Why are foreign investors pulling out of coalbed methane development?

Coalbed methane is a high-quality, clean energy source. Throughout the four revisions of the Catalogue for Guiding Foreign Investment in Industry, between 1997 and 2011, coalbed methane exploration and development have consistently been in the “encouraged” category. Nevertheless, according to reports, to date energy giants such as Greka, Shell, BP, Rio Tinto, BHP Billiton and ConocoPhillips have partially or entirely pulled out of their co-operation ventures in the coalbed methane sector in China, or are hesitating in projects currently being implemented, for reasons explained below.

Overlapping mining rights

Since 1995, the total number of resource blocks held by domestic coal enterprises has continually risen. The speed of establishing new coal mining concession blocks has also far exceeded that of coalbed methane concessions, leaving coalbed methane co-operation enterprises with little recourse other than to establish coalbed methane concessions in existing coal mining concession blocks. According to reports, based on 2007 statistics, of the 98 coalbed methane exploration concessions nationwide, 86 involve overlapping concessions, and these 86 coalbed methane exploration concessions overlap with 1,406 coal mining concessions.

Coalbed methane exploration and development does not benefit coal enterprises, but impedes their extraction of coal. For their own efficiency, coal enterprises are not willing to co-operate with coalbed methane enterprises, and will use various means to impede coalbed methane enterprises in their work.

Xu Bin is a partner at Concord & Partners in Beijing. Xing Liren is an intern at the firm