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The Times: Shell beds into Chinese market with 30-year coal methane production deal

December 28, 2007
Carl Mortished, World Business Editor

Shell is investing in Chinese coal, buying a controlling stake in a coalbed methane project, an alternative resource that China’s Government is keen to promote as it seeks to diversify its country’s energy supplies.

Shell is buying an interest in a 30-year production-sharing contract that covers 1,015 sq km in Shanxi, a northern province bordering Inner Mongolia. Verona Development Corporation, an American company, is selling 55 per cent of the North Shilou block to Shell for an undisclosed sum. It will retain 5 per cent and China United Coalbed Methane Company will hold the remaining 40 per cent.

Methane is the main energy source in natural gas. Coalbed methane is produced naturally from coal seams, but explosions from coalbed methane gas accumulations pose a serious hazard to miners. Explosions in Chinese coalmines claim about 1,000 lives every year.

According to China’s National Development and Reform Commission (NDRC), the country has reserves of 36,000 billion cubic metres of coalbed methane. However, most of the methane released in mining and in disused mines is vented or seeps into the atmosphere, contributing to global warming. China uses only 1.4 billion cubic metres a year and the NDRC wants that volume to increase to ten billion cubic metres.

An exploration and appraisal programme, including a seismic survey and drilling of pilot wells into coal seams, is to start early next year. The exploration will go on until 2010, after which the contract stipulates a five-year development programme and 20 years of gas production.

Lim Haw-Kuang, chairman of Shell in China, said that the North Shilou project was important for Shell in developing a significant and long-term business in China.

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article3101363.ece

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