China's first commercial production of coal-bed methane (CBM) has started with the kick-off of the Panhe CBM project located in Qinshui County of Jincheng, north China's Shanxi Province.

The first phase of the Panhe CBM project operated by the China United CBM (CUCBM), was formally completed on November 1, 2005. According to the project, 100 wells will be drilled in 2005. Till now, 81 wells have been drilled up, 15 of which have begun to produce CMB with a daily production of 2,000 cubic meters.

The Panhe CBM project is an important part of the hi-tech industrialization pilot projects approved by the National Development and Reform Commission.

According to the CUCBM, another 40 wells will start production in November, when construction of basic facilities for transporting and selling CBM is completed.

With the completion of the first phase at the cost of 360 million yuan (US$40 million), Panhe has been installed with a capacity to produce about 100 million cubic meters of CBM per year, making it the largest CBM commercial production and utilization center in the country. Prior to this, there were only a handful of small projects running on trial bases nationwide.

The Shanxi provincial government has pledged full support to CBM development and utilization. Yu Youjun, governor of the province said at the completion ceremony of the first-phase Panhe that no government interference would be imposed on constraining CBM pricing and marketing.

Earlier, the local government set a strict control over CBM prices and did not allow the CUCBM to sell CBM outside the province.

Till now, the CUCBM has signed CBM supply contracts with China Gas, the Shanxi Natural Gas Co. Ltd. and Shanxi Energy Group at 1.1 yuan per cubic meter. Though the current CBM production will be mainly used to meet local demand, CBM will be connected with China's West-East gas pipelines in the long run. That is, CBM produced in Shanxi will go to the eastern areas of the country.

According to the CUCBM, the company will complete the second and the third phases of the Panhe CBM project in the future. In the second phase, 400 wells will be drilled, with an annual CBM production of 379.5 million cubic meters.

And in the third phase, the company will drill 409 wells, which will produce 689.9 million CBM a year. After the completion of the second and third phases, CBM resources in the southern part of the Qinshui Basin, covering an area of 346 square kilometers, will be integrated. In the future, the southern part of the Basin will be connected with the Shouyang and Yangquan CBM bases in the north of the Basin. Finally, the Qinshui Basin will become the largest CBM production base of the country.

The large-scale development and utilization of CBM is expected to ease China's supply shortfall of environmentally friendly energy.

Shanxi, abundant in coal and CBM resources, has about 10 trillion cubic meters of CBM reserves, accounting for one third of the national total. The first package CBM filed is located in the south of the Qinshui Basin of the province, which has 40.2 billion cubic meters of CBM proven reserves.

As of September 2005, the CUCBM had drilled 355 wells in Shanxi, of which 136 are solely financed and 219 ones are jointly invested with foreign partners. The company has invested 1.2 billion yuan (US$150 million) in the CBM development in the province.

During the 2006-2010 period, Shanxi plans to produce 5 billion cubic meters of CBM, of which 2 billion cubic meters will be produced by the CUCBM. In the period, a total of 20 billion yuan (US$2.5 billion) of investment is expected to be poured in CBM exploration in Shanxi and more than 100 billion yuan (US$12.5 billion) in CBM development and utilization.

(Xinhua News Agency November 3, 2005)