I
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Chairman: Zhang Shixin
President: Zheng Hua
Dear Colleague,
Panjiang Coal & Electric Power Group Co.,
Ltd. is located in the western part of Guizhou
province. Since its establishment in 1966, this
company has developed into one of the 520
most important enterprises in China. Now, the
total assets of this company are over 4.0
billion yuan and its employees over 25,000.
The company has been granted with "AAA"
grade in credibility with the bank.
With a total area of 649km 2, there are 6
active mines in Panjiang mining area. The
total designed capacity of the mines is 8.55
Mt/a and the actual coal production is about
6.0 Mt/a. According to the overall
development plan for Panjiang mining area,
coal production capacity will be increased up
to 15.0 Mt/a by the year 2008.
Coalbed methane resources are rich in
Panjiang mining area, with total resources of
124.3 billion rrB and gas content at 10-20
m3/t. 10 gas drainage systems have been
constructed with total drainage capacity over
150.0 million m3/a. The actual drainage in the
year 2000 was 42.0 million m3 . However,
only about 2.0 million m3 of coalbed methane
drained is utilized. Presently, the main use
options of CMM in Panjiang include town gas
and power generation. Push the
implementation of CMM use projects, a total
of 35.0 million yuan of loan with discounted
interests has been approved by Guizhou
provincial government.
With the development strategy of coal mining
as the core business and diversified economy
sharing equal importance, coalbed methane
development and utilization has become one
of the most important areas of the diversified
economy of the company. With the
well-established coalbed methane drainage
systems and very rich experiences in
residential use of coalbed methane, Panjiang
coal mining area will surely have brighter
future and promising prospects in coalbed
methane development and utilization.
Investors from all over the world are welcome
to come here for investigation and talks with
Panjiang Coal & Electric Power Group Co.,
Ltd. for cooperation in CMM projects in
Panjiang coal mini ng area.
Sincerely,
Zhang Shixin
Chairman, Panjiang Coal & Electric Power
Group Co., Ltd.
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Executive Summary
Background
Panjiang Coal & Electric Power Group Co. (PCEPG) is one of the 520 largest industrial
enterprises of China and it is also the largest coal mining company in the southern part of this
country. Coal resources in the Panjiang mining area are estimated at nearly 48 billion tons,
and coalbed methane resources in the area are estimated at 124.3 billion m3. Present actual
coal production from Panjiang's six mines is about 6 million t per year (Mt/a). According to
PCEPG s development plan, total annual coal output of the company will surpass 10 Mt/a by
2005 and reach 21 Mt/a by 2010.
All mineable coal seams in Panjiang mining area are gassy, with gas content ranging from 10 -
20 m3/t. Total methane emissions from the six mines are as high as 200 million m3 per year, and
emissions are increasing. Along with the expansion of coal production and the commissioning of
new mines, total coalbed methane emissions will increase considerably. According to available
geological data and drilling data, coalbed methane drainage could be increased to over 500
million m3/a if underground drainage and surface drainage were carried out simultaneously.
Investment Opportunities
Presently, less than 5% of all methane drained is utilized, but PCEPG wishes to make full use of
its coalbed methane in order to profit from gas sales and gas fired power generation.
Following is a summary of the two potential CMM utilization projects for which PCEPG is
seeking investment:
1) Supply CMM to households, and to supplant coal at an existing power plant. This project
would use CMM to replace coal as a residential fuel, and would replace the use of medium
heating value coal in the existing Laowuji power plant as well as the diesel oil that is
currently used for ignition. The Guizhou Provincial Economic and Trade Commission has
already provided a total of 35.0 million yuan ($US 4.217 million) in the form of a low-interest
rate loan to execute this project. PCEPG is seeking an additional 37.8 million yuan ($US
4.554 million) from other investment or financing sources to undertake this project. Based
on a total investment of 112 million yuan ($US 13.494 million), the estimated net present
value (NPV) of this project would be 42.9 million yuan ($US 5.181), the estimated internal
rate of return (IRR) would be 19.33%, and the payback time would be 6.04 years. PCEPG
proposes to begin the project in 2001 Year and anticipates that it would be fully implemented
by 2003 year.
2) CMM power generation project This project entails the construction of two CMM-fueled
demonstration power plants. A proposed 9 MW plant at the Laowuji mine will consume
64,800 m3 of CMM per day. A proposed 2 MW plant at the Tucheng mine will consume
14,400 m3 of CMM per day. The mines will consume the generated power. Total cost of the
project is estimated at 75 million yuan ($US 9.036 million). Of this total, PCEPG would
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provide 35%, and is seeking the remaining 65% from outside investment or financing
sources. Based on the total investment of 75 million yuan ($US 9.06 million), the estimated
NPV of this project would be 23.3 million yuan ($US 2.807 million), the estimated IRR would
be 22% and the payback time would be 7 years. PCEPG proposes to begin the project in
2001 year and anticipates that it would be fully implemented by 2002 year.
PCEPG recognizes that investment in these projects entails certain inherent risks, such as
potential fluctuations in CMM and electricity sales prices, and is prepared to help potential
investors address these concerns. PCEPG can also answer questions about other important
issues such as repatriation of profits.
PCEPG will consider various types of partnerships and financing sources in order to realize the
proposed projects. Representatives of banks, foreign companies, foreign governments and
international agencies are encouraged to review the attached marketing package and contact
us for more information:
Mr. Chen Fuqing
Chief Engineer
Panjiang Coal and Electric Power Group Co., Ltd.
Panxian County
Guizhou 561609, China
Tel:0086-858-3700800
Fax: 0086-858-3700800
Email:pjic@public2. gy.gz.cn
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1. Overview
The Panjiang mining area is located in the southwest part of Guizhou province. The total mining
area covers 649 km2, containing an estimated 47.9 billion t of coal reserves. Most of the coal
reserves in the mining area are bituminous with medium volatile matter. The coal deposit has a
strong capacity for gas generation and storage. The mining area contains abundant coal mine
methane (CMM) resources. Total estimated CMM resources buried shallower than 500 m are
124.3 billion m3. For the purpose of coal mine safety, a well-equipped CMM recovery system
has been established in each coal mine in the Panjiang mining area. The total capacity of gas
recovery is estimated at 150 million m3/a. At present, due to a shortage of gas utilization
facilities, CMM recovery is at a minimum level. Pure methane recovery in 2000 reached 42
million m3, but less than 2% of the recovered methane was utilized.
Based on the market situation, CMM household use and power generation are the most realistic
options for CMM utilization in the Panjiang mining area. Therefore, Panjiang Coal & Power
Group Co. Ltd. is planning to establish a comprehensive CMM utilization project and a CMM
power generation project.
The proposed Panjiang CMM comprehensive utilization project is based on local gas supply
and market demands, plans for gas supply and distribution, and the sale of recovered gas to
achieve the full utilization of CMM resources. This project will provide 163.7 million rrf of
commodity methane annually. The service life of the project will be 18 years.
Following household use, the comprehensive utilization project would use surplus gas to fuel
two CMM power plants with a total installed capacity of 11 MW. The mining area would use all
of the electricity generated in the two power plants. This project will use 23.76 million rrf of
methane annually, and project life will be 20 years.
These two projects will be planned and implemented by Panjiang Coal & Power Group Co. Ltd.,
as a commercial project. Results of a preliminary financial analysis are shown in Table 1.
Table 1. Results of Financial Analysis for the Coal Mine Methane
Utilization Projects in Panjiang Mining Area
Project
Total Investment
(million yuan)
Operating Costs
(million yuan)
Sales revenue
(million yuan)
IRR
(%)
Pt
(year)
CMM Comprehensive
103.47
28.55
58.93
19.33
6.04
Utilization
CMM Power Generation
75.0
11.88
24.91
22
7
2. Introduction to the Enterprise
The predecessor of the Panjiang Coal & Power Group Co. Ltd. (PCPGC) was Panjiang Coal
Mining Administration, which was established in 1966. After more than 30 years' development
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arid construction, PCPGC has developed and become a large state-owned industrial enterprise.
PCPGC s main business is coal production, and other businesses include coal mine
construction, civil engineering and installation, geological exploration, coal washing and
preparation, building materials, and power generation. At present, the annual raw coal output of
the enterprise is about 5 Mt. Its annual coal output ranks first among coal enterprises in the
southwest provinces.
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Currently, PCPGC has 6 active coal mines and 3 coal washing plants. Designed capacities of
raw coal production and coal washing & preparation are 8.55 million t (see Table 2). Limited by
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the capacity of the railway transportation, the actual coal output has been around 5 million t. To
increase the capacity of coal transport, the Nan-Kun railway (from Nanning to Kunming) is now
under construction and is planning to be put into operation by 2002. Thus, PCPGC is planning
to set up two new coal mines. Raw coal production is expected to increase to 21.4 million t by
the year of 2015 (see Table 3).
Table 2. The Designed Capacity of Coal Mines in Panjiang Mining Area
Coal Mine Production Capacity (105 t/aj
Tucneng
2,400
Yueliangtian
600
Shanjiaoshu
450
Laowuji
900
Huopu
2,400
Jinjia
1,800
Total
8,550
Table 3. The Production Plan for Panjiang Mining Area (103 t/a)
Coal Mine
2005
2010
2015
Active Mines
Huopu
2,400
2,400
2,400
Yueliangtian
900
900
900
Shanjiaoshu
900
900
900
Laowuji
1,200
1,200
1,200
Tucheng
2,400
2,400
2,400
Jinjia
1,800
1,800
1,800
Planned Mines
Xiangshui
1,000
4,000
10,000
Songhe
1,800
1,800
Total
10,600
15,400
21,400
PCPGC is one of the 520 largest enterprises in China. Since the government has not restricted
coal prices since 1993, company profits have been going up year by year. In recent years,
affected by the weakened coal market, profits decreased to some extent. However, the yearly
average profit has remained around 10 million yuan. In 1999, total assets of the enterprise
reached 3.96 billion yuan. Raw coal output was 4.92 million t, maintaining profit for 7 successive
years. Total accumulated profits have been up to 225 million yuan, qualifying PCPGC as a
"AAA" grade enterprise in bank qualification and credit.
3. Coalbed Methane Resources
The overall geologic structure in the Panjiang mining area is complicated, but the structure
within each mining field is simple. Coal-bearing strata in the mining area belong to the Upper
Permian Longtan formation, generally containing 40 to 50 and more layers of coal. Total
thickness of the coal seams ranges from 20 to 40 m. There are 12 to 22 recoverable and partly
recoverable coal seams, of which 6 to 12 seams are recoverable. Thickness ranges from 16 to
27 m. The interburden between coal seams is small, generally 5 to 12 m (Figure 1).
Permeability is not high for most of the recoverable coal seams, which makes gas recovery
difficult. However, according to the experience of PCPGC, when coal seams have been relaxed
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by coal mining their permeability usually increases, and coalbed methane recovery becomes
easier. Daily gas production for a single well in the relaxed zone can reach 30,000 m3/d or more.
Coalbed methane resources in the mining area are described in Tables 4 and 5.
Table 4. Coalbed Methane Resources in Panjiang Mining Area
Parameter
Quantity
Depth of Coal Seams
Major Coal types
Gas Content
Permeability of coal seams
Coalbed Methane Resources
shallower than 500 m
medium volatile matter bituminous coal
10-20 m3/t
up to 1.67 md
124.24 billion m3
Table 5. Coalbed Methane Resources in the Mining Fields
Mines Miningfields Miningfields
_____ ._ ... ._ ._.....
Coalbed Methane Reserves(billion m3) 24.48 40.11 59.68 124.3
The above-calculated coalbed methane resources exclude those within surrounding strata and
gob areas of the producing mines. Total resources are likely to be lower than actual resources.
It is estimated that the prospective resources could be more than 200 billion m3.
4. Current Status of CMM Recovery and Utilization
The Panjiang mining area has 6 operating mines, of which 3 mines are gassy and outburst
mines and other 3 are high gassy mines. A well-equipped CMM recovery system has been
established at each coal mine. In 2000, methane emissions from the Panjiang mining area
reached 205 million m3 and coal production amounted to 500 Mt.
Panjiang mining area has 10 pump stations used for gas recovery, and 35.3 km of pipelines.
There are two sets of recovery systems at high and low negative pressure, respectively. CMM
recovery over the past few years in the Panjiang mining area is shown in Table 6.
Table 6. CMM Recovery in Panjiang mining area From 1996 to 1999 Uint: X103 m3
year
Laowuji
Snanjiaoshu
Yueliangtian
Tucheng
Huopu
Total
Mine
Mine
Mine
Mine
Mine
1996
27T0-
7-gy-Q-
-
1997
8,100
1,590
12,330
7,010
-
29,030
1998
14,240
4,170
9,350
7,830
760
36,350
1999
11,760
7,200
8,300
6,840
3,680
37,780
2000
14,240
7,160
10,000
8,900
2,260
42,560
The existing recovery method in Panjiang mining area is mainly based on the production safety
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of coal mines. Only one in-mine drainage method is used, so the efficiency of gas recovery is
only 25%. If an advanced recovery method is adopted, and the gas recovery is combined with
development, there would be no need to equip additional recovery facilities; using existing
recovery equipment, the annual methane production could reach more than 150 million rrf.
According to geological and borehole data from the coal mines, if a comprehensive method
which combines surface drilling with in-mine pre-drainage from producing mines is adopted, the
annual CMM output could be higher than 500 million m3
The Panjiang mining area started preparing for setting up CMM household use projects in 1986.
In 1998, two CMM town gas systems were established in the Shanjiaoshu and Yueliangtian
Mines, and a 10,000 m3gas storage tank and related safety equipment was installed in the two
mines, respectively. In 1999, just 1.95 million m3 of methane was utilized.
Based on the current status of coal mining, the development plan in each coal mine, the test
results of CMM recovery by surface boreholes drilled into released zones, if comprehensive
CMM drainage is performed, the capacity of gas recovery and service life of the Laowuji,
Shanjiaoshu, Yueliangtian, Tucheng, Huopu and Jinjia Mines can be estimated and is shown in
Table 7. If the recovered CMM can be sold at 0.1yuan/m3, the PCPGC will be willing to invest in
the gas recovery systems by their own money, and the investment will not be included in the
budget of the following gas use projects, but included in the budget of mine safety projects.
Table 7. Stable CMM Production at Each Mine of Panjiang Mining Area
Mine
Stable CMM production
(Pure methane, m3/min)
Service Life
(years)
Laowuji
45
55
Shanjiaoshu
15
55
Yueliangtian
20
55
Huopu
10
180
Jinjia
15
180
Tucheng
17
162
5. CMM Comprehensive Utilization Project
5.1 Project Description
The Panjiang mining area is located in the south part of Guizhou province where there are no
conventional natural gas resources. Coal is a commonly used fuel for residents in the mining
area and nearby small cities. Coal is also used as fuel by the local small power stations, which
results in serious pollution to the environment. The purpose of the project is to fully take
advantage of the existing facilities for obtaining maximum profits, to completely recover the
drained CMM and supply it to the residents in the mining area through pipelines, and to supply
the Laowuji power plant and the two planned CMM power plants. CMM supplied to the power
plants will substitute for medium heating value coal and the diesel used for ignition.
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Table 8. Gas Supply Capacity of Sub-project (pure methane)
Sub-project Name
Methane Recovery
(m3/min)
CMM used
(m3/d)
Supply Capacity
(m3/d)
Laowuji-Shanjiaoshu-Yueliangtian
105
10,200
141,000
Huopu-Gangouqiao-Hongguo
35
0
50,400
Tucheng
17
0
24,480
According to the existing coal mines, the distribution of residential buildings in the mining area,
and the development plan, the CMM comprehensive utilization project for the production mines
in PCPGC will be divided into three sub-projects, i.e., the Laowuji-Shanjiaoshu-Yueliangtian
sub-project, Huopu-Gangouqiao (where the PCPGC headquarter is located)-Hongguo
sub-project, and Tucheng sub-project. The capacity of gas supply for each sub-area is shown in
Table 10.
Based on the statistics, there are 59,200 household users in Panjiang mining area. The daily
demand for the pure methane is 59,200 m3 The coal refuse power plant in the Laowuji Mine
consumes 63,442 m3 of pure CMM per day. CMM demand for each sub-project is as shown in
Table 9.
Table 9. Gas Consumption of Users in Sub-project
Sub-project Name
Pure Methane
Consumption (m3/d)
Percentage (%)
Accounting for Gas Supply
Laowuji-Shanjiaoshu- Yueliangtian
71,549
50.74
Huopu-Gangouqiao-Hongguo
48,825
96.88
Tucheng
8,400
34.31
Total
128,774
59.65
Since the daily gas consumption of users in the sub-areas of Laowuji-Shanjiaoshu- Yueliangtian
and Tucheng accounts for a small percentage of the daily gas supply, PCPGC is planning to set
up two CMM power plants, one at the Laowuji Mine with an installed capacity of 9 MW, and
another will be at the Tucheng Mine with an installed capacity of 2 MW. Daily CMM consumption
of the two power plants will be 64,800 m3/d and 14,400 m3 /d respectively.
This project is scheduled to start implementation by the end of 2001, and the construction
period will be two years. Total investment for the project is 112 million yuan, of which fixed
assets investment will be108.22 million yuan, and the working capital 3.78 million yuan (see
Table 12). The enterprise plans to raise 35% of the project total investment, and the other 65%
will come from the loan to be applied from financial organizations concerned. At present, the
Economic and Trade Commission of Guizhou province has provided to PCPGC 35 million yuan
of the preferential loan (the actual interest of the loan is zero). The rest is expected to come
from commercial loans or overseas investment.
5.2 Financial Analysis
In accordance with the market study, the CMM price acceptable to residential users in the
Panjiang mining area is 0.5 yuan/m3 (CH4 concentration 45%). The gas supply price at the mine
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mouth that can be acceptable to PCPGC is 0.1 yuan/ m3 (CH4 concentration 45%). The financial
analysis of the project uses discounted cash flow methods. The main financial assumptions
include: real discount rate 12%, inflation rate 3%, exemption of income tax for the first 5 years.
After calculation, the results of the project economic evaluation are as shown in Table 10.
Table 10. Results of Economic Evaluation
Item Quantity
Designed Gas Supply (106 m3/d) 181
Total Investment (10 yuan) 112.0
AnnualSales Tax (106yuan) 9.0
Annual Sales Profit (10 yuan) 21.2
Financial Internal Rate of Return
(total investment, %) 19.33
Financial net present value
(ic= 12%, 10s yuan) 42.9
Payback Period (years) 6.04
The following factors may vary during the calculation for the project: sales price, gas supply
amount, total investment and operating cost. Results of the sensitivity analysis for the variation
of each factor are shown in Fig.2. The results indicate that this project would be highly profitable
and the variation of CMM sales price would have the largest influence on the economic results
of the CMM project.
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1
c 22
— a
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16
i
i i
.20 -10 +0 +10 +20 Variation hi Ptr«nU|e
Fig.2 Sensitivity Analysis Curve
5.3 Analysis of Energy Savings and Emission Reduction
When put into operation, the project will provide CMM as fuel for household use in the mining
area and Laowuji coal refuse power plant and CMM power plant. The following benefit analysis
for energy savings and environment protection excludes the CMM power plant because it will be
considered as a separate project.
According to calculation, CMM using as fuel for household can save 121,000 t of raw coal. In
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the Laowuji coal refuse power plant, CMM can save 43,5001 of medium heating value coal and
1001 of diesel with a heating value of 46 MJ/kg per year. As a result, S02 emission was reduced
by 1,6461, slag discharge was reduced by 33,0891 and fly ash 1,7421.
The project also recovers 44.77 Mm3 (31,8001) CMM emissions annually, which is equivalent to
the reduction of 0.667 Mt of CO2 emission. As to CO2 emission reductions from the project due
to combustion, the combustion of 44.77 Mm3 of CH4 would emit 82,000 t of C02 annually, in
contrast, consuming 121,000 t of raw coal, 43,500 t of medium heating coal and 100 t of diesel
would emit 340,0001 of C02. Thus, the actual reduction in C02 emissions would be 0.925 Mt of
C02. Table 11 summarizes the environmental benefits of the project.
Table 11. Emissions Reductions of CMM Power Generation Project
Type of Emission
Amount Reduced Annually
Sulfur dioxide
1,646 tons
Slag
33,089 tons
Fly Ash
1,742 tons
Greenhouse Gases (C02 equivalent)
0.925 Mt
5.4 Cost Analysis for the Reduction of the Greenhouse Gas Emission
After the CMM utilization project in PCPGC reaches designed capacity, the yearly operating
cost will be 28.55 million yuan and C02 emissions will be reduced by 0.925 million t. Therefore,
the cost of the emission reduction of each ton of C02 is:
2855/92.5 = 30.9 (yuan/t C02)
Assuming that coal and diesel is still used as fuel, the raw coal price and medium heating value
coal price is 120 yuan/t and 100 yuan/t respectively; if the diesel price is 2.65 yuan/liter, then
total cost of the fuel is 19.2 million yuan. Therefore, the incremental cost for C02 emission
reduction is
(2855 -1920) /92.5 = 10.1 (yuan/t CCk)
5.5 Major Barriers to Project Implementation
1) Lack of Successful Demonstration Projects
Although coalbed methane development and utilization is going up rapidly in China, there has
been little economic result for coalbed methane utilization projects for various reasons, for
example, gas price is control led by local government not by market.
2) Lack of Funds
In recent years, due to the weakened coal market, the economic results of PCPGC were not as
good as before. So it is difficult for the enterprise itself to contribute enough money to CMM
projects. Therefore, a portion of the funding must come from outside the enterprise.
5.6 Project Requirements and Existing Conditions
This project requires the participation of investors. Total investment in the project will be as high
as 112 million yuan. Approximately 49 million yuan of the loan will be needed to fill the funds
shortage. The interest rate of the loan should be lower than 8%. The participation of external
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investors will not only solve the problem of the funding shortage, but also enhance the
confidence of the high-level leaders of PCPGC.
The existing conditions for the project implementation are as follows:
1) The Panjiang mining area has abundant CMM resources and good conditions for CMM
development;
2) The Government of Guizhou province fully supports the project and has provided 35 million
yuan of the preferential loan;
3) Two small-sized household use CMM utilization system have been established in the
Shanjiaoshu and Yueliangtian Mines. They have accumulated solid technical experience in
the construction of CMM transport and distribution facilities, and in the management of CMM
recovery pump stations.
4) Marketing of the CMM will be mainly conducted within PCPGC, and the CMM market will be
ensured.
5.7 Risk Analysis
The project risk mainly involves market and coal production issues. With respect to the market,
profitability will be depend on whether the CMM power plant is constructed at the scheduled
time and whether the gas purchase contract can be signed before the construction of the coal
refuse power plant project is started. Since CMM production is aimed at improving mine safety,
coal production will affect the CMM production in terms of quantity and quality.
6 CMM Power Generation Project
6.1 Project Description
PCPGC has two power plants, and the electricity generated averages around 100 million kWh.
In the past two years, annual power consumption of the PCPGC was over 300 million kWh.
Each year as much as 200 million kWh of electricity was purchased from the power grid, which
spent nearly 70 million yuan for the purchase of electricity each year.
According to the gas consumption for each sub-area described in Section 5, besides the CMM
recovered from Panjiang mining area supplying to the residents, the surplus gas is sufficient for
setting up a 9 MW and a 2 MW CMM power plant at the Laowuji and Tucheng Mines
respectively.
Based on annual average operating time of 7,200 hours for power generating equipment, the
annual electricity generated from two CMM power plants will be 79.2 million kWh, plus the
annual 100 million kWh of electricity generated from the previous power plant. The capacity of
annual power supply at PCPGC is still less than 60% of its annual power consumption, which
conforms to the stipulation by the power grid that the power supplied by a user itself is not
allowed to exceed 70% of its total power consumption.
This project is scheduled to import 11 gas-fired power generation units. Total installed capacity
is 11 MW. Yearly power generation will be 79.2 million kWh consuming 23.76 million m3 of pure
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methane. The service life of the project is 20 years.
The results of economic and technical evaluation of the CMM power plant are shown in Table
12.
Table 12. Results of Economic & Technical Evaluation for CMM Power Plant
Item
Unit
Quantity
Remarks
Installed Capacity
MW
11
Electricity Generated
106 kWh/a
79.2
Yearly Operating 7200 Hours
Suppliable Power
106 kWh/a
73.26
Exclude 6% self-used power And
1.5% line loss
CMM Consumption
103 m3/a
237.6
Pure Methane
Standard Gas Consumption
m3/kWh
0.3
Construction Period
month
6
Total Investment
million yuan
75.00
Investment per unit
yuan/kW
6818
6.2 Financial Analysis
Total investment in the project is 75 million yuan, of which 35% will be used as equity to be
raised by the enterprise itself. The remaining 65% of the funds (48.75 million yuan) are
expected to come from the loan provided by financial organizations. Assuming the interest rate
of the loan is 6%, the interest during the construction is 1.46 million yuan. Thus, the total
amount of the loan is 50.21 million yuan.
run t%>
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Fig.3 feasibility Analysis Curve
Discounted cash flow methods are used to analyze the capability for profitability of the CMM
power plant 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 electricity generated in this power plant
will be utilized by the enterprise itself. Assuming that the electricity price is same as the local
price of 0.34 yuan/kWh, and the CMM (CH4 45%) price is 0.3 yuan/m3, the results of the
12
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preliminary economic evaluation for the CMM power plant are shown in Table 13. The sensitivity
analysis of the project is based on the investment per kW, power price on sale and operation
cost (Fig.3). The results indicate that this project would be highly profitable. The electricity price
variation is the factor that affects profitability the most.
Table 13. Results of Economic Evaluation for CMM Power Generation Project
Item (Quantity
________ ________
Scale 11 MW
CMM (CH4 45%) Price 0.3 yuan/m3
Electricity Price 0.34 yuan/kWh
Methane Consumption 23.76 million m3/a
IRR 22%
NPV 23.29 million yuan
Pt 7 years
6.3 Analysis of Energy Savings and Emission Reduction
When put into operation, the power plant will consume 23.76 Mm3 of CMM annually. Currently,
PCPGC's coal fired power plant has a heat rate of 0.5kg/kWh, therefore the CMM power plant
can save 39,6001 of coal per year.
Pollutant emissions can be reduced remarkable by using CMM instead of coal to generate
electricity. The heating value, sulfur content and ash content of raw coal produced in Panjiang
mining area is 6000 kcal/kg, 0.5% and 18% respectively. As a result, electricity generation using
CMM can correspondingly reduce 1981 of S02, 67721 of slag, and 3561 of fly ash.
The project also recovers 23.76 Mm3 (16,9001) of CMM emissions annually, which is equivalent
to emissions reduction of 355,000 t of C02. As far as the project resulting in C02 emission
reductions is concerned, this project will burn 23.76 million m3 of CH4, emit 43,700 t of CQ>.
However, if coal is used as fuel, then 39,600 t of coal would be needed and 87,800 t of CCh
would be emitted. Therefore, this project will reduce C02 emission by 390,000 t. Table 14
summarizes the environmental benefits of the project.
Table 14. Emissions Reductions of CMM Power Generation Project
__ __
Slag 6,7721
Fly Ash 356 t
Greenhouse Gases C C02 plus CH4 expressed in
terms of C02 equivalent) 0.399 t
6.4 Cost Analysis for the Reduction of the Greenhouse Gas Emission
After the CMM power generation project reaches full operation, the yearly operating cost will be
11.88 million yuan and actual emissions reduction will be 399,000 t. So the cost of the
emissions reduction each ton of C02 is:
1188/39.9 = 29.8 (yuan/t CQ>)
Assuming that coal is used as fuel, the average operating cost of power plants in south-west
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China is 0.22 yuan/kWh, the yearly electricity generated in this project is 79.20 million kWh,
then the yearly operating cost will be 17.424 million yuan. Therefore, the increment cost for CQ>
emission reduction is:
(1188 - 1742.4) /39.9 = -29.3 (yuan/t C02)
6.5 Major Barriers to Project Implementation
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 PCPGC to fund this
amount without outside financing.
6.6 Project Requirements and Existing Conditions
This project requires investors and technology providers as partners. Technology providers are
required to provide complete sets of power generation equipment and technology, and training
for personnel. Investors are required to input 48.75 million yuan, which can be invested in the
form of the equipment lease.
The existing conditions of the project are as follows:
1) PCPGC is capable of providing 35% of the necessary funds related to the project and
technical staff needed for the project implementation;
2) CMM quality and efficient gas supply is ensured;
3) PCPGC is a big electricity consumer and will utilize the electricity generated.
6.7 Risk Analysis
The project risk mainly involves two aspects: technology and market. Reliability and adaptability
of the electricity generating equipment will have a direct influence on the operation of the power
plant. With regard to the market, variation of CMM price and electricity price will greatly affect
the profitability of the project.
7 Conclusions and Suggestions
(1) CMM resources shallower than 500 m in Panjiang mining area are 124.3 billion rrf. Gas
content ranges from 10 to 20 rrf/t on average with high permeability. Coal seams are
numerous with thin interburden, which is favorable to large-scale commercial development.
(2) PCPGC is one of 520 biggest industrial enterprises in China, and has achieved profit for 7
successive years. PCPGC has sufficient capital with high bank credit and strong loan
payback ability. PCPGC also has a variety of human resources, and is managing CMM
development and utilization projects.
(3) There are 10 CMM recovery pump stations equipped with good recovery facilities in
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Panjiang mining area. The annual recovery capacity is higher than 150 million m3. With the
expanding of production capacity, CMM recovery will be further increasing. Currently, CMM
utilization in the area is less than 2% of total recovered. CMM supply is sufficient.
(4) Based on the current status of CMM development and market conditions in the Panjiang
mining area, at present the priority of the CMM utilization project would be CMM household
use and a small CMM power generation project. All these projects are potentially profitability
and have strong environmental benefits. From a long term point of view, CMM produced in
the Panjiang mining area could be supplied to household users in nearby large and medium
cities, large CMM power plants, and a CMM synthesis ammonia project.
(5) At present, major barriers of the CMM projects in the Panjiang mining area are lack of
successful precedents and lack of funds and technologies. Mainly the risks for project
implementation involve the adaptability of new techniques and variation in CMM sales
prices.
In order to speed up the development of the CMM industry in the Panjiang mining area,
suggestions are made as follows:
(1) Introducing foreign funds and technologies to speed up the implementation of CMM
utilization projects in the Panjiang mining area, and promote the deployment of coalbed
methane sirface wells.
(2) Strengthening functions of the management departments in charge of CMM development
and utilization, simultaneously managing projects for CMM in-mine drainage and surface
drilling development, making full use of the existing resources of the eiterprise so as to
promote the development and utilization of CMM resources, taking every possible means to
increase the environmental benefits and economic results of CMM projects.
(3) The CMM market development should initially focus on small scale, local projects and
gradually be expanded to more distant areas. In-mine drained CMM should be mainly used
for households and power generation in the local market. With regard to large-scale surface
development, coalbed methane could be used to make chemical products and supplied to
surrounding large and medium-sized 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 disseminate 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. Lu Hongzhuang and Mr. Yang Ping of the Panjiang Coal & Electric Power Group Co.,
and reviewed by Mr. Karl Schultz of US EPA and Mr. Chen Fuqing of the Panjing Coal & Electric
Power Group Co. The Clearinghouse also acknowledges the input from the Raven Ridge
Resources Inc.
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Two gas holders have
been built in Panjiang
mining area, with total
storage capacity of
20,000 m3.
10 gas drainage systems
have been constructed,
with the total drainage
capacity over 1 50.0
million ma/a,
Three surface wells
have been drilled in
Panjiang mining area,
aimed at evaluating
the development
potential for coalbed
methane.
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Overview of Panjiang Mining Area
Panjiang Coal & Electric Power Group Co,, Hd,
China Coaltoed Methane Clearinghouse
Panxian County
35 Shaoyaoju, Chaoyang District
Guizhou 561609, China
Beijing 100029, China
Te'l:0OB6-858-370Q8OD
Tel: 0GB6-10-84610779
Fax: 0036-858-3700800
Fax: 0086-10-84610779
Email:pjit@public2.gy.gz.cn
Email: cbmc@public.bta.net.cn
Website: http://Vww.coa.1info.net.cn
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