Asian CBM Firms Proceed with Developments, Unfazed by Low Oil Prices

Asian CBM Firms Proceed with Developments, Unfazed by Low Oil Prices
Some independent coalbed methane firms in Asia are proceeding with their development projects despite headwinds caused by lower oil prices.

A few independent coalbed methane (CBM) companies in energy-hungry Asia are pressing on with their development projects to produce natural gas despite headwinds caused by the downtrend in global oil prices. Some have responded to a more challenging market by tapping funds from the capital markets, while others have capitalized on the current environment by acquiring more CBM assets.

Interests in CBM – a natural gas found in coal seams – have faded recently compared to a year ago as the unconventional petroleum sector has been adversely impacted by the 40 to 50 percent decline in oil prices. Like their counterparts in the conventional oil and gas industry who cut capital spending in response to weaker oil prices, CBM firms have also been affected by the industry downturn.

China’s CBM Faces Near-Term Uncertainty

After years of rising natural gas consumption, estimated by the U.S. Energy Information Administration (EIA) to have grown to 5.76 trillion cubic feet (Tcf) in 2013 from 1.14 Tcf in 2003, Chinese demand for the clean fuel appeared to be slowing down, at least in the near term, according to an Australian government report. 

Asian CBM Firms Proceed with Developments, Unfazed by Low Oil Prices

“Imports in the first quarter of 2015 were the first since China began importing LNG in 2006 that was lower than the corresponding quarter a year before,” Mark Cully, chief economist at Australia’s Department of Industry and Science said in the Resource and Energy Quarterly released in June.

The decline in the Chinese gas demand could be attributed to a slowing economy, which the International Monetary Fund projected in April to grow 6.76 percent this year, down from last year’s 7.36 percent. 

“China’s CBM industry is in a very difficult state right now … [hurt by] low oil prices. Gas demand is not that good because of a shrinking economy,” Shi Yan, a China-based stock analyst with UOB Kay Hian told Rigzone.

Furthermore, the cost of developing CBM projects in China is high and major players such as PetroChina Co. Ltd. and China Petrochemical Corp. (Sinopec) are unlikely to have ample excess funds following a reduction in capital expenditure due to low oil prices, Shi added. 

Meanwhile, industry players are bracing for a possible cut in CBM subsidy, if China’s April 29 announcement of lower subsidies for shale gas developers were seen as a guide. Such subsidies will be reduced to $0.049 (CNY 0.3) per cubic meter from 2016 to 2018 and $0.032 (CNY 0.2) from 2019 to 2020, below $0.065 (CNY 0.4) for the 2012 to 2015 period, Xinhua news agency said. Chinese CBM producers currently receive a subsidy of $0.032 (CNY 0.2) per cubic meter.

CBM Developments Continuing in China

Despite a more challenging market environment, AAG Energy Holdings Ltd., an independent CBM producer in China, launched an initial public offering (IPO) in Hong Kong last month. The company planned to allocate most of the $248 million it raised through the listing to develop its CBM projects in China.

“What we look at is long term strategy … fortunately a lot of investors still look at AAG fundamentals … [and] they came out to support,” AAG Chairman Steve Zou told Bloomberg TV June 23.

Asian CBM Firms Proceed with Developments, Unfazed by Low Oil Prices

 

AAG has confidence in the Chinese CBM sector as the government is keen on clean energy to mitigate the effects of air pollution caused by the country’s heavy use of coal.

“CBM becomes so special … because China relies on coal for 68 percent [of its energy needs] to support its economy and that created a lot of problem in the cities – air pollution, carbon dioxide [CO2] emission. Around 82 percent of CO2 emission comes from coal burning … that’s why the Chinese government strongly supports gas penetration increasing from 5 percent to 10 percent [of the energy mix] by 2020 and that is where CBM comes into play,” Zou added.

Greater gas use was laid down in “The 12th Five Year Plan (FYP) for Development and Utilization of CBM” released by the government in December 2011, with China targeting a production of around 1.05 Tcf or 30 billion cubic meters (Bcm) of CBM this year.

AAG plans to spend 60 percent of its IPO proceeds, or $165.9 million on two existing exploration developments at the Panzhuang and Mabi concessions in southern Qinshui Basin, Shanxi Province.

The 26 square mile-Panzhuang production sharing contract (PSC) is already producing gas, reaching 12.631 million cubic feet (MMcf) in 2014, with the block entering into the production phase once government inspections of the construction projects have been completed.

Meanwhile, AAG plans to explore and develop the 346.8 square mile-Mabi concession in stages due to its large size, which could possibly require the submission of two to three overall development plans (ODP). The company has already received approval for the Mabi ODP I development, with the goal of completing reserves certification in the rest of the concession by the end of 2016.

Elsewhere, Green Dragon Gas – another non-China CBM firm – working in partnership with PetroChina and China United Coal Bed Methane Corp., Ltd. (CUCBM) – a unit of China National Offshore Oil Corp. (CNOOC) – expects to raise gas production to 12 Bcf this year, more than 2014’s 8.2 Bcf from its six local projects.

Over at Shanxi’s Shouyang PSC, U.S.-based Far East Energy Corp. (FEEC) together with partner CUCBM have received the ODP last October for Area A, which contains most of its proved CBM reserves. Area A will enter into the development phase when the ODP gets final regulatory approval later this year. 

Sino Oil and Gas Corp., through subsidiary Orion Energy International, and PetroChina also intend to apply for final ODP approval for the Sanjiao CBM Block in Shanxi’s Erdos Basin. The PSC has a proved and probable reserves of 405.6 Bcf.

NuEnergy on Acquisition Trail in Indonesia

Elsewhere in Asia, Australia-based NuEnergy Gas Ltd. signed an agreement May 20 with Dart International Ltd. to purchase a 100 percent stake in the latter’s subsidiary Dart Energy (Indonesia) Holdings Pte Ltd.

The $1 million acquisition of Dart Indonesia will give NuEnergy control of Dart Indonesia’s assets in the country – which comprises three PSCs as well as the rights to the joint evaluation (JE) of a CBM block. They include a 45 percent interest in Tanjung Enim CBM PSC and a 50 percent stake in Muralim CBM PSC, both located in South Sumatra as well as 100 percent interest in Bontang-Bengalon CBM PSC in East Kalimantan. NuEnergy will also hold the rights to the JE of Bungamas CBM in South Sumatra.

Together with three PSCs – Muara Enim, Muara Enim II and Rengat – in South and Central Sumatra that NuEnergy operates, the acquisitions from Dart Indonesia will expand the Australian firm’s CBM footprint in Indonesia.

"NuEnergy is expected to boost its PSC positions in Sumatra by integrating Dart Indonesia's PSCs and NuEnergy's PSCs to potentially operate a large scale CBM development which is unprecedented. We believe these PSC assets are potentially world class CBM plays and can be commercialized quickly,” Kok Keong Kong, NuEnergy chairman said in a May 21 release.

Indonesia’s interest in CBM projects has risen as the government encourages the development of unconventional hydrocarbon resources to compensate for falling domestic oil output and to boost local upstream production capacity. Indonesia, according to the Ministry of Energy and Mineral Resources, has around 453 Tcf of CBM reserves, but developing them has always been a challenge.

State-owned PT Pertamina indicated last year that it plans to renegotiate contract terms with the government for exploiting CBM, upstream director Muhamad Husen revealed, as cited in the Jakarta Globe Sept. 2, 2014.

“We have to meet to discuss either a better pricing deal or larger share in the PSC,” Husen said, adding that CBM projects in Indonesia have been further hampered by problems of land acquisition and slow permit issuance.

India Keen on Tapping CBM Resources

Like the authorities in China and Indonesia, India also hopes to further develop its CBM resources in its drive to boost domestic energy supplies. According to a senior Indian government official, a Cabinet note was moved recently to encourage the full development potential of CBM resources.

"Both petroleum and our [coal] ministry had been discussing on how to exploit CBM. A Cabinet note has been moved," Coal Secretary Anil Swarup said, as quoted in India’s The Economic Times June 25. 

The government, which recently gave Coal India Ltd. (CIL) the right to produce natural gas from coal seams, is believed to be considering giving licenses to other public and private sector firms to produce clean fuel from their existing coal mines. In addition, the government is exploring the option of bringing all coal mining areas held by not just CIL but other similar state agencies, joint ventures and private companies under this framework.

India has CBM reserves of around 162.43 Tcf (4.6 trillion cubic meters), according to the Directorate General of Hydrocarbons.

Looking ahead, the outlook for CBM in Asia appears rather mixed. While interest in CBM projects has been dampened by low oil prices, it has been supported to some extent by growing energy demand, including clean fuel.

“Sixty dollars a barrel oil is expected in the next couple of years … coal and oil demand will be weaker, but gas demand will be supported [due to the need for clean energy] to some extent although it will be lower than before,” Shi commented to Rigzone.



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