Shell taps into coal methane in China

  • believe China's extensive coal reserves can be used as a source of relatively clean new energy
Shell has expanded its interests in China by taking control of a pioneering project to meet some of the country's burgeoning demand for energy using methane gas from underground coal seams.

The Anglo-Dutch group has bought a 55% equity stake from Verona Development Corporation and will operate the North Shilou project, 150km south-east of Changbei gas field, where Shell is also active in a conventional gas production scheme with PetroChina.

Methane is a highly flammable greenhouse gas, which is 10 times more damaging than carbon dioxide in terms of global warming if released into the atmosphere. But Shell will join a small group of companies that believe China's extensive coal reserves can be used as a source of relatively clean new energy that has a proven track-record in the US.

Lim Haw-Kuang, executive chairman of Shell companies in China, said: "The North Shilou production-sharing agreement is another important step for the Shell group in developing a significant and long-term business in China and globally. We are confident that our upstream technologies and expertise can unblock the vast potential of coal-bed methane in the country."

A spokesman at Shell's head office in The Hague said there was still much challenging work to be undertaken to ensure that the scheme was technically and commercially feasible. "This is a highly sophisticated project and one only possible in a high [oil and gas] price environment," he added.

While BP has been at the forefront of producing gas from coal-bed methane in the United States, Shell has yet to develop an operational scheme, though it has long been trying to develop a similar project in the Klappan region of British Columbia in Canada.

The oil company drilled three exploratory wells there in 2004, only to shelve operations after running into opposition from the local Tahltan Tribal Council. The Shell spokesman said talks were still going on to restart the scheme. BP has also run into opposition in Canada from those who fear its plans for coal-bed methane will degrade the environment.

Shell hopes to start its first activities in China early next year with a programme of seismic surveys followed by experimental drilling. If all goes well, the oil company, in partnership with China United Coalbed Methane Corporation, will undertake exploration until the end of 2010, followed by five years of development and 20 years of gas production.

The use of methane as a power source has been recognised for some time. Companies are drawing methane from landfill waste sites around Britain.


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