
seams, with thickness of 2.6m, 2.2m and 4.8m respectively. The gas content is 5~30m3/t
with average of 13m3/t. The coal seams are comparatively shallow, normally around
500~800m. In the area, the CBM resources reach 78.8 billion m3, and recoverable resources
35 billion m3. The permeability is around 0.5~6.7md and the reservoirs pressure gradient is
lower than other coal field, which is helpful to the desorption of CBM and large scale surface
development.
5.2 Development options and project construct
The project is schemed with surface well development, after three seams well completion,
and hydra-fracturing for stimulation. The target seams are No.3, 9 and 15 seams. Therefore
multi-seam casing and perforation technology will be used for well completion, and the
hydra-fracturing is planned with water based liquid with crystal sand added.
Based upon the reservoirs condition, as well as the 4 test wells data, the output from single
well can reach 4000m3/d, and the optimized well grid should be the space 0.25km2. Three
phases is decided for the CBM development in Shouyang area. In phase 1,10 parameter
wells and 10 test wells are planned to drill to gain further data. In phase 2, it is planned to
complete 140 wells and reach schemed production. In phase 3, 34 more wells will be
completed to maintain the production of 600,000 m3/d.
The CBM recovered is planned to pump to Taiyuan using as town gas. There are more than
2 million populations in Taiyuan, which is only 60 km from Shouyang. Currently the city gas
supplied to Taiyuan is mainly coking gas, which pollute ambient atmosphere very much.
Taiyuan City is intended to introduce CBM with gate price of 1.2 yuan from Shouyang.
The CBM surface development project is schemed to initiate from 2003, the designed
capacity of which is 200 million m3/a, with service life over 20 years. The major technical and
economic index of the CBM surface development project is shown in Table 6.
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Table 6. Major technical and economic index of the CBM surface development project
Item Index
Total investment 694.68 million yuan
Production capacity 200 million m3/a
Number of production wells 184
Investment per well 3.12 million yuan
Well spacing 0.25 km
Single well production 4000 m3/d
5.3 Financial analysis
The project total investment is 694.68 million yuan. The enterprise plans to raise 65% of the
total investment of the project from banks, foreign companies and overseas financial
organizations. The other 35% will be solved by YCG as equity.
The single well annual depreciation is 208,000 yuan and the operating cost is 300,000 yuan.
In stable production period, the production is 200 million m3/a, therefore the CBM production
cost is roughly 0.47 yuan / m3.
The discounted cash flow method is used to analyze the profitability of the CBM project.
Assuming a real discount rate of 12%, inflation rate of 3%, value-added tax for CBM
production of 5%, income tax of 33%, and CBM gate price of 1.20 yuan/m3, the results of the
project economic evaluation are shown in Table 7. The main affected factors to the
evaluation of the project are the total investment, CBM sales price and operating cost. The
results of the sensitivity analysis for the variation of each factor are shown in Fig.3.
Table 7. The results of the economic evaluation of the project
Item Index
Total investment 694.68 million yuan
Price at well site 1.20 yuan/m3
IRR 18%
NPV 120 million yuan
Pt 12 years
30% _
Gas price
25% —
—-—
1j5%
Operating costs
10%_
Project investment
5% —
I I
I I
-20% -10% 0% 10% 20%
Fig.3 Sensitivity analysis curve of the CBM surface development
The results show that this project would have better profitable capability as well as anti-risk
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capability. At the same time, the variation of CBM sales price would have the largest
influence on the economic results of the project.
5.4 The benefit of energy saving and environment protection
The project will replace coal as city gas with annual capacity of 200 million m3, according
heat value, which can replace standard coal 1.064 million ton. In Yangquan mining area, the
sale coal heat value, sulphur and ash content is 6500kcal/kg, 0.8% and 10% respectively.
Thus, the implement of the project can reduce fly ash 2.06U slag 97,000t and S02 15,000t.
As to C02 emissions reduction from the project, the combustion of CBM 200 million m3
would emit C02 368,000t; in contrast, consuming 1.064 million ton standard coal will emit
C02 2.83 million ton. In total, the execution of the project can reduce C02 emission 2.462
million ton.
5.5 The major barriers to the project execution
1) Lack of the success demonstration project
Recent years, there are high enthusiasms on CBM development with surface wells in China.
But due to the economic and technical reasons, there is no success model.
2 ) Lack of fund
Recent years, due to the weakened coal market, the operating benefit of YCG is affected in
certain measure. YCG could not solely undertake this investment and is urgent need for
introducing certain outer fund involved.
5.6 The project requirements and existing conditions
The project needs foreign investors to be involved. The total investments reach 694.68
million yuan, of which exploration cost 4.38 million yuan will be provide by foreign company
in the form of venture exploration. Other investment source and proportion are to be
determined by discuss.
The exist conditions for the project implementation are as follows:
1) Rich CBM resources in Yangquan mining area and good development conditions.
2) Taiyuan City government lays stress on the city gas, therefore market is ensured.
3) YCG is able to provide 35% of the total investment as well as necessary technicians.
5.7 Risk analysis
The risk of the project is from two sides, market and technology. The reliability and suitability
of CBM surface development technology will direct affect the economic results. In the market
side, it is very important to the project profitable whether the user contract can be signed or
not before the project initiated.
6. The Extension of Underground CMM Recovery Project
6.1 Project overview
This project is to take underground CMM development as a sector. The production scale of
the project is 60 million m3/a and all the gas production will be provide to Yangquan City
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using as town gas. At present, YCG underground CMM recovery is mainly to solve the mine
safety, with low recovery rate as 25%. The extension of underground CMM recovery project
is not only increased the recovered CMM, but also increase the coal productivity. It has the
characteristic of less investment, fast step and better effect. Therefore, YCG planned four
means to increase the CMM recovery to gain more profit.
1. To input more surface and underground equipment, to fully bring the CMM potential into
play in coalmine No.5.
2. To adjust the mining method and series in coal mine No. 1-3, Xinjing, and input more in
the seam 12 and adjacent seams to increase the CMM recovery.
3. To increase the gob CMM recovery rate from 10% to 15% of the total.
4. To test the abandoned mine CMM drainage. The comparative study shows that the
abandoned mine methane drainage in Yangquan mining area will increase CMM
recovered greatly.
It is predicted that with above-mentioned four sides work done, the recovered CMM will be
over 30% of the total, and the recovered CMM will increase 60 million m3/a. If the investment
is available, some work can be completed in 1- 2 years. YCG propose to start the project in
2002.
6.2 Financial analysis
The total investment of the project is 90 million yuan. The 65% of total investment is planned
to be introduced from outside investment and fund sources. The other 35% of the
investment will be supplied by YCG as equity. The project may gain 60 million m3 more CMM
annually. It is calculated as stable 20 years production with CMM price of 0.6 yuan, the
product value will be 480 million yuan.
Based upon the other coal enterprise experience, the underground CMM operational cost is
0.3 yuan. Normally, the annual sell income is 36 million yuan, the operating cost 18 million
yuan, among which 4.5 million yuan depreciation, therefore the project annual benefit is 18
million yuan.
Discounted cash flow methods are used to analyze the capability for profitability of the CMM
project. The basic financial assumptions include a real discount rate of 12% and inflation
factor of 3%. After the project is put into operation, the income tax rate will be 0 for the first 5
years, after which the income tax rate is 33%. The major technical and economic index is
calculated and shown in Table 8. The main affected factors to the evaluation of the project
may be the total investment, CMM sales price and operating cost. Results of the sensitivity
analysis for the variation of each factor are shown in Fig.4.
Table 8. The major technical and economic index of the CMM extension project
Item
Index
Total investment
90 million yuan
Output capacity
60 million m3/a
CMM sale price
0.6 yuan/m3
IRR
12%
NPV
32 million yuan
Pt
10 years
12
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25% —
20% —
Gas price
Operating costs
Project investment
-20% -10% 0%
10% 20%
Fig.4 Sensitivity analysis curve of the CMM project
The financial analysis results show that this project has certain profitable ability. The
sensitivity analysis shows that the variation of the CMM sales price would have the largest
influence on the economic results of the CMM project.
6.3 The benefit of energy saving and environment protection
The project will replace coal as city gas. It is calculated according heat value, the project will
recover 60 million m3 more methane, which can replace standard coal 320,000 ton. In
Yangquan mining area, the sale coal heat value, sulphur and ash content is 6500kcal/kg,
0.8% and 10% respectively. Thus, the implementation of the project can reduce fly ash 0.62t,
slag 29,000t and S02 0.45t.
The project recovers 60 million m3 (42,700t) of CMM emissions annually, which is equivalent
to emissions reduction of 896,000 t/ C02. In addition, the project will burn 60 million m3 of
CMM, to emit 110,400t C02; in contrast, consuming 32,000t standard coal would emit C02
850,000t. Therefore, the execution of the project can reduce C02 emission 1636,300t.
6.4 The major barriers to the project execution
1) Lack of the success demonstration project
Due to the economy and technical reasons, there always takes CMM development as a
mine safety means. There isn't commercial operation success model, so that there is certain
risk for investing in this project.
2 ) Lack of fund
Recent years, due to the weakened coal market, the operating benefit of YCG is affected in
certain measure. The extension of underground CMM recovery project needs investment 90
million yuan initially. Therefore, YCG could not solely undertake this investment.
6.5 The project requirements and existing conditions
This project requires investor and technology providers. Investors are required to input 90
million yuan, which can be invested in the form of equipment lease. The technology provider
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need provide the advanced underground drainage equipment, or mature gob/abandoned
mine methane drainage method.
The exist conditions for the project implementation are as follows:
1) YCG is able to provide 35% of the total investment as well as necessary technicians.
2) Yangquan City government lays stress on the city gas, therefore market is ensured.
3) YCG has rich underground CMM drainage experience, which may provide all means of
convenient conditions for the project execution.
6.6 Risk analysis
The risk of the project is from two sides, market and management. In the market side, it is
very important to the project profitable whether the CMM price is ensured. In the
management side, it is extremely important whether the YCG will actively co-operate and
provide convenient conditions.
7. CMM Power Generation Project
7.1 Project overview
There are three self installed coal fired power plant, with remained annual capacity of 5X108
kWh, and in recent years, the power consumed by YCG is above 8X108 kWh. Based the
development scheme, in future 10 years, the power consumed by YCG will increase with
annual average 11%. There is much lack between supply and demand.
Since the market of CMM using as city gas is saturated, and YCG is lack of electricity, it is
decided to utilize part of captured CMM for power generation. It means to take the CMM
drained from coal mine No. 1, 2 and 4 to supply city gas system, and take the CMM
captured from mine No.3 and Xinjing for power generation.
At present, the CMM captured from mine No.3 and Xinjing is about 32 million m3. If it is fully
used for power generation, considering 5% leaking, the CMM can be used for power
generation is 30.40 million m3. According to calculation, the methane from those mines can
assist an 11 kW CMM power plant. The major technical and economic index of CMM power
plant is shown in table 9.
Table 9. The major technical and economic index of the CMM power plant
Item
Unit
Quantity
Remarks
Installed capacity
MW
11
Power generated
10® kWh/a
79.20
Yearly operating 7200 hours
Power can be supplied
10® kWh/a
73.26
Exclude self-consumed 6% and
CMM consumed
10® m3/a
23.76
line loss 1.5%
Standard gas consumption
m3/kWh
0.3
Pure methane
Construction period
year
1
Total investment
million yuan
64.60
Investment per unit
yuan /kW
5,873
The CMM power plant is planned to build near Xinjing mine, where the CMM source is close
and power grid fly over. If the investment available, it is possible to be completed within a
year. The service life is over 10 years.
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7.2 Financial analysis
The total investment of the project is 64.6 million yuan, of which the 35% will be provide by
YCG as equity. The other 65% (41.99 million yuan) of total investment is planned to be
introduced from banks, foreign companies and overseas financial organizations. The loan
interest should be lower than 6.5%.
35%
Electricity price
30%
Operating costs
20%
Investment per kW
15%
10%
-20%
-10%
0%
10%
20%
Fig.5 Sensitivity analysis curve of the CMM power generation
Discounted cash flow methods are used to analyze the capability for profitability of the CMM
project. The basic financial assumptions include a real discount rate of 12% and inflation
factor of 3%. After the project is put into operation, the income tax rate in first 5 years is free,
then 33%. The electricity price is 0.28 yuan/kWh, the power generation cost is 0.20 yuan/
kWh, and the CMM price is 0.3 yuan/m3. The results of the preliminary economic evaluation
for the CMM power plant are shown in Table 10.
The sensitivity analysis of the project is based on the investment per kW, power price on
sale and operation cost (Fig.5). The results indicate that this project would be highly
profitable. The electricity price variation is the factor that affects profitability the most.
Table 10. The major economy index of the CMM power generation project
Item Index
CMM price 0.3 yuan/m3
Electricity price 0.28 yuan/kWh
Methane consumption 23.76 million m3/a
IRR 23%
NPV 14.95 million yuan
Pt 7 years
7.3 The benefit of energy saving and environment protection
When put into operation, the power plant will consume 23.76 Mm3 of CMM annually.
Currently, YCG's coal fired power plant has a heat rate of 0.373 kg/kWh, therefore the CMM
power plant can save 29,500 t of coal per year. In Yangquan mining area, the sale coal heat
value, sulphur and ash content is 6500kcal/kg, 0.8% and 10% respectively. As a result,
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power generation using CMM can correspondingly reduce fly ash 24.5t, slag 817.5t and S02
418t.
The project can reduce CMM emission 23.76 million m3(16,900t), which is equivalent of
reducing C02 emission 354,900 t. As to the C02 reduction of the whole project, it burns
CMM 23.76 million m3, to emit C02 436,000 t; in contrast, consuming 29,500t standard coal
will emit C02 78,400 t. In total, the execution of the project can reduce C02 emission
390,000 t.
7.4 The major barriers to the project execution
1) Lack of Technologies
The capacity of domestically produced gas engines for power generation is small and
reliability is poor. It is necessary to introduce advanced power generation equipment from
abroad, and have training for the staff of the power plant.
2) Lack of Funds
The investment of 75 million yuan is needed for the project. It is difficult for YCG to fund this
amount without outside financing.
7.5 The project requirements and exist conditions
This project requires investors and technology providers as partner. Technology providers
should provide complete sets of gas fired generation equipment and training for personnel.
Investors are required to input 41.99 million yuan, which can be invested in the form of
leasing the equipment.
The exist conditions of the project are as follows:
1) YCG is capable to provide 35% of the total investment, as well as necessary
technicians.
2) The quality and quantity of CMM is ensured to supply.
3) YCG is a big power consumer. So the electricity can be consumed within YCG.
7.6 Risk analysis
The risk of the project is from two sides, technology and market. The reliability of equipment
and suitability will directly affect the CMM power plant operation. In the market side, it is very
seriously affect the project profitable that the variation of CMM price and electricity price.
8. Conclusions and Suggestions
(1) There is rich CBM resources in Yangquan mining area, with less than 1500m. The
CBM resource is 687.4 billion m3. There are multiple seams with certain thickness,
which deposit shallow with high gas content, good reservior condition.
(2) YCG is one of Chinese largest 520 industrial companies, and has achieved profit for
8 years. Which sufficient fund, high bank credit and rich human resource, the
enterprise is capable to manage CBM/CMM development and utilization project.
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(3) There is certain base of CMM drainage and wide utilization market. At present, the
annual CMM recovery is around 120 million m3. There is much lack between supply
and demand of electricity in YCG and in adjacent cities, there is CBM supply lack. So
there is no market problem for CBM/CMM recovered.
(4) Based upon the CBM/CMM potential and market conditions, the CMM recovered can
be provided to Yangquan City using as town gas. The CBM developed from surface
well in Shouyang area can be supplied to Taiyuan.
(5) The CBM/CMM development and utilization projects may adopt the pattern of
product share contract, co-operation, or equipment lease. The fund source can be
banks, foreign investors and overseas financial organizations.
(6) At present, the major barries of these projects in Yangquan mining area are lack of
funds, technologies and the irrational management. The risks of these projects are
the suitability of new technique and the variation of the CBM/CMM price.
In order to speed up the development of the CMM industry in the Panjiang mining area,
suggestions are made as follows:
(1) To actively introduce foreign funds and technologies to quicken the execution of the
CBM/CMM projects. To combine the coal production with CMM development, and
fully utilize the government and enterprise fund source to development the
CBM/CMM resources in Yangquan mining area.
(2) To reorganize specialized CBM/CMM development organization, which take all kind
of CBM/CMM development and utilization project, fully mobilize the existing inner
source; actively promote the CBM/CMM development utilization.
(3) The CBM/CMM market development should follow the principle of from small to large,
from near to remote. The extension of underground CMM recovery project should
aim at local market. The CBM surface development project should consider the gas
supply to adjacent cities.
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China Coalbed Methane Clearinghouse
China Coalbed Methane Clearinghouse (CBMC), which is funded jointly by the former
Ministry of Coal Industry, PRC and the US Environmental Protection Agency, was
established in August 1994. The Clearinghouse is part of the China Coal Information
Institute. The goal of the Clearinghouse is to promote the development of coalbed methane
recovery and use projects in China.
The Clearinghouse undertakes a variety of activities, including:
• Providing consulting services to developers, including financial, market, and economic
analyses of potential coalbed methane projects;
• Creating a domestic industry network for information exchange and project development
and connecting potential developers with these contacts;
• Providing logistic support to representative of foreign organizations visiting China;
• Organizing conferences, workshops and technical seminars;
• Researching and publishing technical documents, including journals and reports;
• Recommending policies on coalbed methane recovery and use to government
agencies.
With regard to the US EPA sponsored project Coal Mine Methane Market Development, the
Clearinghouse prepares data packages of coal mine methane projects in 8 key mining areas,
including Panjiang, Jincheng, Huainan, Huaibei, Fushun, Yangquan, Pingdingshan and
Jiaozuo, and disseminates these data packages to interested investors and developers for
international technical and economic cooperation in CMM projects. This data package of
Panjiang is prepared by Mr. Huang Shengchu, Mr. Xu Huijun, Mr. Zhu Chao and Ms. Liu Xin
of the the CBMC, Mr. Bai Wunxiang, Mr. He Suli and Mr. Liu Zilion of the Yangquan Coal
Group Co., Ltd. and reviewed by Mr. Karl Schultz of US EPA and Mr. Li Baoyu of the
Yangquan Coal Group Co., Ltd. The Clearinghouse also acknowledges the input from the
Raven Ridge Resources Inc.
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Mr, Edu Hassing (middle)
from Asian Development
Bank and Mr, Charles
Johnson (fourth from left)
from West-Fast Center
worfc log ether with
specialise form Yangqitan
Coal Group Co., Ltd, and
the Clearinghouse in Sield,
Six gas holders have bean
buiH in Yangquan mining
area, with total storage
capacity ot 160.IXID m-',
W: J Hk '
- - ^ —m
jLMr ^|
Esghl surface gas drainage
stations have seen
JT^
consiructsd-with total
drainags about 120million
mrVa_
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