Move will reduce costs, improve profits for domestic producers

BEIJING - China will waive import duties for the fast-growing imports of equipment for coalbed methane (CBM) exploration and development projects during the 12th Five-Year Plan (2011-2015), making it the country's first exemption in the sector.

The move aims to support the development of the gas, the Ministry of Finance said on its website recently.

The duty-free list mainly targets equipment, instruments, components and parts imported by China United Coalbed Methane Corp and its partners, the ministry's statement said.

China United is the country's major CBM explorer and developer. It is jointly owned by the State-owned China National Coal Group and China National Offshore Oil Corp Ltd.

"It's the first time for the country to launch such policies for the industry," said Zhou Xiujie, an energy analyst at the CIC Industry Research Center.

He said the move would cut costs and boost profits for domestic CBM gas producers, which have borne relatively high exploration costs and use immature technologies to support their growth.

CBM is a type of natural gas extracted from coal deposits. It has become an emerging clean fuel that is increasingly tapped in Australia, Canada and the United States.

China's reserves of the unconventional natural gas rank third in the world after Russia and Canada at 37 trillion cubic meters (cu m), accounting for 13 percent of the world's total, according to Sun Maoyuan, commissioner of the National Energy Commission.

Sun said that the 12th Five-Year Plan (2011-2015) provisions for the development and use of CBM, which haven't been officially released, show that China aims to achieve 20 billion to 40 billion cu m production of the fuel by the end of 2015.

China is stepping up efforts to diversify its energy sources to cut emissions. Clean natural gas is listed among the primary alternative resources for China, where coal accounts for about 70 percent of total energy consumption.

Industry experts have forecast that as China's surging demand for natural gas outpaces domestic output, the foreign-dependency ratio for the fuel could reach as high as 50 percent by 2020. Therefore, China has to step up exploration of unconventional natural gas, including CBM and shale gas.

The country's CBM industry will have "breakthrough" development in the future, but that will require trillions of yuan in investment, Sun said.

Since China's geological conditions differ from those of other countries that have the most sophisticated exploration technologies, the nation still has far to go before it can widely use the gas commercially, said Dong Weiguo, a senior researcher at the Beijing Research Institute of Coal Chemistry.

At present, most underground reserves of CBM in China are used for electricity generation, but it can be difficult to connect these generating sources to the grid, Dong said.

"We anticipate that broad commercial use of the gas cannot be realized until 2020, when the license confusion is tackled and technologies are more developed," Zhou said.