Coal Bed Methane in Asia

Ashley Wright
Partner, Ashurst LLP

ABU DHABI

BRUSSELS

DUBAI

FRANKFURT HONG KONG LONDON

MADRID

MILAN

MUNICH

NEW DELHI

NEW YORK

PARIS

SINGAPORE

STOCKHOLM

TOKYO

Contents
• • • • Introduction to Ashurst Coal bed methane Overview of CBM potential in Asia Regulatory overview - Indonesia - China - India • Practical and legal issues • Summary • Q&A
ABU DHABI BRUSSELS DUBAI FRANKFURT HONG KONG LONDON MADRID MILAN MUNICH NEW DELHI NEW YORK PARIS SINGAPORE STOCKHOLM TOKYO

Project Finance Magazine Law Firm of the Year 2007 .Legal Business Awards Project Finance Law Firm of the Year (Singapore) 2008 .Ashurst – an international law firm • • • • • • • ABU DHABI Over 1000 lawyers including 220 partners Managing Partner of the Year 2008 .The Legal Business Awards Infrastructure Team of the Year 2006 .ACQ Finance Magazine Middle East Power Deal of the Year 2008 (Ras Laffan C) .Project Finance Magazine European LNG Deal of the Year 2008 (GATE LNG) .The Lawyer Awards BRUSSELS DUBAI FRANKFURT HONG KONG LONDON MADRID MILAN MUNICH NEW DELHI NEW YORK PARIS SINGAPORE STOCKHOLM TOKYO .

mining.." Chambers Global • • • • 80 specialist lawyers worldwide dedicated to energy and resources Core teams in Abu Dhabi. Mitsui) Key strengths in upstream oil and gas..Ashurst’s global energy practice “Commentators were united in praising this group’s energy expertise across the board. petrochemicals. BG. International Power. green energy. Shell. power. OFGEM. JBIC. Lawyers here possess genuine specialisation in their field. Dubai. water. nuclear and CBM DUBAI FRANKFURT HONG KONG LONDON MADRID MILAN MUNICH NEW DELHI NEW YORK PARIS SINGAPORE STOCKHOLM TOKYO ABU DHABI BRUSSELS . LNG. refining. pipelines. Singapore and Tokyo supported by specialists in other offices Genuine industry experience – a number of our lawyers have practiced in-house for global energy companies/key institutions (e. London.g.

a lack of industrial development and extraction costs.S. and – improving coal mine safety. Asia’s CBM stores. ABU DHABI BRUSSELS DUBAI FRANKFURT HONG KONG LONDON MADRID MILAN MUNICH NEW DELHI NEW YORK PARIS SINGAPORE STOCKHOLM TOKYO .Coal bed methane • Coal bed methane is an energy resource which is already widely used in North America. natural-gas production. • Utilisation of CBM has three major benefits: – bridging the global energy shortage. – lowering emissions (thereby enabling countries to comply with Kyoto requirements). have been largely untapped because of logistics. where it accounts for about 10% of U. however.

Pure ABU DHABI BRUSSELS DUBAI FRANKFURT HONG KONG LONDON MADRID MILAN MUNICH NEW DELHI NEW YORK PARIS SINGAPORE STOCKHOLM TOKYO .CBM market trends • change in perception – increasingly mainstream • convergence in technology • pricing – market discounts. CBM to LNG • M&A activity – Origin. emissions credits • increased market share • certification of reserves • innovations – enhanced CBM. government incentives.

Energy Information Administration (EIA) By mid-2008.000 300 450 700-3. U.011 242.000 700 - Source: International Energy Annual 2005.701 92.S. only 15 TCF of CBM had been produced worldwide ABU DHABI BRUSSELS DUBAI FRANKFURT HONG KONG LONDON MADRID MILAN MUNICH NEW DELHI NEW YORK PARIS SINGAPORE STOCKHOLM TOKYO .445 4.722 905.968 157.500 114.Global estimated coal reserves and CBM resources Country Australia China India Indonesia Russia United States World total Total (million tonnes) 78.147 CBM reserves (TCF – estimated) 350 1.

• However . Ephindo. at an estimated 450 TCF. • There are no active CBM recovery projects yet in operation in Indonesia.several PSCs have recently been granted – Medco. PT Ridlatama Mining Utama. PT Samantaka Mineral Prima. • Oil and gas infrastructure exists in several coal basins with significant potential .Indonesia • Indonesia’s potential CBM gas reserves are twice that of its proven and probable natural gas reserves. CBM Asia Development Corp – with many of the other major energy players expressing interest.existing extensive pipeline infrastructure in the many major target basins could be used to move produced gas to domestic or export markets. ABU DHABI BRUSSELS DUBAI FRANKFURT HONG KONG LONDON MADRID MILAN MUNICH NEW DELHI NEW YORK PARIS SINGAPORE STOCKHOLM TOKYO .

or 3% of the country’s total natural gas consumption. Liaoning and Xinjiang provinces having achieved commercial production.446 CBM wells. • In 2006. • China currently relies on coal to generate three-quarters of its electricity. • By the end of 2007. with several CBM mines in the Shanxi. ABU DHABI BRUSSELS DUBAI FRANKFURT HONG KONG LONDON MADRID MILAN MUNICH NEW DELHI NEW YORK PARIS SINGAPORE STOCKHOLM TOKYO . CUCBM signed contracts for 26 CBM blocks with foreign companies. China produced 1. Beijing has recently set an ambitious target to increase CBM output to 10 billion cubic meters annually by 2015. China had 2. • Chinese CBM market dominated by domestic players but increasing foreign involvement. • By mid-2006.China • China is the world’s largest producer and consumer of coal. • 2 major pipelines planned for CBM transportation.4 billion cubic meters of CBM.

the Indian government offered 26 prospective CBM blocks for exploration. • These 26 prospective CBM blocks cover an area of around 13.400 million cubic foot per day at their peak production level. West Bengal).590 km2 and are estimated to contain 50 TCF of CBM resources.India • Coal is the most important source of energy for electric power generation in India. • There is currently only one operational CBM recovery project (a 210 km2 coal field operated by GEEC in the Damodar Valley. ABU DHABI BRUSSELS DUBAI FRANKFURT HONG KONG LONDON MADRID MILAN MUNICH NEW DELHI NEW YORK PARIS SINGAPORE STOCKHOLM TOKYO . • Between May 2001 and June 2006. Expected total production from these blocks is estimated at 1. Essar Oil and the ONGC. These were won by Reliance Industries.

35 of 2004 on Upstream Oil and Gas Activities – Ministry of Energy and Mineral Resources (“MEMR”) Regulation No.Regulatory overview: Indonesia • Key legislation – Law No. 22 of 2001 for Oil and Natural Gas – Governmental Regulation No. 35 of 2008 on Procedures for Oil and Gas Blocks Allocation and Offering – MEMR Regulation No. 36 of 2008 on Business Undertakings of Coal Bed Methane • Key regulatory authorities – MEMR – Badan Pelaksana Kegiatan Usaha Hulu Minyak Dan Gas Bumi (“BPMIGAS”) ABU DHABI BRUSSELS DUBAI FRANKFURT HONG KONG LONDON MADRID MILAN MUNICH NEW DELHI NEW YORK PARIS SINGAPORE STOCKHOLM TOKYO .

Regulatory overview: Indonesia contd. • Management of overlapping rights – CBM open areas (no preferential right given) – CBM located in oil and gas working areas (preference given to the oil and gas contractor) – CBM located in coal mine working areas (preference given to coal miner) – CBM located in overlapping areas with both oil and gas as well as coal mine operations (preferential right given to the oil and gas contractor) – exploration area cannot exceed 3000 square kilometres for each block – development only through a separate special purpose vehicle – production sharing contract to be entered into with BPMIGAS as government agency • Other key points ABU DHABI BRUSSELS DUBAI FRANKFURT HONG KONG LONDON MADRID MILAN MUNICH NEW DELHI NEW YORK PARIS SINGAPORE STOCKHOLM TOKYO .

Regulatory overview: Indonesia contd. • Key commercial terms of CBM PSC – – – – – – – – – term of the cooperation: typically 30-35 years firm commitment: for the first three years of the exploration phase signature bonus: typically of USD 1 million payable on signature of PSC performance bond: to be equivalent to approximately 15% of the firm commitment or USD 1 million domestic market obligations: around 25% of contractor’s share of production production bonus on sliding scale depending on production level first tranche petroleum: preferential right to BPMIGAS to take around 10% of the production prior to cost recovery production split: around 45% to contractor right for Government participant to take 10% participating interest ABU DHABI BRUSSELS DUBAI FRANKFURT HONG KONG LONDON MADRID MILAN MUNICH NEW DELHI NEW YORK PARIS SINGAPORE STOCKHOLM TOKYO .

Regulatory overview: China • Key legislation – Mineral Resources law – Coal Law – Regulation for Registering to Explore for Mineral Using Block System – Regulation for Registering Mine Mineral Resources – Regulations For Transferring Exploration Rights And Mining Rights – Ministry of Land and Resources – Ministry of Commerce – China United Coal Bed Methane Company Ltd (“CUCBM”) – CUCBM Monopoly ended in 2007: possible entry of Designated Enterprises (China National Petroleum Corporation and Sinopec in the race) FRANKFURT HONG KONG LONDON MADRID MILAN MUNICH NEW DELHI NEW YORK PARIS SINGAPORE STOCKHOLM TOKYO • Main regulatory bodies • Chief commercial agency ABU DHABI BRUSSELS DUBAI .

and • to Ministry of Commerce for opening-to-outside right – CUCBM/ Designated Enterprise and the foreign collaborator to enter into a production sharing contract ABU DHABI BRUSSELS DUBAI FRANKFURT HONG KONG LONDON MADRID MILAN MUNICH NEW DELHI NEW YORK PARIS SINGAPORE STOCKHOLM TOKYO . • Application process – setting up of project team by foreign collaborator – survey of resources – submission to CUCBM/ Designated Company of letter of intention for carrying out cooperative development activities – CUCBM/ Designated Company to make application: • to Ministry of Land and Resources for mineral exploration rights.Regulatory overview: China contd.

• Key terms of the production sharing contract – – – – exploration risk with the foreign collaborator Chinese party cannot have less than 30% participating interest 2 year tax holiday 5% value added tax applicable after commencement of gas production – typically 70% cost recovery is allowed ABU DHABI BRUSSELS DUBAI FRANKFURT HONG KONG LONDON MADRID MILAN MUNICH NEW DELHI NEW YORK PARIS SINGAPORE STOCKHOLM TOKYO .Regulatory overview: China contd.

1997 – Oilfields (Regulation and Development) Act. 1948 – Petroleum and Natural Gas Rules. 1959 • Key regulatory authorities: – administrative: Ministry of Petroleum and Natural Gas – implementing agency: Director General of Hydro Carbons.Regulatory overview: India • Key legislation: – CBM Policy. • Model contract for exploration and production of CBM ABU DHABI BRUSSELS DUBAI FRANKFURT HONG KONG LONDON MADRID MILAN MUNICH NEW DELHI NEW YORK PARIS SINGAPORE STOCKHOLM TOKYO .

Regulatory overview: India contd. • Key features of the CBM policy – CBM (virgin coal fields) allotment is through bidding open to both foreign and Indian bidders – CMM (existing mine fields) preferential rights are given to the coal miners – payments to be made • 10% royalty payable to the state government • additional production linked payment • commercial bonus of US$300.000 on declaration of commerciality ABU DHABI BRUSSELS DUBAI FRANKFURT HONG KONG LONDON MADRID MILAN MUNICH NEW DELHI NEW YORK PARIS SINGAPORE STOCKHOLM TOKYO .

Regulatory overview: India contd. • Fiscal benefits: – – – – no participating interest of the Government no signature bonus 7 year income tax holiday from CBM production date freedom to market in domestic market at market determined prices – imported equipment for CBM development exempted from customs duties ABU DHABI BRUSSELS DUBAI FRANKFURT HONG KONG LONDON MADRID MILAN MUNICH NEW DELHI NEW YORK PARIS SINGAPORE STOCKHOLM TOKYO .

pilot assessment.Regulatory overview: India contd. development and production – firm commitment: minimum work program is applicable to the first two phases – expenditure obligations: no expenditure obligations – gas marketing: free domestic gas marketing – performance bonds: bank guarantee equivalent to 35% of the estimated annual expenditure (in the work programme) for the first two phases – 100% cost recovery ABU DHABI BRUSSELS DUBAI FRANKFURT HONG KONG LONDON MADRID MILAN MUNICH NEW DELHI NEW YORK PARIS SINGAPORE STOCKHOLM TOKYO . • Key terms of the cooperation agreement – parties to the contract: Government of India and the company – four phase plan: exploration.

Practical and legal issues • CBM compared to conventional natural gas • Nature of CBM exploration and operations . gas flow .shallow depths.water production/contamination issues .calorific values.related infrastructure .multi-phased development .different technology and economics . multiple wells and closer spacing . processing.pricing and gas marketing arrangements ABU DHABI BRUSSELS DUBAI FRANKFURT HONG KONG LONDON MADRID MILAN MUNICH NEW DELHI NEW YORK PARIS SINGAPORE STOCKHOLM TOKYO .

• Interface with existing coal mine operations • Interface with overlapping conventional oil and gas operations • Overlapping/competing interests • Land access rights • Safety issues • Common/shared infrastructure and information ABU DHABI BRUSSELS DUBAI FRANKFURT HONG KONG LONDON MADRID MILAN MUNICH NEW DELHI NEW YORK PARIS SINGAPORE STOCKHOLM TOKYO .Practical and legal issues contd.

environmental obligations • Terms of joint operating agreements .expenditure obligations .plans of development .domestic market obligations . • Terms of production sharing agreements .Practical and legal issues contd.production splits. cost recovery and taxation .sole risk .technology transfer ABU DHABI BRUSSELS DUBAI FRANKFURT HONG KONG LONDON MADRID MILAN MUNICH NEW DELHI NEW YORK PARIS SINGAPORE STOCKHOLM TOKYO .

with significant potential in Asia. • CBM regulations have been largely based on existing oil and gas regimes. including fiscal incentives to encourage development and foreign involvement. ABU DHABI BRUSSELS DUBAI FRANKFURT HONG KONG LONDON MADRID MILAN MUNICH NEW DELHI NEW YORK PARIS SINGAPORE STOCKHOLM TOKYO . • Indonesia. • The way in which these issues are addressed (whether through regulations or by contractual arrangements) impacts on project risk assessment. but the nature of CBM projects gives rise to certain practical and legal issues. gas marketing arrangements and market valuations.Summary • CBM becoming increasingly mainstream and is welldeveloped in US and Australia. China and India have each put policies and regulatory frameworks in place for CBM.

Thank you! • Any questions? ABU DHABI BRUSSELS DUBAI FRANKFURT HONG KONG LONDON MADRID MILAN MUNICH NEW DELHI NEW YORK PARIS SINGAPORE STOCKHOLM TOKYO .

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