has one of the world's largest reserves of Coal Bed Methane
(CBM). This methane gas is found in coal seams and is an alternative
source of natural gas to petroleum reservoirs. Development of CBM is
critical for China, not only to meet the nation's growing energy
demands but also for safety and environmental reasons: this methane gas
is the principal cause of explosions in coal mines and methane
emissions contribute to global warming.
Until recently the development of CBM
reserves in China was hindered by the absence of suitable local
markets. However, with local gas demand and gas prices increasing,
development of CBM is now an attractive proposition. The government
actively encourages foreign participation in CBM blocks via Production
Sharing Contracts (PSCs) with China United Coalbed Methane Corporation
(CUCBM). The PSC structure enables foreign investors to bring capital
and the best technologies for the extraction of CBM.
Fortune Oil controls the PSC
foreign contractor rights for the Liulin CBM block in Shanxi Province;
Arrow International, an experienced CBM developer has invested US$13.3
million with 35% equity interest in the "foreign equity" for the Liulin
CBM block. The Liulin block is acknowledged to be one
of the best CBM blocks in China in terms of known concentration of gas.
The gas in place has been estimated to be 40 billion cubic metres.
In February 2009 the Liulin block was designated as the special State
Pilot Project for demonstrating CBM development in the Ordos Basin,
with preferential policies that will accelerate exploration and
development in the block.
Fortune Oil is now in the process of developing the Liulin block and
seeking similar high quality opportunities, particularly in Shanxi
Province which has the largest CBM reserves in China. Fortune Oil
already operates pipelines and city gas companies in the province and
we are uniquely positioned to integrate upstream CBM developments with
our gas distribution network.