Final Feasibility Study Liuzhuang

Coalbed Methane
OUTREACH PROGRAM
U.S. EPA
Feasibility Study for Coal Mine Methane Drainage and Utilization

Liuzhuang Coal Mine, Huainan Coal Field Anhui Province, China
U.S. Environmental Protection Agency February 2010
LiuzhuangCoalMine,HuainanCoalField
AnhuiProvince,China:

FeasibilityStudyfor
CoalMineMethaneDrainageandUtilization

Sponsoredby:
USEnvironmentalProtectionAgency,Washington,DCUSA
Preparedby:
AdvancedResourcesInternational,Inc.,Arlington,VirginiaUSA
REIDrillingInc.,SaltLakeCity,Utah,USA
ValleyLongwallInternational,Sydney,Australia
OrganicWasteTechnologies,HongKong,China
February2010

FeasibilityofImprovedCoalMineMethaneDrainageandUtilization attheLiuzhuangMine,AnhuiProvince,China.
TableofContents
Abbreviations Acknowledgment Disclaimer Executive Summary Section 1 - Pre-Feasibility and Mine Site Selection Section 2 - Geologic Analysis and Resource Assessment Section 3 - Coal Mine Methane Market Assessment Section 4 - Evaluation of Degasification Technologies and Reservoir Simulation Section 5 - Evaluation of CMM Utilization Technologies Section 6 - Technical Analysis and Preliminary Engineering Design Section 7 - Emissions Reductions from Project Implementation Section 8 - Capital and Operating Costs Section 9 - Economic and Financial Evaluation Section 10 - Potential Impacts and Recommendations
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AcronymsandAbbreviations UnitAbbreviations
diameter
partsperthousand % partsperhundred C degreesCelsius F degreesFahrenheit $ UnitedStatesDollar Bbl barrel Bcf billion(109)standardcubicfeet Bcfd billion(109)standardcubicfeetperday Bm3 billion(109)cubicmeters Btu Britishthermalunit D(d) day daf dry,ashfreebasis 13C deltacarbon13isotoperelativetobelemnitestandard ft feet in inch km kilometer km2 squarekilometer m meter 3 m cubicmeter m3/min cubicmetersperminute 3 m /t cubicmeterspertonofcoal Mcf thousand(103)standardcubicfeet Mcfd thousand(103)standardcubicfeetperday Mcm thousand(103)cubicmeters Mcmd thousand(103)cubicmetersperday mD millidarcy(103D) mm millimeter(103m) MMcf million(106)standardcubicfeet MMcfdmillion(106)standardcubicfeetperday MPa Megapascal Mtoe milliontonnesofoilequivalent MW Megawatt psi poundspersquareinch Ro Vitrinitereflectance SCE standardcoalequivalent scf standardcubicfeet Tcf trillioncubicfeet
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AcronymsandOtherAbbreviations AAGI AsianAmericanGasInc. ARI AdvancedResourcesInternational,Inc. CBM CoalbedMethane CDM CleanDevelopmentMechanism CH4 Methane CMM CoalMineMethane CNG CompressedNaturalGas CO2 CarbonDioxide CO2eq CO2Equivalent Fm Formation FOB Freightonboard GDG GreenDragonGasLtd. HCMG HuainanCoalMiningGroup HDPE HighDensityPolyethylene IC InternalCombustion ID InnerDiameter IPCC IntergovernmentalPanelonClimateChange IRR InternalRateofReturn JCOAL JapanCoalEnergyCenter JWR JimWaltersResources LNG LiquifiedNaturalGas LPG LiquifiedPetroleumGas MLD MultilateralDrilling MilliontonnesCO2equivalent MTCO2e NDRC NationalDevelopmentandReformCommission NPV NetPresentValue NiPt NickelPlatinum PSC ProductionSharingContract RMB Renminbi SDIC StateDevelopmentInvestmentCorporation SDICXinji StateDevelopmentInvestmentCorporation,XinjiEnergyCompanyLtd. Shengli ShengliPowerCompanyLtd. UK UnitedKingdom US UnitedStates US$ UnitedStatesDollars USBM UnitedStatesBureauofMines USDOE UnitedStatesDepartmentofEnergy USEPA UnitedStatesEnvironmentalProtectionAgency VAM VentilationAirMethane VAT ValueAddedTax YCG YangquanCoalGroup
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Acknowledgments The ARI Team gratefully acknowledges the support of SDIC Xinji Energy Corporation Ltd. for providing valued access to information, personnel, and the Liuzhuang mine site during the courseofthisstudy.Wealsoacknowledgetheprojectsponsor,theCoalbedMethaneOutreach ProgramoftheUSEnvironmentalProtectionAgency. Disclaimer This report was prepared for the U.S. Environmental Protection Agency (USEPA). This analysis uses publicly available information in combination with information obtained through direct contactwithminepersonnel,equipmentvendors,andprojectdevelopers.USEPAdoesnot:
(a) make any warranty or representation, expressed or implied, with respect to the accuracy, completeness, or usefulness of the information contained in this report, or that the use of any apparatus, method, or process disclosed in this report may not infringe upon privately owned rights; (b) assume any liability with respect to the use of, or damages resulting from the use of, any information,apparatus,method,orprocessdisclosedinthisreport;or (c)implyendorsementofanytechnologysupplier,product,orprocessmentionedinthisreport.
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ExecutiveSummary

ExecutiveSummary
ThisfeasibilitystudywassponsoredbytheU.S.EnvironmentalProtectionAgency(USEPA)under theauspicesoftheMethanetoMarketsPartnership,ofwhichboththeU.S.andChinaarefounding partners. It also supports the goals of the U.S.China Strategic Economic Dialogue. The study assesses the technical, economic, and greenhouse gas reduction potential for improving the performanceofcoalminemethane(CMM)drainageandutilizationattheLiuzhuangcoalminein AnhuiProvince,locatedineastcentralChina. CurrentPracticesatLiuzhuangMine. SituatedinthewesternportionofthestrategicallyimportantHuainanCoalField,theLiuzhuang mineisoperatedbystateownedSDICXinjiEnergyCo.Ltd.Liuzhuangisamodernlongwallmine thatwascommissionedin2006andhasa60yearplannedlife.Theminecurrentlyproducesabout 3millionmetrictonnesperyear(t/year)ofbituminousgradecoal,whichismainlyusedforpower generation.Coalproductionisscheduledtoincreaseto7.85milliont/yearonceasecondplanned longwalloperationisinstalled,tentativelybylate2010. Toenhancesafetyandproductivity,theLiuzhuangminecurrentlydrainsabout24.7cubicmeters perminute(m3/min)ofcoalminemethane(adjustedto100%CH4throughoutthisreportbasedon Chineseconvention).TheCMMisdrainedprimarilyusingshort(100mlong),nonsteered,cross panel boreholes that are driven horizontally into the coal seams. Other boreholes are slanted upwards into the fractured rock (gob) zones to drain CMM that is released from overlying coal seams and sandstones as the mining face advances. Gas content data obtained from coring at HuainanindicatesthatCMMoriginallystoredwithinthecoalseamreservoirsishighconcentration methane(~95%CH4byvolume).However,aircontaminationduringtheCMMdrainageprocessat Liuzhuang minereducestheactualconcentrationofmethaneinthedrainedgasstreamtoonly about7to10%,alowlevelwhichisdifficulttoutilize. InadditiontoCMMdrainedviatheboreholesandgascollectionsystem,verydilutemethaneis flushedfromLiuzhuangmineusinga2.8mdiameter,UKmanufacturedventilationfan.Theactual methaneconcentrationintheventilationairisextremelylow(averagingabout0.02%),whichis favorableforminesafetypurposesbutsignificantlybelowtheeconomiclimitforVAMmitigation. Altogether,CMMemissionsfromLiuzhuangminecurrentlytotalapproximately30.9m3/min(1.6 MMcfd or 0.41 MtCO2eq/year), comprising 24.7 m3/min of 710% purity methane from the boreholedrainagesystemplusanadditional6.2m3/minofverylowconcentrationVAM(0.02%). At present, none of the relatively lowquality CMM drained is being utilized at Liuzhuang mine. SDICinitiallyevaluatedthepotentialinstallationofeightShenglimanufacturedlowconcentration internal combustion (IC) engines to generate power using the drained CMM (4.0 MW total comprising8unitsx0.5MW).However,SDIChasalsoexpressedinterestintheconceptpresented inthisstudy,whichistoimproveboreholedrillingatthemine,increasemethaneconcentrationto
ExecutiveSummary vi
ashighas40%,andutilizetheCMMwithlarger,moreefficientICengines.Ifimplemented,the powergeneratedbytheprojectmostlikelywouldbeusedinternallybythemine. HuainanCoalField. The3,000km2HuainanCoalField,withinwhichLiuzhuangisoneofabouttwodozenmajormines, isoneofChinaslargestcoalandCMMproducingregions.Coaloutputfromthedistrictin2007 totaledapproximately100milliont,equivalenttoabout5%ofChinastotaloutput.Huainancoal minesdrainedatotal190millionm3ofCMMduring2007(18.4MMcfd).WhereasCMMdrainage volumes have increased in the Huainan region during the past decade, the average methane concentration of drained gas has declined steadily. Not surprisingly, the overall utilization rate (defined as utilized CMM / drained CMM) has also declined over this period to about 40% at present,reflectingthedifficultyofutilizinglowconcentrationCMM. Consequently,approximately60%ofdrainedmethaneintheHuainanregioniscurrentlyventedto theatmosphere.Additionalmethaneisreleasedduringminingbutnotcapturedbyminedrainage systems,mainlyfromthemineventilationsystems(ventilationairmethane).Together,thetotal emissionsrelatedtocoalmininginHuainanhaveincreasedtoanestimated1.9billionm3/year. Overall,includingnondrainedmethane,onlyabout5%ofthetotalCMMliberatedbyminingin Huainaniscurrentlybeingutilized(95millionm3/year).CBM/CMMresourceestimatesconducted byChineseresearchersindicatethereareapproximately425billioncubicmetersorBm3(15trillion cubicfeetorTcf)toadepthof1500minthiscoalfield.Muchofthismethaneresourceislikelyto beventedtotheatmosphereasminingexpandstodeeperlevelsincomingdecades.Clearly,the HuainanCoalFieldofferssignificantopportunitiesforimprovingtheeffectivenessofCMMdrainage andutilization. CMMdrainageatHuainanisparticularlychallengingbecauseofthemoderatelyhighgascontent (515 m3/t), mechanical fragility, and low permeability of the coal deposits. Long horizontal in seamboreholes,appliedsuccessfullyduringthepastdecadeinShanxiProvincesQinshuiBasin, simplyarenotpracticalhereduetounstablecoalconditions.SurfaceCBMandgobwells,vertical andhorizontal,alsohavebeenineffective.Inminedrillinghasbeenlimitedtoshortinseamand crossmeasure gob boreholes. Methane concentrations often are very low (<10% CH4) due to significant mixing with ventilation air, frequently in the explosive range of methane in air. This makestheCMMgasdifficultandevenpotentiallydangeroustotransportandutilizeatmanyofthe Huainanmines.
ExecutiveSummary vii
GasUtilization&MarketAnalysis. Currently,theextremelylow(7to10%)methaneconcentrationofgasdrainedatLiuzhuangmine severelylimitstherangeoffeasibleoptionsforeconomicallyviableCMMutilization.Inaddition, the gas concentration is within the explosive range of methane and not considered safe for utilizationortransport. Inaddition,Liuzhuangminesrelativelyremotelocationwithinarural,principallyfarmingregion, approximately70kmfromsignificanturbanandindustrialgasmarkets,makestransportationvia pipelineappeartobeimpractical.Localenergyconsumptionreliesmainlyonlowqualitywaste coalthatisquiteinexpensiveandunlikelytobedisplacedbyhighercostCMM.Furthermore,given the relatively small CMM production volume, as well as its low methane concentration, constructingapipelinetotransportthegas70kmtoHuainancityorotherdemandcenterswould beimpractical.Huainanstowngassystemisundergoingconversiontohighconcentrationnatural gas,thusCMMwouldbeincompatible. The potential for processing the CMM to increase methane concentration using cryogenic or catalytic methods was evaluated but rejected as impractical and costly given the large energy requirementsforupgradingCMMwithsuchlowconcentration.Similarly,convertingtheCMMto liquified natural gas (LNG) or compressed natural gas (CNG) for sale would be far too energy intensiveandtheplantscalewouldbetoosmall. PowergenerationforlocalmineuseappearstobethemostviableapproachforCMMutilizationat Liuzhuangmine.Gasturbineshavehighefficiencyandreliabilitybutarenotpracticalforutilizing low and characteristically timevariable CMM concentrations. However, in recent years reciprocating engines have enjoyed wide success in China for power generation utilizing low moderate CMM concentration fuel. Assuming the recommended drilling and drainage improvementsareabletoachieveupto40%qualitymethane,reciprocatingenginesinthe1 to2 MWunitsizeappeartobethebestoptionforcosteffectiveCMMutilizationatLiuzhuangmine. Technologiesforventilationairmethane(VAM)oxidationdonotappeartobetechnicallyfeasible for Liuzhuang mine given the extremely low methane concentrations in the ventilation system, averaging only 0.02% CH4. Most commercially available thermal oxidizers for VAM oxidation requireconcentrationsofapproximately0.2%methaneorhigher.
ExecutiveSummary viii
PreliminaryDesignofCMMDrainageandUtilizationSystem. Basedonareviewofthegeology,reservoirconditions,miningdesign,andmarketopportunitiesat LiuzhuangmineandtheHuainanCoalFieldingeneral,thefollowingpotentialimprovementstothe minesCMMdrainageandutilizationsystemarerecommended(TableA):

Component Borehole Drilling Borehole Wellhead CMM Pipeline Power Generation Technology Directional Drills Improved Grouting Fused HDPE Pipeline IC Engine Generators Number of Units 2 2 Anticipated Benefit Longer, precise borehole placement, higher methane concentration Reduced air leakage, higher methane concentration Reduced air leakage, higher methane concentration
10 x 1.255 MW CMM utilization, high efficiency & reliability
TableA:
SummaryofCMMDrainageandUtilizationImprovementsRecommendedforLiuzhuangMine
1. SteerableBoreholeTechnology.Drillinglong(1000m)horizontalboreholesintothe topofthefuturegobzone situatedprecisely1520mabovethetargetcoalseams with advanced downhole steerable drilling technology could dramatically increase boththequantityandCH4concentrationofCMMdrainedatLiuzhuangmine.Reservoir modeling suggests that CMM production and methane concentration both could be increased severalfold, to approximately 100 m3/min and 40% CH4, increasing the potentialmagnitudeandefficiencyofmethaneutilization(estimatedcosts$3.5million). UpgradedCollectionSystem.Improvedboreholestandpipecementingcouldreduce contamination of the drained CMM by mine ventilation air. Replacing the existing flangedsteelpipelinesystemwithseamlessHDPE(plastic)pipewouldreducecorrosion and potential air contamination. Improved gas flow monitoring and installation of automaticshutoffvalvescouldimprovesafetyaswellasgasqualityincaseofpipeline disruption(estimatedcosts$0.7million). LargerReciprocatingEngines. Dependingonthesuccessoftheanticipateddrainage improvements on CMM quality and quantity, it may be possible to use reliable and efficient gas engines in the 1 to 2MW unit size, currently are manufactured by Caterpillar,GEJenbacher,andDeutz,thatarecapableofutilizingtheanticipated40% qualityCMM.Powergeneratedbytheprojectwouldusedbytheminetobackoutgrid purchases.Totalpowercapacityofapproximately12.55MWcouldbeachievable.The capitalcostsforthispowerstationareestimatedtobe$17.33million.
2.
3.
ExecutiveSummary
ix
KeyprojectparametersaresummarizedinTableB:
Topic Timing Key Project Parameters Project Initiated Project Fully Implemented Project End Coal Production CMM Drainage Coal Production (2010) Coal Production (2011 on) CMM Drainage Rate CMM Utilized / CMM Drained CMM Concentration Expected Power Generation Power Generation Capacity Operating Efficiency Cumulative Project Power Production Power Price Power Price (base) Power Price (escalation) Borehole Drainage Investment Investment Costs CMM Pipeline Investment Power Generation Investment Total Capital Investment Operating Costs Financial Performance CMM Drainage System Opex Power Generation Opex Net Present Value (r = 10%; base case; pre-tax) Internal Rate of Return (base case; pre-tax) Global Warming Potential of Methane GHG Reduction Total Emissions Avoided by Power Generation Total Project Emissions Net Total Emissions Avoided
TableB: SummaryofKeyProjectParameters
Value 2010 2012 2034 3.00 7.85 37.50 100% 30-40 12.55 90% 2,448 0.05 1% 3.42 0.71 17.33 21.46 same 1.70 11.51 17.6% 21 9.18 0.92 8.26
Unit mid-year January December million t/year million t/year m /minute percent percent MW percent GWh USD/kWh per year million USD million USD million USD million USD as current million USD million USD percent tCO2e/tCH4 million t CO2e million t CO2e million t CO2e
3
ExecutiveSummary
GreenhouseGasEmissionReductions. By2011,underfullscalecoalproductionof7.85Mt/year,theannualemissionsreductionsforthe proposed project are estimated to be approximately 337,193 tCO2eq, calculated by subtracting projectemissionsofabout37,540tCO2eqfromthebaselineemissionsof374,733tCO2eq.Overthe 25yearlifeoftheproject,totalnetemissionsreductionsareestimatedtobeapproximately8.26 MtCO2eq(+/ about10%). If the recommended upgrades to the CMM drainage system at Liuzhuang mine prove to be effective,theymaybetransferabletoanumberofotherHuainancoalmineswithsimilargeologic and mining conditions that are operated by SDIC, Huainan Coal Mining Group, or other mining companiesintheregion.Assumingadrainageandutilizationpenetrationrateof50%throughout theHuainanCoalField,aconservativeassumptionbasedonsimilaritiesinthegeologyandmining techniquesacrossthisregion,comprehensiveapplicationofthesetechnologiescouldcutmethane emissions from this mining area in half, perhaps avoiding 1 billion m3/year (25 MtCO2eq) of incrementalannualmethaneemissions. ProjectEconomics. TheLiuzhuangmineCMMdrainageandutilizationprojecthasthepotentialforfavorableeconomic performance,includinganattractivepretaxinternalrateofreturn(IRR)of17.6%,withnetpresent value (NPV) estimated at 78.6 million RMB, and a reasonable real payback period (10 years). Changesincapitalandoperatingcostswouldsignificantlyaffecttheprojectsperformance,while changes in the power price and power plant operating efficiency would tend to have relatively smallerimpacts. Thebasecaseassumeda2yearconstructionperiod,initialpowersalespriceof$0.05/kWhrwitha 1%/yearrealescalation,and90%plantoperatingefficiency.ThepretaxNPR(PV10)forthiscase isestimatedtobeapproximately78.6millionRMB($11.5million),withanIRRof17.6%.Sensitivity analysis(+/ 25%)indicatedthatchangesinthecapitalandoperatingcostsforboreholedrillingand powergenerationwouldhavethelargestimpactonprojecteconomics.
Variable Power Price Escalation Drilling/Power Capex Drilling/Power Opex Operating Efficiency
TableC:
-25% IRR NPV 17.1% 71.60 25.5% 21.3% 16.6% 118.47 113.47 68.78
Base Case IRR NPV 17.6% 78.60 17.6% 17.6% 17.6% 78.60 78.60 78.60
25% IRR 18.1% 13.0% 14.1% 18.6% NPV 85.82 38.74 43.74 88.43
FinancialSensitivitytoKeyProjectParameters
ExecutiveSummary xi
OtherProjectBenefits. Inadditiontotheanticipatedeconomicgainsandemissionreductions,implementationofamore effectiveminedrainagesystemandrecoveryandutilizationoftheCMMforpowergenerationfor use onsite at the mine is expected to produce a number of additional benefits. These include enhancedsafetyandminingproductivityattheLiuzhuangmine,asmallincreaseinemployment, reduced local air pollution from the use of a cleaner fuel (CMM) for power generation, and the wideradoptionofadvanceddrillingandpowergenerationtechnologyintheHuainanCoalField.
ExecutiveSummary
xii
SECTION1
PreFeasibilityStudyandMineSiteSelection

1i
SECTION1CONTENTS

1.1 1.2 1.3 1.4 Introduction .............................................................................................................. 11
MineSelectionProcess ............................................................................................. 12
CMMDrainageinChina............................................................................................. 13
CoalMiningOperatorsintheHuainanCoalField ...................................................... 15
StateDevelopmentInvestmentCorporation(SDIC) ............................................................16
SDICXinjiEnergy ..................................................................................................................16
HuainanCoalMiningGroupCo.,Ltd....................................................................................16
1.4.1 1.4.2 1.4.3
1.5 1.6
PreFeasibilityEvaluationofLiuzhuangMineandXinji1and2Mines....................... 17
XinjiNo.1and2Mines ............................................................................................. 19
XinjiNo.1Mine ....................................................................................................................19
XinjiNo.2Mine ....................................................................................................................19
1.6.1 1.6.2
1.7
LiuzhuangMine....................................................................................................... 110
Introduction .......................................................................................................................110
CoalDeposits......................................................................................................................111
HighTemperatureHazard..................................................................................................114
CoalDust ............................................................................................................................114
GasContentandCMMResources .....................................................................................114
MiningPractices .................................................................................................................116
MethaneDrainagePractices ..............................................................................................117
Ventilation..........................................................................................................................118
CMMUtilization .................................................................................................................119
MethaneEmissions ............................................................................................................119
1.7.1 1.7.2 1.7.3 1.7.4 1.7.5 1.7.6 1.7.7 1.7.8 1.7.9 1.7.10
1.8
ConclusionsandRecommendations ........................................................................ 120
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SECTION1FIGURES

Figure11: Figure12: Figure13: Figure14: Figure15: Figure16: Figure17: Figure18: LocationofLiuzhuangMine,AnhuiProvince ...................................................... 11
LargeScaleLocationMapofLiuzhuangMine ..................................................... 12
CMMDrainageandUtilizationinChina............................................................... 13
CMMDrainagebyCoalfield ................................................................................. 15
StructureMapoftheHuajiahuCoalDistrict ..................................................... 110
CoalStratigraphyandLithologyatLiuzhuangmine .......................................... 112
DetailedCoalStratigraphyatLiuzhuangmine .................................................. 113
Photomicrograph(300x)ofaCoalSampleintheHuainanCoalField............... 114
SECTION1TABLES
Table11: Table12: Table13: CMMPowerStationsOperatedbyHCMG........................................................... 17
CoalSeamThicknessandMiningCharacteristicData
HuajiahuCoalDistrict...................................................................................... 111
CoalSeamGasContentandCompositionDatafromthe
Liuzhuangminearea.......................................................................................... 115
1iii
1.1 Introduction
This prefeasibility study was sponsored by the U.S. Environmental Protection Agency (USEPA) under the auspices of the Methane to Markets Partnership, of which both the U.S. and China arefoundingpartners.ItalsosupportsthegoalsoftheU.S.ChinaStrategicEconomicDialogue. It was conducted by Advanced Resources International, Inc. (Arlington, Virginia, USA), with supportfromREIDrilling,Inc.(Utah,USA),ValleyLongwallInternational(Australia)andOrganic WasteTechnologies(HongKong,China). TheprefeasibilityassessmentdiscussestheARITeamspreliminarydatagatheringandanalysis on Liuzhuang and two other nearby mines in the Huainan Coal Field that are operated by SDIC Xinji Energy Company Limited. The remainder of the report (Sections 28) provides a more detailed feasibility study on the application of advanced technologies for improving coal mine methanedrainageandutilizationattheLiuzhuangminespecifically. TheLiuzhuangmineislocatedinthewesternportionoftheHuainanCoalField,incentralAnhui Province, eastcentral China. Liuzhuang mine is about 70 km west of the regional city of Huainan (population 1 million; Figure 11 and Figure 12). A large, modern, underground retreatinglongwallmine,Liuzhuangisscheduledforexpansionfromitsinitialdesigncapacityof 3 million metric tonnes per year (t/year), with a current upgraded production target of 7.85 milliont/yearbytheendof2010.
Figure11:
LocationofLiuzhuangMine,AnhuiProvince
(Source:ARI)
PreFeasibilityStudyandMineSiteSelection 1-1
Figure12:
LargeScaleLocationMapofLiuzhuangMine
(Source:ARI)
As of May 2009 the mine was draining about 21 million m3/year of coal mine methane (40 m3/minor2.0MMcfd,recalculatedaspuremethane).Currently,methaneconcentrationinthe drainedCMMflowisverylow,typicallyonly7to10%CH4,whichisdifficulttoutilizeefficiently. BothCMMdrainagevolumesandmethaneconcentrationareexpectedtoincreasesignificantly with the installation of additional vacuum pumps as well as separate highmethane and low methane collection systems. The installation is planned to be implemented along with mine expansionduring2010.
1.2 MineSelectionProcess
In July 2007 ARI conducted an initial technical visit to all three of SDICXinjis coal mines in the Huainan Coal Field, theXinji No. 1 and No. 2 mines and theLiuzhuang mine. This visit included surface and subsurface mine tours and examination of initial technical data on these three mines.ARIsinitialreviewidentifiedLiuzhuangmineasthebestcandidate,primarilybecauseit isthedeepest,gassiest,andmostmodernmineownedbySDICXinji.Liuzhuangclearlyhadthe bestpotentialforaCMMdrainageandutilizationimprovementproject.
AnotherfactorfavoringLiuzhuangmineintheselectionprocesswasthepotentialforextending technologies developed and proven in this mine to upgrade the CMM drainage and utilization atothercoalminesintheHuainanCoalField.AsdiscussedmorefullyinSection1.3,inaddition to the three mines operated by SDICXinji, several dozen other underground coal mines are in operationelsewhereintheHuainanregion.Manyofthese,particularlyineasternHuainan,are consideredmoderate tohighmethanemines.
1.3 CMMDrainageinChina
CMM drainage has increased rapidly in China from about 0.88 billion m3/year (85 MMcfd) in 2000 to 4.79 billion m3/year (464 MMcfd) in 2007, the most recent year for which figures are available (Figure 13). However, over this period the national utilization rate for CMM has slipped steadily to 30.6% in 2007 (vs. 57% in 2000) as more challenging lowconcentration methanestreamsarecaptured.
Figure13:
CMMDrainageandUtilizationinChina
(ModifiedfromZhao,2009)
Nationally, much of the increase in Chinas total volume of CMM drainage and the directly related reduction in methane concentrations can be explained by increasing use of powerful vacuumpumpsatthesurface.Thesepumpscanbehighlyeffectiveatremovingmethanefrom
theworkingfaceandmaintainingmethaneconcentrationsinthemineatsafelevels.However, the pumps also tend to draw considerable volumes of mine ventilation air into the gob and working areas of the mine. This tends to lower the CMM concentration of the captured methaneandmakesithardertoutilize. In contrast, underground coal mines in the U.S. and Australia capture CMM with mostly mediumtohighmethaneconcentrations(5095%CH4)and,notsurprisingly,thecapturedCMM isutilizedatahighrate.However,itshouldbenotedthatinseveralregardstheminingandgas market conditions in Australia and the U.S. differ significantly from those in China (and generallyaremorefavorableforCMMdrainageandutilization): U.S. and Australian coal mines tend to have higher permeability than those in China, allowingthemtodrainadditionalmethanefromlargercoalvolumes. U.S. and Australian coal mines also tend to be less faulted than those in China, enablinglongerhorizontalboreholestobedrilledwithoutsuddendisruption. The U.S./Australian coals also tend to have more stable mechanical properties. In contrast, the coal seams in many parts of China (including Huainan) are fragile, collapseeasily,andmakelonghorizontalinseamdrillingnearlyimpossible. Although China is rapidly developing its national natural gas pipeline system, the pipeline networks in the coal mining regions of Australia and the U.S. are relatively betterestablished,facilitatingCMMsalesandutilization.
Nevertheless,therearetechnicalimprovementsemployedinU.S.andAustralianminesthatare potentially applicable to China. Generally, U.S. and Australian mines tend to employ much longer horizontal boreholes (500 to 1500 m in length), improved borehole wellhead sealing techniques,leakproofseamlessHDPEpipelines,andadvancedmonitoringandcontrolsystems. They also avoid application of high vacuum levels to the CMM system. Together, these technical measures minimize contamination of CMM with ventilation air and help ensure high methaneconcentrationinthedrainedgasstream. Following a longterm trend in nearly all of Chinas coal mining areas, CMM drainage at the Huainan Coal Field has grown rapidly since 2000 (Figure 14). By 2007 CMM drainage had reached an estimated 190 million m3 (18.4 MMcfd), placing Huainan third in the country for CMM drainage. Yet, the CMM utilization rate has not kept up with the growth in CMM drainage, creating multiple opportunities for a CMM drainage and utilization project in the HuainanCoalField.
1-4
Figure14:
CMMDrainagebyCoalfield
(ModifiedfromZhao,2009)
1.4 CoalMiningOperatorsintheHuainanCoalField
Two large companies controlled by the central government dominate coal production in the Huainan Coal Field. In addition, numerous smaller provincially and locally controlled mining firmsoperatecoalminesthereaswell.ThelargerofthetwocentralcompaniesistheHuainan Coal Mining Group (HCMG), which operates 15 mines in the region, including one which has registered a CMM utilization project for Clean Development Mechanism (CDM) credits. Many of HCMGs other mines are deep and gasprone. Some could be candidates for future CMM drainageandutilizationprojects. ARIs evaluation at Liuzhuang mine was with the second most active centrally owned coal mining firm in the Huainan Coal Field, the State Development Investment Corporations coal mining unit, Xinji Energy Company Limited (SDICXinji). SDICXinji currently operates three relatively modern mines in the Huainan Coal Field. SDICXinjis largest and newest coal mine is called Liuzhuang, the focus of ARIs current evaluation. The company plans to open three additionalminesintheHuainanCoalFieldinthecomingfiveyears.
1.4.1
StateDevelopmentInvestmentCorporation(SDIC)
The owner and host organization for the Liuzhuang mine evaluation is SDIC Xinji Energy Company Limited (SDICXinji). SDICXinji in turn is controlled by the State Development InvestmentCorporation(SDIC),alargeChinesecentralgovernmentorganizationwhichengages in investment and operation of stateowned industrial assets. SDICs activities range from hydro and thermalpower generation to mining, construction, and shipping. SDIC is active in manyofChina'sprovincesincludingAnhui,Shandong,Henan,Hebei,andShanxi. 1.4.2 SDICXinjiEnergy
SDICXinji Energy focuses mainly on coal mining and processing with additional coal and small scale CMMfueled power generation. The company is listed on the Shanghai stock market (A share) and has recently attained market capitalization of over US$1 billion. SDICXinji holds 10.16billiontofcertifiedcoalreservesextendingoveratotalareaof1,092km2.Thecompany currently operates three production mines in the Huainan region with the total annual production capacity of about 8 million t/year. It also operates a trial operation mine, has a fourth mine under construction, and two additional mines under development. Other projects include two coal sorting plants and two coalganguefueled power plants. The company plans toincreaseoutputtoapproximately36milliont/yearduringthenextfiveyears. Prior to developing the Liuzhuang mine, SDICXinji had developed Chinas first coal mine (the Xinji mine in 1989; referred to later as the Xinji 1 mine after the Xinji 2 mine was constructed) that was established under the new marketoriented mechanism, as opposed to central planning. The Xinji 1 mine became a model for Chinas modern coal industry under the Legal Person Responsibility System. Xinji 1 has been inspected and praised by many of Chinas state leadersincludingPrimeMinisterLiPengandChairmanHuJintao. 1.4.3 HuainanCoalMiningGroupCo.,Ltd.
Wholly separate from SDICXinji, the largest coal mining operator in the Huainan Coal Field is the Huainan Coal Mining Group Co., Ltd. (HCMG). As of 2004 HCMG operated 10 underground coal mines, all characterized by coal and gas outbursts, with total production capacity of 34 million t/year. By 2007 HCMG was scheduled to bring another five coal mines into production, adding a further 46 million t/yr for a total production capacity of approximately 80 million t/year. By 2010 the companys production capacity is planned to reach 100 million t/year (accountingforabout5%ofChinastotaloutput). Over this period HCMGs coal mine methane drainage and utilization also has grown. Annual gas drainage is expected to reach 416 million m3 by 2010 (40 MMcfd), of which 354 million m3 (34 MMcfd) could be available for utilization. (For perspective, this is about twice the size of thelargestU.S.coalminemethaneutilizationproject,theBrookwoodfieldintheWarriorbasin,
which drains highconcentration (>80% CH4) CMM using gob wells and inmine horizontal boreholes,thenmarketsthegasviapipeline.) HCMG operates seven small CMM power stations in various mine locations, with total installed generationcapacityofabout19MW(Table11).
Mine Xieyi Pansan Panyi Zhangji Zhangbei Xinzhuangzi Xieqiao Total Units 2 2 2 2 2 2 2 Table11: Capacity (MW) 0.50 1.80 1.36 1.36 1.80 1.36 1.42
TotalCapacity (MW) 1.00 3.60 2.72 2.72 3.60 2.72 2.84 19.2
Manufacturer Chinese(mobile) Caterpillar Deutz Deutz Caterpillar Deutz Jenbacher
CMMPowerStationsOperatedbyHCMG
One of these power stations, at Pansan, is registered for CDM. Initiated in February 2003, and having registered since March 2007, HCMG is operating the Pansan Coal Mine Methane Utilization and Destruction Project (UNFCCC reference number 0840). The project has two components: first, to connect 4,000 local households to CMM, replacing coal; and second, to install 8.4 MW of CMMfueled power generation. The power project utilizes reciprocating engines, comprising 4 x 1.2 MW Chinesemanufactured units and 2 x 1.8 MW Caterpillar units, with all engines on line as of January 2007. Electricity generated from CMM supplies a portion oftheminesenergydemand,offsettingpurchasesfromtheEastChinaPowerGrid.
1.5 PreFeasibilityEvaluationofLiuzhuangMineandXinji1and2Mines
The initial step of the evaluation was to assess the feasibility of conducting a larger study for optimizing CMM drainage and utilization at the three SDICXinji mines in Huainan (Liuzhuang, Xinji 1 and 2). ARI personnel first visited these mines in July 2008 to gather initial data and conductfirstleveldiscussionswithminemanagementandtechnicalpersonnel.Thenewerand more modern Liuzhuang mine appeared to have the most potential for CMM drainage and utilization optimization, although the two Xinji mines also have good potential. Given the potential for drainage and utilization improvement at Liuzhuang, this initial evaluation led to thedecisionthatalargerfeasibilitystudyoftheminewaswarranted. Data gathered during the July 2008 visit revealed that none of the three SDICXinji mines are considered particularly highgas mines by the Chinese government. In fact, they are
characterizedaslowmoderatelygassymines.1Ontheotherhand,theminesarealsoclassified asHardlyDrainable,duetocoalseampermeabilityoflessthan0.025mD,2andCMMcontrolis an integral step for coal production at the three mines. Methane entry does interfere with mining operations at the SDICXinji mines and thus these mines have active drilling and drainage efforts. Fortunately, to date there have been no major methanerelated accidents at theLiuzhuangmine,whichonlystartedoperationin2006. TheSDICXinjimineswarrantevaluationbecause: CMM emissions into the mines are significant and require active inseam predrainage aswellascrossmeasuregobboreholedrillingduringminingtocontrol. Lowmoderately gassy mines also have the potential to experience methanerelated accidents. Lowmoderatelygassyminesfrequentlyrecoverlowqualitymethanethatisdifficultto utilizeeffectively. Gasemissionsanddrainageareexpectedtoincreasesignificantlyintheseminesasthe longwallsadvancedownintodeeperminingareas(>800m). The three SDICXinji mines are representative of other lowmoderately gassy mines with similar geologic and mining conditions in the Huianan Coal Field and perhaps elsewhereineasternChina.ImprovedCMMdrainageandutilizationtechnologiesthat canbedemonstratedattheseminesmaybeapplicableelsewhereintheregion.(Note thatduringrecentyearstheSiheminehasplayedasimilarlyimportantdemonstration roleforhighgasminesinShanxiProvince.)
Drained CMM volume from SDICXinjis mines has been increasing, from 20 million m3 in 2006 uptoaprojected35millionm3in2008(totalofthethreemines;notethatCMMvolumescited in this report are expressed as 100% CH4 concentration equivalent unless otherwise specified). The increase in drained gas is due to a number of factors, including increasing mine depths as wellasregulationswhichrequirethatgasemissionsintothemineworkingsbereducedthrough predrainage. The concentration of drainedmethane fromthe three mines was reported to be generallylow,rangingfrom530%andaveragingabout15%. Severaldifferentmethodsareemployedtocontrolthegasinthemineworkingsincludingcross measureboreholes,thedrivingoftunnelsabovetheminedseamtocollectgas,andcrosspanel
1
He,Xueqiu;Chen,Wenxue;Nie,Baisheng;andZhang,Ming,2009.ClassificationTechniqueforDangerClassesofCoaland GasOutburstinDeepCoalMines.SafetyScience,vol.48,p.173178. 2 Wang,KaiandXue,Sheng,2008.GasDrainagePracticesandChallengesinCoalMinesofChina.2008CoalOperators Conference,February1415,UniversityofWollongong&theAustralasianInstituteofMiningandMetallurgy,Australia,p.178 185.
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boreholes. During the prefeasibility study it quickly became apparent that one of the primary focuses of a feasibility study would be to increase the concentration of drained methane producedfromthedegasificationsystems.
1.6 XinjiNo.1andNo.2Mines
1.6.1 XinjiNo.1Mine
Located on the western side of the Huainan coalfield, the SDICXinji Xinji No. 1 mine covers an area of 25.2 km2. The oldest and one of the larger mines controlled by SDIC, Xinji No. 1 is a longwall operation currently producing about 4 million t/year from five seams. The mine currently drains about 160 million m3 of CMM at relatively low concentration (10% methane). Drainage techniques include tunnels driven above and below the mined seam as well as an array of closely spaced crossmeasure boreholes into the roof and floor. The mine plans to install six 500kW (3 MW total) engines to utilize drained gas. The power will be consumed bothinternallyaswellassoldbacktothegrid. 1.6.2 XinjiNo.2Mine
Located10kmfromXinjiNo.1,the XinjiNo.2 minehasa designedcapacityof3 milliont/year, withcurrentoutputapproximately2.6milliont/year.The30km2minehas491milliontoftotal coalresources,about160milliontofwhichisconsideredrecoverable.TheXinjiNo.2minehas similargeologytotheNo.1mine,andminingtargetsthesamefivemineableseams(No.1,6,8, 11, and 13). Total coal thickness is 33m. A large fault transects the mine area, along with one smalllocalfault.Currentlythemineis650mdeep. CMM drainage at the Xinji No. 2 mine averages about 33.16 m3/min, extracted using two surface vacuum pumps. The specific gas content ranges from 1012 m3/t of coal mined. The methane concentration at the surface is low (1015%), similar to Xinji No. 1 mine. CMM dilution is exacerbated by the high surface vacuum applied to the inmine degasification boreholes, and the resulting contamination of ventilation air into the gob zone. Methane drainage has increased in recent years and is forecasted to reach 14 million m3 in 2008, representinganestimated51%drainageefficiency. CMM drained at the Xinji No. 2 mine currently is being used as fuel for two 500kW Shengli manufactured reciprocating engines. Four more engines were scheduled to be installed as of mid2008.Powerconsumptionatthemineisabout80millionKWh,withpeakdemandof12.2 MW. SDICXinji Energys plan is to supply the mines power requirement through onsite generationandthensell2030%ofthegasoutputtolocalindustries.
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1.7 LiuzhuangMine
1.7.1 Introduction
Extending over an area of 82.2 km2, Liuzhuang mine is nearly three times the size of the Xinji No.1 or No. 2 mines. It is one of Chinas newest and most modern coal mines, employing a retreating longwall design. Liuzhuang was constructed over a 44month period, with mine construction commencing on February 20, 2003 and trial operation verified by the Provincial Economic Committee on October 13, 2006. Its coal resources total an estimated 1.56 billion t, of which 679 million t is considered proven mineable reserves, giving the mine a projected 61 yearservicelife. Liuzhuang mine is located in the Huajiahu district, which in terms of structural geology is a relatively simple portion of theHuainanCoalField.The mine is situated on the southern flank of the Xieqiao Syncline. Several major regional faults notably the Shouxian Laoren and Fufeng Faults cut the district, but the Liuzhuang and Xinji mines are situated in between these major structures and are relatively undisturbed byfaulting(Figure15). Figure15: StructureMapoftheHuajiahuCoalDistrict
(Source:SDIC)
Liuzhuang mine comprises two vertical shafts, a system of main gate roads, separate mining development zones, separate ventilation zones, and centralized coal haulage. Advanced monitoringequipmenthasbeeninstalledtoproviderealtimedataonmethaneflowrates,coal production, equipment location, and other coal production related information. These performance measures are monitored, recorded and managed from a modern control room at thesurface. Currently only Seams 131 and 112 are being mined at Liuzhuang. Eventually, SDICXinji plans to target Seams 1, 5, and 8 as well from various levels using longwall mining. A single longwall currentlyisinoperationwithasecondplannedtocommencein2010.
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During the period January to May 2009, coal production at Liuzhuang totaled approximately 3 million t, with an average monthly production of 600,000 t. Production is scheduled to be increased to 7.85 million t/year during 2010 and then 10 million t/year by 2015. The hoist system is capable of lifting 10 million t/year. SDICXinji estimates CMM production at Liuzhuang to be approximately 13 million m3/year (24.7 m3/min) over the next five years. This seems conservative given rising coal production as well as the potential improvements to drainagesystemtechnologyrecommendedinthisstudy. 1.7.2 CoalDeposits
ThetwomainminingtargetsatLiuzhuangareSeams131and112(Table12).Seam131isof stable thickness (2.4 to 4.3 m, average 3.85 m), simple structure, and dips to the south at a 10 to30angle(average15.1).Hardnessoftheseamisclassifiedasloosetosoft,whichsuggests that long inseam drilling would be hard to achieve. The density of the layer is 1.37 g/cm3, porosity2to3%,andtheapparentelectricalresistivityisapproximately100ohm.
Thickness (m) extreme value/average value / Spacing of seam (m) extreme value/average value / Number of gangue layers Lithology of roof and floor Coal seam structure Roof Floor Mudstone, sandy mudstone Sandstone Mudstone, sandy mudstone Mudstone, sandy mudstone Mudstone, sandy mudstone
Coal seam
Stability
1.135.80/3.39 94138/108
Stable Relatively stable Stable Stable Relatively stable
Simple Simple Single Simple Simple
Mudstone Mudstone, carbonaceous mudstone Mudstone, sandy mudstone Fine and medium sandstone Mudstone, sandy mudstone
6-1
1.028.19/3.36 1561/33
1.594.73/3.41
51138/83
11-2
2.294.84/3.64
6692/76
13
13-1
1.512.79/6.06
12
Table12:
CoalSeamThicknessandMiningCharacteristicDataHuajiahuCoalDistrict
(Source:SDIC)
The floor and roof rocks of Seams 131 and 112 comprise an interbedded sequence of sandstone, siltstone, and mudstone rocks (Figure 16). Although the coal seams themselves have undergone shearing, natural fracturing in the clastic section appears to be limited. This sequence may be expected to provide a stable drilling environment for drilling long horizontal degasificationboreholesinthegobzone.
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Feasibility of Improved Coal Mine Methane Drainage and Utilization at the Liuzhuang Mine, Anhui Province, China.
oal-bearing section Thick Section ness Coal seam No. Thickness m Spacing m
Comprehensive column
Lithology
87.0
15* coal seam 15* coal seam
45.5-36.4 66.65 0-1.46 0.57 0-3.24 0.63 1.60-17.40 6.89 4.50-24.30 18.55 1.95-1.37 0.98
13-1# coal seam Lower 13-1 #coal seam#
1.51-8.47 4.61
12# coal seam
67.46-88.55 79.2
11-2# coal seam
2.29-5.76 3.85
11-1# coal seam
0-2.72 0.97
19.35-37.36 28.18
Upper 9 # coal seam
0-1.73 0.95
39.93-52.71 44.89
II
114.0
Purple brown-light yellow granitophyre,

its bottom is the deep gray medium and fine size quartzose sandstone and the Quaternary coal-bearing section boundary
Consists of gray-deep gray sandstone, sandy mudstone, mudstone and grayish
white fine and medium size sandstone. The middle coal-bearing seams are 5-7, wherein, 13-1# coal seam has the relatively stable growth, -300m and above were displaced by the decken structure.
About 18m below 13-1# coal seam grows with one stable purple brown-grayish
green granitophyre with oolite, commonly called the large granitophyre, its bottom consists of grayish white medium sandstone and the Tertiary coal-bearing section.

5713-1#300m131#18m

Consists of gray silty sandstone, mudstone and grayish white fine and medium sandstone, and quartzose sandstone. Its medium and lower parts has 3-4 coal-bearing seams, wherein, 11-2
seam is totally grown stably, with the complicated structure, with 1-3 gangue layers, from its east to west, the coal seam is thinner, the average thickness of 1-02
line is 4.31m, and that of 03-05 line 3.96m, the east part of 06 line is 2.97m, most of the 11-1 coal seam is recoverable, the mudstone or sandy mudstone at the top of 11-2# coal seam is abundant with phytolites, its bottom is divided with the second coal-bearing section with the grayish white quartzose sandstone or medium and fine sandstone
3-41121 -31024.31m03053.96m062.9 7m11-1112#
Figure 16:
Coal Stratigraphy and Lithology at Liuzhuang mine

(Source: SDIC)
PreFeasibility Study and Mine Site Selection
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In addition to the mining targets Seams 131 and 112, the relatively thin coal seams 5 through 9 underlie the target coals and are not yet being mined. Figure 17 shows the detailed coal stratigraphy of these coals, as well as characteristics of the floor and roof rocks. These seams are not mined but contribute methane due to gob fracturing that occurs during longwall mining.
Figure17:
DetailedCoalStratigraphyatLiuzhuangmine
(Source:SDIC)
Photomicrography of coal samples in the Huainan Coal Field clearly show the extensive natural microfracturing and shearing that they have undergone due to the complex structural history of the region (Figure 18). This deformation has weakened the coal and reduced its permeability,makingitdifficulttodrillinseam.
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Figure18:
Photomicrograph(300x)ofaCoalSampleintheHuainanCoalField
(Liuetal.,2009)
1.7.3
HighTemperatureHazard
A local geothermal anomaly has generated an abnormally high temperature gradient at the Liuzhuang mine(3C per 100m depth). At typicalminingdepths theinitial rock temperatureis quite hot, approximately 38.9 C. Ventilation applied during longwall retreat mining reduces the maximum temperature at the mining face to about 26 to 30C. However, the elevated temperature is considered to be hazardous for mine personnel, who often work shortened and staggered shifts. Despite this, the elevated temperature is not considered to have a significant impactonCMMdrainageatthismine. 1.7.4 CoalDust
Unrelated to its CMM drainage potential, but still important for mining productivity, the coal mined at Liuzhuang is considered to have a high risk of coal dust explosion. Coal volatility is 35.95 and is characterized by a long flame (> 400 m). The mine takes standard measures to suppress the risk of coal dust explosion, mainly by maintaining the minimum rock content above65%. 1.7.5 GasContentandCMMResources
Gas content at the Liuzhuang mine has not yet been precisely measured using CBMindustry standard techniques, but is believed to range from about 3 to 7 m3/t, increasing with depth. Themostaccuratemethodfordetermininggascontent directgasdesorptionofcoresampled
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from the virgin (nonmined) coal seams has not yet been conducted at Liuzhuang, mainly becausenomodernCBMexplorationwellshavebeendrillednearby. Instead, the Fushun Coal Mine Research Institute used inmine borehole core data to estimate gas content at approximately 5.29 m3/t. However, it should be noted that the Fushun inmine method is much less accurate than the CBM industrystandard direct desorption (US Bureau of Mines)methodusingsurfacecores.Thus,thereremainssomeuncertaintyabouttheactualgas contentandCMMresourcesatLiuzhuangmine. GascontentmeasurementsobtainedbyFushunshowlargevariationandprobablyarenotvery reliable (Table 13). Methane contents measured range widely, from 0.42 to 12.47 m3/t. Methane concentration measurements also show extreme variation, from 32.76% to 92.66%. This considerable data variability probably reflects contamination with mine ventilation air duringthesamplingprocedure.
Table13:
CoalSeamGasContentandCompositionDatafromtheLiuzhuangminearea
(Source:SDIC)
Desorption data measured from surface core taken from other portions of the Huainan Coal Field indicate that gas content at Liuzhuang is probably closer to 7 m3/t at a depth of 700 m. Using the lower gas content estimate, Fushun estimated CMM resources to be approximately 69 billion m3, of which some 22.8 billion m3 are considered technically recoverable methane reserves;thesefiguresmaybeunderestimatedby20%.
1.7.6
MiningPractices
Mine Layout. The Liuzhuang mine uses a typical retreat longwall mining design with collapsing roof. The longwall panels are relatively large, measuring 250 by 1800 m. The current mining depth is 580 to 700 m below the surface. Seams 112 and 131 at Liuzhuang are not exceptionally thick (less than 4.5 m) and thus the coal can be readily exploited using a single pass,fullheightminingtechnique. As a relatively recently developed mine, initial longwall mining face development at Liuzhuang took place in East Zone 2, which is located in the East Wing of the mine and bounded on the east by fault F30, with fault F31 providing a protective column contour. The western boundary ofthemineisfaultF19, whilethenorthernboundaryisthe500m structurallevelofSeam13 1.Theinitialdipslopewas1317south,butthedipsteepenstoabout30atgreaterdepth. Thefirstminingfacemeasuredapproximately350macrossfromeasttowest.Aventilationair way was constructed above this face. Situated below is the gateway for coal haulage. The upper zone is classified as the 1302 working zone, the lower area 1304 working zone, eastern side the East Mining Zone 3, and the western side the East Mining Zone 1. The longwall measured some 1,623 m long, with average slope length 244 m. Coal reserves for this panel were estimated at 2.079 million t, of which 1.933 million t is considered to be mineable (equivalentto93%miningefficiency). Roadway Development. Development of roadways at Liuzhuang mine utilizes road header machines as well as drillandblast methods. Development production at Liuzhuang mine is approximately150,000t/year.Themainroadwayshavethefollowingcharacteristics: 7separateareas(zones). Advancerateisapproximately600mpermonthperroadheader. Roadwaydimensionsareapproximately4.65m(width)x3.8m(height). Longwall gateroads (from mine plan) are singleheading entry development, double headingentrydevelopment,ordevelopedofffrommainroadways. Goaf drainage roadways (from the mine plan) appear to be offset to one side of the longwallblock,18to25mabovethecoalseam.
Longwall Development. As of November 2009, one longwall was in operation at Liuzhuang mine. A second longwall is planned to be installed during 2010. After completion of the mine expansion, coal production related to mining of longwalls at Liuzhuang (as opposed to the roadways)willbeexpandedtoabout7.85milliont/year.
LongwallblocksatLiuzhuangminehavethefollowingcharacteristics: Lengthrangesfrom1500to1700m. Widthrangesfrom220to280m(plantogoupto340m).
Miningheightdependsonthecoalseamthatisbeingmined,rangesfrom1.95to4.55m. Mineadvancerateisapproximately8to10mperday. Mining plan is to work from the upper coal seam down to the lower ones. Thus, the mining sequence starts with Seam 131, mining sequentially the seams below (Seam 112 currently. In the future Seams 8, 51 and finally Seam 1 are scheduled to be mined). MethaneDrainagePractices
1.7.7
To enhance safety and mining productivity, the Liuzhuang mine currently uses boreholes connectedtoavacuumsystemtodrainapproximately24.7m3/minofcoalminemethane.Two types of CMM boreholes are drilled at the Liuzhuang mine. First, short (100m long), non steered, boreholes are driven horizontally into the coal seams in a crosspanel configuration. Second, crossmeasure boreholes slanted upwards into the fractured rock (gob) zones are also installedtodrainCMMthatisreleasedfromoverlyingcoalseamsandsandstonesthatbecome fracturedastheminingfaceadvances. Significant volumes of air contamination leak into the drained CMM stream at Liuzhuang mine, reducing the methane concentration from about 95% CH4 as originally stored in the coal reservoir to only about 7 to 10% by the time the CMM is vented. Most of this air probably enters the gob area and/or is sucked into the boreholes as the mining face advances. Additional air likely leaks around the poorly cemented boreholes. Air also may leak into the steelpipelinesystemvialooseflangeconnections. The coal seams mined at Liuzhuang have low to moderate methane levels, are loose and soft, and have low permeability (probably 0.1 mD or less). This makes predrainage very difficult. Despite the modest gas contents, gas and rock outbursts are fairly common during mining becauseoflowpermeability. For Seam 131, disruption of the overlying seams by longwall mining contributes a significant fraction(1736%)ofthemethaneencounteredattheworkingface.Gasalsodesorbsfromthin coal seams that are not mined or disrupted, due to desorption caused by the mines pressure sink. Much of this gas accumulates in the gob zone above the target seam and is difficult to dealwith.
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Several degasification methods are employed to control the methane emissions into the mine workings. The first is to excavate a 35 degree sloping tunnel to get above the mined seam. Then 10 boreholes are drilled from a small gallery to just above the working face. This sequence is repeated every 80 m or so above the working seam. The second method is to drill crossmeasure boreholes from the roadways over the longwall panel. Both of these systems producelowqualityCMM,intherangeof15%methane. The main method for methane drainage at Liuzhuang mine is gob gas removal using short boreholes drilled along strike, angled up into the roof of the coal seam. Gas production increases once the working face and gob zone reaches the end of the boreholes, but methane concentration is diluted severely by mine ventilation air. At Liuzhuang mine the concentration ofdrainedgasisextremelylow(generally710%CH4),whichisinthehazardousexplosiverange formethane/airmixtures(between5and15%CH4inair). Longer horizontal inmine boreholes drilled into the gob would seem an obvious improvement to the short holes currently drilled at Liuzhuang. For example, as early as 1998 at the Xieqiao mine, located just to the east of Liuzhuang, a horizontal borehole 360 m in length was successfullydrilledusinganAustraliandirectionallycontrolled1000mrateddrill.3 1.7.8 Ventilation
At Liuzhuang centralized cross ventilation was utilized during the early stage of mining, ventilating the main and auxiliary shafts. Two maintrack crosscut lines were employed: the centralTrackLineandtheairinflowcrosscutline.Themineemploysanexhaustsystemwitha surfacemounted main ventilation fan. Manufactured in the United Kingdom by Howden, the fanis2.8mindiameterandhasaflowcapacityof20,000to28,000m3/min. Starting August 31, 2006, the mine commissioned two auxiliary ANN2884/1400N axialflow blowers,with2MWmotorcapacityandhydraulicallyadjustablerotors. Slope shafts (Central Plastic Machine and Gangue Plastic Machine slope shafts) provide ventilation to the mining face and tunneling areas. Ventilation air exits through two crosscut shafts. The first mining face area, developed in Seam 131, was ventilated with 2,520 m3/min, freshairpassingthroughthecentraltrackcrosscuttoalltunnelingzones.Attheearlystageof mining, only five road tunneling face areas, three mining face areas, and one combined mining face area were present, thus the ventilation requirement was about 13,080 m3/min.
3
Yuan,Liang;Zhang,Liqing;Li,Ping;andZhou,Deshui,1998.UndergroundCoalbedMethaneDrainageintheHuainanMining Area.ProceedingsoftheInternationalWorkshoponCoalbedMethaneRecoveryandUtilization,November1213,1998, Beijing,China.
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Ventilation control for the mine was established primarily through the use of permanent ventilationshaft,adjustableventilationshaft,andairdiversionwalls. Currently, the mine has two methane pumping stations, one on the east side and one on the west. On the eastern area, four pumps with a capacity of 415 m3/min have been installed. On thewestside,fourpumpsarescheduledtobeinstalledduring2010;twomorepumpsaretobe installedlater. In 2007 Liuzhuang mine drained 10.8 million m3 (20.5 m3/min) of methane, increasing to approximately13millionm3(24.7m3/min)in2008.Theconcentrationofthedrainedmethane is low, usually less than 10% CH4. During the July 2008 prefeasibility study visit, all captured methanewasbeingventedtotheatmosphere. 1.7.9 CMMUtilization
Currently, none of the CMM being drained at Liuzhuang mine is being utilized. SDICXinji has been evaluating (but had not yet decided on) the use of Shenglimanufactured reciprocating engines that are capable of using lowquality CMM fuel with 710% CH4 concentration. The projectasoriginallyenvisionedwouldgenerateatotalof4.0MW,comprising8unitsx0.5MW. Powergeneratedwouldbeusedmainlybythemine. Ventilation air methane mitigation or utilization does not appear to be practical at Liuzhuang mine. The methane concentration in the ventilation air is only about 0.02% CH4. While such a low VAM concentration is favorable for mining safety purposes, it is significantly below the economiclimitforVAMmitigationorutilization. 1.7.10 MethaneEmissions
The Liuzhuang mine currently emits an estimated total 30.9 m3/min (1.6 MMcfd or 0.41 MtCO2e/yr). These CMM emissions originate from two main sources. The most important component of methane emissions is the 24.7 m3/min of 710% purity methane that is drained viatheboreholeandvacuumsystem.Anadditional6.2m3/minofverylowconcentrationVAM (average0.02%CH4)isalsoemitted.
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1.8 ConclusionsandRecommendations
The three SDICXinji mines share similar geologic characteristics as well as certain mining and coalminemethanedrainagechallenges.Theprefeasibilityevaluationindicatedthateachmine couldqualifyasacandidateforamoredetailedCMMfeasibilitystudy.However,theLiuzhuang minestoodoutasaparticularlyattractivecandidateforseveralreasons,including: 1) 2) 3) 4) 5) 6) The Liuzhuang mine is the newest and most modern of the three SDICXinji Energy operatedmines,havingbeeninproductionforonlythreeyears. Ithasthelargestlongwallpanelsbeingdevelopedofthethreemines,measuring250 mby1800m,offeringspaceforadvancedlongholedrillingstrategies. Liuzhuanghasthelargestdesignedcapacity(8milliont/year),aswellasrecoverable reserves(679milliont)andthelongestservicelife(61years). It has the largest total methane resources, estimated at 69 billion m3 with a recoverablereserveof23billionm3. Mine management has installed an extensive realtime monitoring system of methanedrainage,coalproduction,andothermineproductionrelatedstatistics. Liuzhuang has experimented with surface drilled gob wells with some success, indicating that alternative degasification systems could be employed that would producehigherconcentrationsofmethane. The ARI teams initial finding is that long horizontal borehole drilling into the gob zoneabovetheminedcoalseamscoulddramaticallyimprovemethanerecoveryand concentration. Additional improvements in borehole sealing effectiveness and the integrity of the pipelinesystemcouldboostmethanequalityseveralfold. Once gas flow and quality is improved, larger more efficient reciprocating engines could be applied for power generation, with more reliability and efficiency gains overthecurrentlessreliablelowconcentrationunits.
7)
8) 9)
Section2through10ofthisreportprovideadetailedfeasibilitystudyoftheproposedCMM drainageandutilizationimprovementprojectatLiuzhuangmine.
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SECTION2
GeologicAnalysisandResourceAssessment

2i
SECTION2CONTENTS

2.1 2.2 2.3 Introduction .............................................................................................................. 21
LocationandRegionalTectonics ............................................................................... 21
HuainanCoalField................................................................................................................23
2.2.1
LiuzhuangMineGeologyandResourceAssessment................................................ 215
MineAreaDescription .......................................................................................................215
LiuzhuangMineGeology....................................................................................................215
LiuzhuangMineCoalProperties ........................................................................................223
LiuzhuangMineCoalandCMMReserves ..........................................................................224
2.3.1 2.3.2 2.3.3 2.3.4
2ii
SECTION2FIGURES

Figure21: Figure22: Figure23: Figure24: Figure25: Figure26: Figure27: Figure28: Figure29: Figure210: Figure211: Figure212: Figure213: Figure214: Figure215: Figure216: Figure217: Figure218: LiuzhuangMineLocationinrelationtotheEastChinaCoalRegion ................... 22
StratigraphicLithofaciesofEastCentralChina ................................................... 23
StructureMapofHuainanCoalField................................................................... 24
TotalCoalThicknessDistributionintheHuainanCoalField ............................... 25
VitriniteReflectanceDistributionintheHuainanCoalField............................... 26
GasContentVersusDepthintheHuainanCoalField ......................................... 27
AdsorptionIsothermsforHuainanCoals............................................................. 29
GasContentDistributioninHuainanCoalField ................................................ 210
CoalMiningDistrictsintheHuainanCoalField................................................. 211
CBMExplorationWellsandResourceEstimationBlocksinthe
HuainanCoalField ............................................................................................. 212
GasInPlaceDistributionintheHuainanCoalField.......................................... 213
StructureandDepthtoSeam131atLiuzhuangmine ..................................... 216
StructureandDepthtoSeam211atLiuzhuangMine ..................................... 216
StructuralCrossSection15................................................................................ 217
ExpandedSectionofNSCrossSectionacrossLiuzhuangmine ....................... 218
StratigraphicColumnshowingCoalSeamDistributioninthe
LiuzhuangCoalField .......................................................................................... 219
CoalCoreholeLog3032(DepthInterval654689m)........................................ 221
CoalCoreholeLog3032(DepthInterval741774m)........................................ 222
SECTION2TABLES
Table21: Table22: Table23: Table24: Table25: GasContentDatafromHuainanCoalFieldDistricts ........................................... 28
2003EstimateofCBM/CMMResourcesintheHuainanCoalField .................. 213
2009EstimateofCBM/CMMResourcesintheHuainanCoalField .................. 214
Industrial(proximate)analysesofSeams131and112atLiuzhuangmine.... 223
EstimatedCoalandCMMReservesatLiuzhuangmine .................................... 224

2iii
2.1 Introduction
Coalminingonalargescalefirstbegan at the Huainan CoalField in the1950s, while coalmine methane(CMM)drainagehasbeenunderwaysince1961.Today,HuainanisoneofChinaslargest andmostimportantcoalminingandcoalminemethaneproductionareas,rankingnumberthree andtwo,respectively,inthecountry. ThissectiondiscussestheregionalgeologyandCMMresourcesintheHuainancoalfield.Italso evaluates the specific conditions, challenges, and potential technical solutions for optimally drainingandutilizingCMMatLiuzhuangmine. Understandingfirsttheregionalgeology,coalmining,andCMMdrainageconditionsandchallenges in the large Huainan Coal Field is essential for ultimately improving the performance of CMM drainage atLiuzhuang mine. It also helps to quantify the potential benefits that improvements developed at Liuzhuang mine may provide for upgrading CMM drainage at the regions several dozenundergroundcoalmines. Coal mine production from the Huainan Coal Field totaled approximately 100 million t in 2008. Assumingbasinwideaveragespecificmethaneemissionsof20m3/t,whichincludesmethanethat seepsintotheminefromadjacentnonminedseamsandfracturedsandstones,approximately2 billionm3/year(200MMcfd)ofmethaneisliberatedbycoalmininginHuainan. Ofthistotal,onlyabout190millionm3/year(ornearly10%)isdrainedinCMMcollectionsystems. Of the methane drained, about 40% or 95 million m3/year is utilized, mainly as boiler fuel, residential town gas, and some power generation. In summary, methane emissions to the atmospherefromcoalminingintheHuainanCoalField are estimated to be 1.9 billion m3/year. Clearly, the Huainan Coal Field offers a major opportunity for improved CMM drainage and utilization.
2.2 LocationandRegionalTectonics
Liuzhuang mine is located in the western portion of the Huainan Coal Field in central Anhui Province.TheHuainanCoalFieldispartofthemuchlargerandstructurallycomplexEastChina CoalRegion,amajorcoaldepositwhichextendsupthelengthofeasternChinaintonortheastern ChinasLiaoningandHeilongjiangProvinces(Figure21).
2-1
Over the past 15 years several articles authored by Chinese researchers have described the geology, coal mine methane, and coalbed methane potential of the Huainan region.1,2,3 This sectionisbasedonARIssynthesisofotherspreviousworkaswellasourowninterpretationofthe rawdata.
Figure21:
LiuzhuangMineLocationinrelationtotheEastChinaCoalRegion
TheEastChinaCoalRegionisatectonicallyactiveregioncharacterizedbynumerousresultsand oftenrapid,recentregionalsubsidence.ThistectonicactivityisbeingdrivenbyIndiascontinued northward subduction under the Asian continent and the resulting northeastward extrusion of China. East China is structurally much more complex than the relatively quiescent Ordos and Qinshui basins of northcentral China. These areas have experienced mostly up and down movement, much like in the Colorado Plateau of the U.S. The Ordos and Qinshui basin are relativelyfreeofactivefaultingandthereforestructurallymuchsimplerthanHuainan.
Yang,Zhongzhen;Zhang,Bingguang;andSunMaoyei(HuainanCoalMiningBureau),1995.EvaluationoftheGeological CharacteristicsandtheResourcesofCoalbedMethaneintheHuainanCoalField.Proceedings,InternationalConferenceon CoalbedMethaneDevelopmentandUtilization,UnitedNationsDevelopmentProgram,Beijing,China,October1995. 2 Yang,Zhonzhen;Zhang,Bingguang;andSunMaoyei((HuainanCoalMiningBureau),1995.EvaluationandDevelopment ProspectsofCoalbedMethaneResourcesintheHuainanCoalBasin.ChinaCoalbedMethane,No.1,May1995. 3 Liu,Dameng;Yao,Yanbin;Tang,Dazhen;Tang,Shuheng;Yao,Che;andHuang,Wenhui(ChinaUniversityofGeosciences), 2009.CoalReservoirCharacteristicsandCoalbedMethaneResourceAssessmentinHuainanandHuaibeiCoalfields, SouthernNorthChina.InternationalJournalofCoalGeology,v.79,p.97112.
2-2
Mainlyforthisreason,advancedCMMdrainagetechniquesthatarebeingsuccessfullyemployedin structurallysimple(i.e.,notfaultedandfolded)andstable(strong,intactcoal)portionsofShanxi Province (e.g., the Sihe mine) and in particular the 1000m long inseam borehole drilling technology imported from North America and Australia are not necessarily appropriate for LiuzhuangandotherminesinEastChina. 2.2.1 HuainanCoalField
The Huainan Coal Field is a major coal mining region in eastcentral China. Huainan is the southernmost coal field in the East China Coal Region. Covering a total surface area of approximately3,000km2,theHuainanCoalFieldmeasuresabout100kmeasttowestandabout 25to30kmnorthtosouth.Itcomprisesseveraldozenlargeundergroundcoalminestargeting Paleozoicagecoaldeposits. CoalStratigraphy.ThecoaldepositsintheHuainanCoalFieldarefoundmainlywithinthePermian Shihezi Formation, with a few economically less vital seams also occurring in the underlying PermianShanxiFormation(Figure22).(NotethattheShiheziFormationisayoungerunitthanthe coalbearingCarboniferousTaiyuanandPermianShanxiFormationsfurthertothenorthinHenan and Shanxi Provinces.) These coal seams were formed in a mostly paralic delta facies with numerousdepositionalcycles.Approximately32to40individualcoalseamstotalingupto42m netcoalthicknessoccurwithinanoverall350mthickcoalbearingsequence.Ofthese,about9to 18seamsareconsideredtobeofmineablethicknessandlateralcontinuity,thoughinagivenmine typicallyonlyseveralindividualseamsaremined.
Figure22:
StratigraphicLithofaciesofEastCentralChina
2-3
Regional Structure. The Huainan Coal Field is an eastwest trending depression containing Paleozoiccoaldeposits(Figure23).Majorfaultsandfoldsinthebasinalsotrendeastwestand control coal depth distribution. Significant folds include the Pan Anticline in the east, the Xieli Synclineinthesoutheast,andtheXieqiaoSynclineinthesouthwest,wheretheLiuzhuangmineis situated.Depthtocoalrangesfromlessthan300mdeepinthewestcentralportionofthebasin toover2,000mdeepatitsfareasternedge.CoaldepthatLiuzhuangminerangesfrom400m deep in the north to well over 1000 m deep in the south. Note that about a dozen coalbed methaneexplorationwellshavebeendrilledinthebasinsince1992,fiveofwhicharelocatedon ARIsstructuremap,butnoneofthemarelocatedneartheLiuzhuangmine.
Figure23:
StructureMapofHuainanCoalField

GeologicAnalysisandResourceAssessment 2-4
Coal Thickness. Total coal thickness reaches a maximum 33 m in the northeastern portion of HuainanCoalField(Figure24).Liuzhuangmine,locatedinthewesternportionofHuainanCoal Field, has moderate total coal thickness of approximately 25 m, which is still considered a very substantialcoaldeposit.AsizeableareajusttothenorthofLiuzhuangmineiscompletelydevoid ofcoal,havingbeendenudedofPermiansedimentaryrocksduringtheancientupliftanderosional eventthatcreatedthePermianQuaternaryunconformity.Coalthicknessincreasesagaintomore than30minthestructuraldepressionjustsouthofLiuzhuangmine.Notethatonlyasmallfraction ofthiscoaldepositiscurrentlyminedatLiuzhuang.TheextensivecoaldepositsintheLiuzhuang mineareacouldenablecoal(andCMM)productiontobeincreasedsignificantly.
Figure24:
TotalCoalThicknessDistributionintheHuainanCoalField
2-5
CoalRank.Thethermalmaturity(rank)ofcoalisamajorcontrolonitsmethanesorptioncapacity, as well as its cleat and permeability development. Figure 25 shows ARIs map of vitrinite reflectance(Ro)distributionintheHuainanCoalField,ameasureofthermalmaturity.Vitrinite reflectancereaches a maximum of 0.85% in eastern Huainan Coal Field, equivalent to medium volatile bituminous coal rank. Liuzhuang mine has relatively low Ro of approximately 0.72%, representing highvolatile bituminous A coal rank and indicating somewhat lower gas storage capacity.
Figure25:
VitriniteReflectanceDistributionintheHuainanCoalField
2-6
GasContentandSaturation.CoredesorbedusingtheU.S.BureauofMines(USBM)methodfrom surfacecoreholes,locatedinareasundisturbedbymining,istheonlyreliablemeasurementofcoal seamgascontent.Inminemeasurementofgascontentusingshortboreholes(<300m)ismuch lessaccurate,becausetheminedevelopmentinevitablyreducesreservoirpressureandcausesgas to flow towards the pressure sink, even in lowpermeability coals. Only very long inmine boreholes(1000m)wouldbeabletoreachvirgincoalseamconditions. ThereisextensivegascontentdataintheHuainanCoalField,aswellassomesorptionisotherm measurements on the coals, but these data show a great deal of variability, both laterally and vertically. Part of the data scatter is due to sampling and measurement error, resulting in low precision.Thisisparticularlytrueforsamplesanalyzedbeforeabouttheyear2000,whentheUS BureauofMinesdirectdesorptionmethodbegantobewidelyusedinChina,replacinganearlier lessaccurateChinaMinistryofCoalmethod. Figure 26 shows the distribution of coal seam gas content data in the Huainan Coal Field, comprisingmeasurementsfromtheLiuzhuangmineareaaswellasseveralotherareaslocatedin the eastern part of Huainan, such as the Xieli, Pan #2, and Pan #3 mines. Although there is considerabledatascatter,gascontentgenerallyincreaseswithdepthinHuainan.Reddatapoints on the graph show gas content measured using the former China Ministry of Coal desorption method,whichusessmallersamplesandshorterdesorptiontimeandthusislessreliable.Green datapointsshowmorerecentgascontentsmeasuredusingtheUSBureauofMinesdesorption method,utilizinglargercoalsamplesdesorbedforamuchlongertime,resultinginmorereliable (andgenerallyhigher)values.
Figure26:
GasContentVersusDepthintheHuainanCoalField
2-7
Table21showsgascontentdatafromvariouscoaldistrictsoftheHuainanCoalField,tabulatedby individualcoalseam.TheLiuzhuangmineislocatedintheXieqiaodistrict,whereSeams112and 132 have average gas contents of 7.96 and 7.25 m3/t, respectively, at a depth of 1,000 m. However,muchofthegascontentdatacollectedinthisareaareprobablynotbasedonthemore robustUSBMmethodandthereforearesuspect.GascontentishigherinthePanjiandXieliareas ofeasternHuainan,about11m3/tat1,000mdepth.
Gas Content by Seam (m3/t d.a.f. basis) 1 8 11-2 13-2 5.05 3,19 2.75 4.72 6.71 5.89 5.75 6.74 7.01 7.75 7.00 7.45 8.11 6.82 6.09 8.45 7.96 7.25 6.20 8.60 8.23 10.45 7.51 8.15 8.71 12.58 8.70 10.13 11.18 14.05 10.10 11.10 13.07 8.20 8.59 11.44 14.38 10.11 9.93 12.48 14.45 11.88 11.75 13.10 14.45 12.10 12.40 7.65 5.22 10.39 6.27 8.90 9.73 13.98 8.07 11.55 12.80 14.30 11.39 12.10 9.75 8.45 7.90 11.27 10.45 9.68 10.13 14.46 11.95 11.00 4.80 4.65 5.10 5.13 2.01 2.74 2.84 1.95 3.22 4.03 3.56 3.55 4.80 4.65 5.10 5.13 2.23 2.21 3.28 4.45 3.23 3.99 4.75 5.01 4.25 5.00
Coal District Xieqiao West
Xieqiao
Guqiao
Panji
Zhuji
Xieli
Zhangou
Madian
Depth Range (m) 700 1000 1000 1200 1200 1500 700 1000 1100 1200 1200 1500 900 1000 1100 1200 1200 1500 700 1000 1000 1200 1200 1500 >1500 900 1000 1000 1200 1200 1500 >1500 900 1000 1000 1200 1200 1500 >1500 1000 1200 1200 1500 >1500 1000 1200 1200 1500 >1500
Table21:
GasContentDatafromHuainanCoalFieldDistricts
SorptionisothermmeasurementsindicatethatcoalseamsintheHuainanCoalFieldgenerallyhave gascontentlevelsthataresignificantlybelowthetheoreticalsorptivecapacityofthecoalseams. Thus, the coals are in an undersaturated state (Figure 27). Extensive dewatering would be necessarytoelicitmethanedesorptionandeventualproductioninaverticalorhorizontalsurface CBMwell.(Coalminedevelopmentreducesreservoirpressuretonearatmosphericlevels,soCMM productionisnotasaffectedbyreservoirundersaturation.) PanjianticlineareaineasternHuainanCoalFieldisthemostsaturatedareaofHuainan,withgas content data approaching the sorption isotherm. The Xieli portion of southeastern Huainan is severelyundersaturated.LiuzhuangmineinwesternHuainanisslightlyundersaturated,withgas contentintherangeof7m3/tplottingbelowthesorptionisothermcurveat9to11m3/t.
Figure27:
AdsorptionIsothermsforHuainanCoals
ReddatapointsaregascontentsmeasuredusingtheformerMinistryofCoaldesorptionmethod, whichusessmallersamplesandshorterdesorptiontime,thusislessreliable. Green data are more recent gas contents measured using the US Bureau of Mines desorption method.Thisutilizeslargercoalsamplesanddesorbsforamuchlongertime,resultinginmore reliable(andgenerallyhigher)values. Area1:PanjianticlineareaofeasternHuainanCoalField.Thisareaisthemostsaturated portionofHuainan,withgascontentdataapproachingthesorptionisotherm. Area2:TheXieliportionofsoutheasternHuainanisseverelyundersaturated. Area3:LiuzhuangmineinwesternHuainanisslightlyundersaturated.Gascontentinthe rangeof7m3/tplotsbelowthesorptionisothermcurveat9to11m3/t.
2-9
Gas content distribution varies widely across the Huainan Coal Field (Figure 28). Gas content reachesamaximum23m3/tinthePanjiminingarea,easternHuainanCoalField.TheLiuzhuang mine has comparatively low (but still substantial) gas content of 7 to 8 m3/t. This is because Liuzhuangisrelativelylowinrankandalsoissomewhatlesssaturatedthanthecoaldepositsof easternHuainan.
Figure28:
GasContentDistributioninHuainanCoalField
GasOrigin.Coalbedmethane13CvaluesintheHuainanCoalfieldgenerallyarelessthan55, which indicates a biogenic (rather than thermogenic) origin. However, the vitrinite reflectance level(Ro=0.82%~0.97%)indicatesthatthecoalalreadyhaspassedthroughtheearlybiogenicgas stageandalreadyreachedthestageofthermogenicmethanegeneration. Therefore, it is likely that CBM in the Huainan Coal Field is mainly secondary biogenic gas. The Yanshanianorogenycauseduplift,erosion,anddegassingofthePermiancoalbearingsequence. Biogenicresaturationofmethanemayhaveoccurredaftermorerecentregionalsubsidenceand thedepositionofthethickQuaternaryoverburden,whichelevatedformationpressureandallowed adsorptionofbiogenicmethane.
CoalReserves&Resources.TheHuainanCoalFieldcontainsprovencoalreservesofabout15.3 billionmetrictonnes(t).Thereareafurther10.8billiontofdetailedexplorationcoalreserves.In addition to these fairly conservative official reserve estimates, highresolution seismic surveys indicate there is an additional 80 billion t of coal present at depths shallower than 2,000 m, of which30billiontisshallowerthan1,200mand 20billiontisshallowerthan1,000 m.Thisisa largeresourcebaseandHuainanislikelytoremainamajorcoalproducingareaformanydecades tocome. Figure29showsthe29currentandplannedcoalminingdistrictsthathavebeendevelopedinthe Huainan Coal Field. Liuzhuang mine is located within the relatively newly established Xieqiao miningdistrict(BBonARIsmap),inthewesternportionofHuainanabout70kmwestofHuainan city.
Figure29:
CoalMiningDistrictsintheHuainanCoalField
The current depth of coal mining at Huainan is mostly in the range of 300 to 700 m. However, miningisexpectedtodeepenincomingdecadesto1,000manddeeper.Giventhatgascontentin theHuainanCoalFieldincreasessignificantlybelowabout700m,methaneemissionsareexpected
tocontinuerising.Manyminesthatarenotcurrentlyexperiencing severedrainagechallenges, including the Liuzhuang mine, could experience markedly higher gas levels as they target coals deeperthanabout700m. CoalMineMethaneandCoalbedMethaneResources.In2003theHuainanCoalMiningGroup estimatedcoalbedmethaneresourcesintheHuainanCoalField,includingtheLiuzhuangminearea (Figure210).4Basedonthedistributionofcoalthicknessandgascontent,HCMGestimatedthe HuainanCoalFieldhasapproximately593billionm3(20.9Tcf)ofCBMandCMMresources(Table 22).
Figure210: CBMExplorationWellsandResourceEstimationBlocksintheHuainanCoalField
Onlyabout20%ofthisresourceisatdepthsoflessthan1,000m,thecurrentextentofthemining inthebasin.However,miningislikelytoadvanceintothe1,0001,500mdepthrangeincoming
4
Yuan,LiangandLi,Benyuan,2003.CBMDevelopmentandUtilizationinHuainanMiningArea.HuainanMiningGroup,p. 4755.
2-12
decades. Based on this resource estimate, deeper mining could liberate up to of methane resources in Huainan or approximately 15 Tcf. Liuzhuang mine is located in Block 7 of HCMGs evaluation,oneofthelargerCBMconcentrations Depth Range CBM Resources in the Huainan Coal Field, with an estimated 123 (m) (B m3) (Tcf) <1000 140 4.9 billionm3(4.4 Tcf)ofgasinplace.Notethatthis 1000 - 1500 284 10.0 1500 - 2000 169 6.0 covers only portions of the coal field where data Total 593 20.9 controlwasadequate,thustotalgasresourcesare Block Name 1 Xieli 110 3.9 likelytobesignificantlyhigher. 2 Panji/Guqiao 131 4.6
3 4 5 6 7 8 Zhangji/Xieqiao Fuqiao/Dingji Paner/Pansi/Zhuji Zhangouzi Shangyao/Shenjiagang Xinji 26 47 53 56 123 47 593 0.9 1.7 1.9 2.0 4.4 1.7 20.9
Table22: 2003EstimateofCBM/CMM ResourcesintheHuainanCoalField

(Source:HuainanCoalMiningCorp.)
Amorerecent(2009)estimateofCBMandCMM resourcesintheHuainanCoalFieldcameupwitha 10%largerestimate,orapproximately681billion m3 (24.1 Tcf; Table 23). This analysis covered a totalof2,120km2,representingmorethan2/3of the basin. Liuzhuang mine is located within the Xieqiaominedistrict(bbonFigure29).
MappingtheCBM/CMMgasinplace(GIP)distributionrevealstrendsingasresourcedistribution and quality in the Huainan Coal Field (Figure 211). GIP concentration reaches an estimated maximum5.5x108m3/km2intheeasternportionofHuainanCoalField.Thisisoneoftheworlds highestCBM/CMMGIPconcentrations,reflectingthick,highrank,andgassaturateddeepcoals. Liuzhuangminehasmoderate(butstillsubstantial)GIPconcentrationof3to3.5x108m3/km2.
Figure211: GasInPlaceDistributionintheHuainanCoalField
Map Label a b c d e f g h i j k l m n o p q r s t u v v w x y z aa bb bb bb cc
Coal District Huji Laomiao Wangyatong Jiangbeidian Shangtang Zhangou Zhangli Wangzhuang Dingji Panji-4 Panji-3 Panji-1 Panji-2 N. Panji Tangji Zhuji Zhuji DD Madian S.Panji Guqiao Xieli Shungengshan Xinzhuangzi Xiejiaji Lizuizi Balitang Tianjiayan Guqiao Xieqiao DD Xieqiao Xieqiao Deep Xieqiao Thrust Lichengzi Total (Average)
Area (km2) 76.4 35.5 30.3 25.8 133.8 22.6 97.0 61.1 30.0 57.0 42.4 35.0 93.1 156.9 45.0 48.2 141.3 288.1 85.0 9.8 116.9 12.8 17.5 4.8 4.3 57.6 93.0 18.4 220.0 36.0 18.4 6.4 2,120
Total Coal Coal Gas CBM Resources Thickness Reserve Content Total Concentration 4 3 8 3 (10 t) (m /t) (10 m ) (Tcf) (108m3/km2) (Bcf/mi2) (m) 14.3 188,726 5.5 104 0.37 1.36 2.5 31.0 152,785 6.5 99 0.35 2.80 10.9 24.8 106,798 7.0 75 0.26 2.47 11.2 20.1 270,617 7.0 189 0.67 7.34 39.3 31.3 573,960 5.0 287 1.01 2.14 2.2 26.1 80,230 5.1 41 0.14 1.81 11.1 33.3 217,977 15.0 327 1.15 3.37 4.8 23.1 87,443 11.0 96 0.34 1.57 3.6 29.8 58,812 11.1 65 0.23 2.18 10.0 27.5 96,507 16.0 154 0.55 2.71 6.6 32.2 79,803 17.5 140 0.49 3.29 10.7 177 0.62 5.05 19.9 25.5 54,042 32.7 32.1 40,718 11.4 46 0.16 0.50 0.7 32.1 685,860 11.0 754 2.66 4.81 4.2 28.0 79,670 7.0 56 0.20 1.24 3.8 27.1 181,975 11.6 211 0.75 4.38 12.5 24.6 475,107 4.8 228 0.81 1.61 1.6 30.1 1,179,800 12.5 1,475 5.21 5.12 2.5 27.5 322,297 13.0 419 1.48 4.93 8.0 31.6 29,151 10.8 31 0.11 3.21 45.2 27.4 448,954 10.0 449 1.59 3.84 4.5 29.0 34,987 10.8 38 0.13 2.95 31.8 29.0 13,051 11.2 15 0.05 0.84 6.6 28.7 11,503 14.0 16 0.06 3.36 96.4 28.6 19,959 14.5 29 0.10 6.73 215.9 27.4 221,157 11.0 243 0.86 4.22 10.1 26.6 223,439 16.0 358 1.26 3.84 5.7 31.2 80,225 8.2 66 0.23 3.58 26.8 31.2 339,627 11.1 377 1.33 1.71 1.1 27.7 74,389 11.1 83 0.29 2.29 8.8 28.5 80,225 14.0 112 0.40 6.10 45.8 28.0 48,810 10.8 53 0.19 8.24 177.5 3.2 6,558,604 6,813 24.1 29.0
Table23:
2009EstimateofCBM/CMMResourcesintheHuainanCoalField
2-14
2.3 LiuzhuangMineGeologyandResourceAssessment
2.3.1 MineAreaDescription
TopographyandLogistics.LiuzhuangmineandtheHuainanCoalFieldarelocatedatthesouthern endoftheNorthChinaplain(Figures11,12,and21).Positionedwithinthefloodplainofthe Huaihe River, which drains eastward out of central Anhui emptying eventually into the Yangtze Riverbasin,theLiuzhuangmineischaracterizedbydistinctlyflatsurfacetopography.(Again,this contrasts with the extremely rugged topography typically found in Chinas Qinshui and Ordos basins.)TheaveragesurfaceelevationatLiuzhuangisabout30mabovesealevel,withverylittle topographicrelief(+/ 5m). Transportationiswelldeveloped.Amodern4lanedividedprovincialhighwaylinkstheLiuzhuang mineareawiththeregionalcityofHuainan(population1million),about1.5hoursdrivebycar. The nearest airport is at Hefei, the capital of Anhui Province, which is about 2 hours drive and providesconnectionstomajorcitiesinsideChina.Liuzhuangmineislocatedonthenorthbankof theHuaiheRiver,whichonlyrarelyfloodsandisolatestheminefromHuainan(timescaleofabout onceperdecade). 2.3.2 LiuzhuangMineGeology
Introduction.Measuring3.5to8kmnorthsouthbyabout16kmeastwest,theminecoversan areaofapproximately90km2.Originallydesignedtoproduce3milliont/year,theLiuzhuangmine isbeingexpandedto7.85milliont/yearcapacity. Structure.LiuzhuangmineissituatedonasouthdippingmonoclinalflankintheXieqiaomining district of western Huainan Coal Field. ARI used GIS computer mapping to convert the mines detailedstructuremapsintodepthmaps(byaddingsurfaceelevationofabout30m).Thesemaps showthattheLiuzhuangminehasfairlysimplegeologicstructure,withonlyafewminornormal faultscuttingthecoalsection. Fortheinitial20072009miningprograms,Seam131wasdevelopedandminedatdepthsranging from500to770mbelowsurface(Figure212),whileSeam112wasminedoverdepthsof500to 840m(Figure213).Themapsclearlyshowthefairlysteepdipangle,consistentlyabout30due south(althoughminedocumentsoftenquoteagentlerdipofonly1215).Themapsalsoshow thesixkeycoreholedatapointswhichconstraincoalseamthickness,quality,anddepth.
2-15
Figure212: StructureandDepthtoSeam131atLiuzhuangmine
Figure213: StructureandDepthtoSeam211atLiuzhuangMine
Themineboundariesaredefinedprimarilybylargefaults.TheseincludetheF5faultontheeast side,beyondwhichliestheseparateXieqiaomine.TheF12faultdefinesthewesternboundary, borderingtheKouziexplorationarea.ThesouthernboundaryisdefinedbytheF1faultaswellas the1000 m structural level for Seam 171. The northern boundary is defined by the erosional subcropofSeam1andthelargeadjacentareathatisbarrenofcoal. A northsouth crosssection through the central portion of Liuzhuang mine shows the complex regionalstructure(SectionNo.15;Figure214;thelocationofwhichisshownbythedottedblack lineonFigure212andFigure213).However,theLiuzhuangmineispositionedinbetweenmajor faultsandhaslocallysimplestructure(whichofcoursewastheprincipalreasonforlocatingthe minehere).ThedipangleindicatesthatgascontentandCMMdrainagerequirementsarelikelyto increasesignificantlyastheminingleveldeepens.
Figure214: StructuralCrossSection15
(OrientatedNSthroughthecentralportionoftheLiuzhuangMine)
As can be clearly seen on the expanded crosssection Figure 215, the coal sequence has been truncated by an angular unconformity, which was formed by regional uplift and erosion of a portionofthePaleozoicsectionduringalaterMesozoicorogeny.CoalseamsatLiuzhuangmine undoubtedlyweredegassedbythispastupliftanderosionalevent.Followingsubsequentregional subsidence,theunconformityandunderlyingcoalseamswereburiedbya300400mthickdeposit ofunconsolidatedQuaternaryalluvium.Theadditionaloverburdenboostedreservoirpressurein thePaleozoicsection,allowinggas(probablybiogenic)topartiallyresaturatethecoalseams.This erosional event and later reburial had a major impact on the gas content and saturation distributionintheHuainanCoalFieldingeneralandLiuzhuangmineinparticular.
Figure215: ExpandedSectionofNSCrossSectionacrossLiuzhuangmine
Stratigraphy.HuainanCoalFieldhasathickPaleozoicsequenceofcoalseamsandinterbedded clasticrocks(Figure216).Approximately20individualcoalseamsoccurinthePermianUpperand LowerShiheziFormations,whiletheLowerPermianShanxiFormationalsocontainsseveralcoal seams.TheprincipleminingtargetsatLiuzhuangmineareSeams131and112,whichaverage 4.87and2.82mthick,respectively.TheunderlyingCarboniferousTaiyuanFormationisbarrenof coalinthispartofChina.
2-18
Period System Group Section Column
Seam 17-2 17-1 16-2 16-1
Coal Thickness Range Average

(m) (m)
0-4.32 0-3.19 0-5.41 0-3.96
0.55 0.00 0.41 0.69
Upper Shihezhi Group
Upper
15 14 13-2 13-1 12
0-1.71 0-3.51 0-2.11 1.83-14.42 0-2.16
0.08 0.66 0.17 4.87 0.45
11-3 11-2 11-1 10 9-2 9-1 8 7 7-1 6-2 6-1 5-2 5-1 4-2 4-1
0-2.60 1.60-7.58 0-2.59 0-2.30 0-1.56 0-2.82 1.20-7.15 0-8.30 0-6.80 0-8.00 0-5.40 0-5.03 0-8.06 1.00-4.80 0-9.35
0.21 2.82 0.70 0.61 0.20 0.33 2.57 1.50 1.73 2.01 1.18 0.31 1.16 2.08 0.81
Permian
Lower Shihezhi Group
Lower
Shanxi Group
3 1
0-8.35 1.10-11.19
1.72 3.54
Carboniferous
Figure216: StratigraphicColumnshowingCoalSeamDistributionintheLiuzhuangCoalField

Taiyuan Group
Upper
ThestratigraphicformationsatLiuzhuangmine,inorderfromoldesttoyoungest,comprisethe followingunits: LowerOrdovician(250m):Thishighpermeability,karsticcarbonatedepositliesbelow thecoalbearingsequence.Amajorregionalaquifer,itisnecessarytoavoiddrillinginto thisunitduetotheriskoflostcirculationandholeproblems. UpperCarboniferousTaiyuanFormation(120m):Althoughamajorcoalbearingunitin northernChina,inthecentralChinaregionthisformationisentirelybarrenofcoalseams. It consists mainly of carbonates interbedded with fine sandstone, siltstone, and mudstone. PermianShanxiFormation(125m):Approximatelysevencoalseamsoccurinthisunit, comprising about 4.5% of the formation. The depositional environment was primarily marine. PermianLowerShiheziFormation(109m):Oneofthemostimportantcoalbearingunits atLiuzhuang,thisformationwasdepositedinadeltaicfluvialsystem.Itcontainstencoal seams,ofwhichfiveareconsideredmineable.Seams5and8arelaterallypersistentand mineable,whichSeams4,61,71,and9aremineableinplaces;theremainingseamsare notconsideredmineable.Thebottomofthisformationconsistsofgreywhitemedium coarseormediumfinesandstone.Overlyingthisisadistinctivealuminumrichmudstone, gradingintofinegrainedsandstoneandsiltstone.Thetopoftheformationismainlygrey mudstone. Permian Upper Shihezi Formation (535 m) : This commercially most important and relatively thick regressive unit was deposited in fluviallacustrine environments. It is dividedintosevenstratigraphicsubunits,ofwhichfivearecoalbearing.Seams131,11 1,and112aremineableinalllocations,whileSeams161,171,and181occasionally arethickenoughtomine.Ashcontentisunusuallyhighintheuppermostseams.Other seamsinthisunitarenotconsideredmineable. Permian Shiqianfeng Formation (535 m) : This continental sequence of mostly sandstones,siltstones,andshalesdoesnothavecommerciallysignificantcoaldeposits.
The detailed stratigraphy of Seam 131 and adjoining roof and floor rocks at Liuzhuang mine is illustratedinFigure217.CoalexplorationcoreholelogNo.3032recordedthedepth,thickness, andlithologyofthecoalsection.Seam131is4.02mthick(net)andabout682mdeephere.The coalisbrightandmostlyblocky,alongwithsomepowderycoal.Theroofrockconsistsofnearly8 moffirm,greymudstonetosiltymudstone,overlainby9mofgreywhitefinesandstone,which gradesintoanother7mofsiltstone.UnderlyingSeam131isabout5moffragilegreysiltstone.
2-20
Figure217: CoalCoreholeLog3032(DepthInterval654689m)
Seam 112s detailed stratigraphy is shown in Figure 218. Coal corehole log 3032 records a thickness of 1.38 m (net) and depth of about 760 m for this mineable coal seam. Seam 112 is mainly powder coal with some blocky coal, indicating that it probably would be even more challengingtodrillinseamthanSeam131.Theroofrockconsistsofabouta4mthickcoarsening upwardsequenceofmudstone,siltstone,andfinesandstone,whichisoverlainby9mofsandy mudstone to pure mudstone. Underlying Seam 131 is about 1 m of fine sandstone, 3 m of mudstone,andthenfurtherthininterbedsofcoal,mudstone,andsiltstone.
Figure218: CoalCoreholeLog3032(DepthInterval741774m)

2.3.3
LiuzhuangMineCoalProperties
ProximateAnalyses.Industrial(proximate)analysesofSeams131and112indicatemoderate moisture content (1.94% and 2.31%, respectively) and ash content (20.04% and 20.80%, respectively).Volatilemattercontents of 42.11% and 36.53%, respectively,areconsistentwith highvolatileAbituminousrank(Table24).
Table24:
Industrial(proximate)analysesofSeams131and112atLiuzhuangmine
2-23
GasContent&Saturation.Basedonregionalsurfacecoreholedata,ARIestimatesthatactualgas contentatadepthof700minLiuzhuangmineisabout7m3/t(dry,ashfreebasis).Thisishigher thansuggestedbylowprecisionshortcoresretrievedfromintheminebyhorizontalboreholes. Nosorptionisothermsareavailableforthemineitself,butregionalisothermsindicatethatthecoal isonlyaboutgassaturated. Permeability.NoinsituwelltestshavebeenperformedfromsurfacewellsatLiuzhuangmineto measurepermeability.Inminetestsusinghorizontalboreholes,whicharehighlyimprecisedueto stresschangesinducedbythemineitself,indicatelowpermeability.Basedonregionalsurfacewell testingintheHuainanCoalField,ARIestimatesthatabsolutecoalseampermeabilityatLiuzhuang mineisquitelow(<0.1mD).Permeabilityisprobablyevenlowerinthepowdercoals(<0.01mD). 2.3.4 LiuzhuangMineCoalandCMMReserves
SDICXinjihasestimatedcoalandCMMreservesatLiuzhuangminebasedoncomputerGISanalysis ofgeologicdata(Table25).AlthoughtheARITeamdidnothaveaccesstothedetailedrawdata set, we have reviewed SDICs calculations and determined that they are reasonable. SDICs estimates are based on only six coal exploration coreholes, which were drilled to measure coal seam depth and thickness ahead of mine development. This original corehole data has been updatedwiththeminingexperiencetodate.
Methane content 3 (m /t) 3.5 3.5 4.0 4.0 3.5 3.5 3.5 3.5 3.5 4.0 4.0 3.0 Methane resources 3 (million m ) 97 224 1,064 904 52 93 630 95 286 1,299 117 338 Degassing Net Coal Main or efficiency Drained gas Thickness Secondary 3 (%) (million m ) (m) Target 20 19 0.43 secondary 20 45 1.53 secondary 30 319 4.55 Main 30 271 3.90 Main 20 10 0.48 secondary 40 37 0.93 secondary 40 252 3.29 Main 40 38 1.50 secondary 40 115 1.51 secondary 40 520 1.95 Main 40 47 0.84 secondary 40 135 Main
Coal Seam 17-1 16-1 13-1 11-2 11-1 9 8 7-1 6-1 5-1 4 1
Coal reserves (million t) 27.69 64.14 266.06 226.06 14.94 26.63 179.86 27.17 81.82 324.7 29.29 84.48
TOTAL
1,353
Table25:
5,200
35%
1,809
EstimatedCoalandCMMReservesatLiuzhuangmine
(Source:SDICXinji)
Liuzhuangminehasanestimated1.35billiontoftotalprovedcoalreserves.Seams131,112,and 8accountforhalfofthistotal.Ninethinnerseams,whicharenotyetbeingmined,comprisethe remaininghalf.Coalminemethaneresources,oftenmislabeledasreservesinChinabutactually

representing inplace CMM gasinplace resources, are estimated to be 5.2 billion m3 (184 Bcf). Recoverable CMM reserves (true reserves in the Western definition) are estimated at approximately 1.8 billion m3 (64 Bcf), representing about 35% of gas in place in the panels and roadways. Becausetheywerebasedononlysixcoreholes,thereissomeuncertaintyinthereserveestimates, probably on the order of 10% for coal reserves and 2030% for CMM reserves. In addition, the CMMreserveestimateisbasedoncurrentlyappliedcoalminingandCMMdrainagetechnologies. CMMreservescouldbefurtherincreasedwithimproveddrainagetechnologies.Overall,coaland CMMreservesappeartobeadequatetosupportalargescaleCMMcaptureandutilizationproject atLiuzhuangmine.
2-25
SECTION3
CMMMarketAssessment

CMMMarketAssessment
3i
SECTION3CONTENTS

3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 3.12 3.13 Introduction .............................................................................................................. 31
NaturalGasPipelineandTransportRoutes ............................................................... 33
ChinasNaturalGasMarket....................................................................................... 34
NaturalGasPolicyinChina........................................................................................ 36
NaturalGasProductioninChina ............................................................................... 37
NaturalGasDistributioninChina .............................................................................. 38
CommercialandIndustrialGasMarkets.................................................................... 39
LocalGasMarkets ................................................................................................... 310
NaturalGasPricinginChina .................................................................................... 310
NaturalGasPricingatLiuzhuangMine .................................................................... 313
DemandforNaturalGasforVehicleUse(CNG) ....................................................... 313
DemandandPricingforLNG ................................................................................... 314
PowerMarketsandPricing ..................................................................................... 315
CMMMarketAssessment
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SECTION3FIGURES

Figure31: Figure32: Figure33: Figure34: Figure35: Figure36: Figure37: ChinaEnergyBalance,19802007 ...................................................................................31
CH4EmissionsfromCoalMining,byCountry:20002020...............................................32
NaturalGasPipelineinChina...........................................................................................34
NaturalGasConsumptioninChinaSince2000 ...............................................................35
ProjectedNaturalGasDemandinChinain2020 ............................................................35
NaturalGasProductioninChinasince2000,byCompany..............................................37
ChinaGasCityGasDistributionAreas .............................................................................39
SECTION3TABLES
Table31: Table32: Table33: ChinaPrimaryConsumptionbyFuel................................................................................31
NaturalGasPricesAccordingtoEndUserCategory......................................................312
WholesalePowerPriceforthermalCoalFiredPowerPlantsinChina .........................316
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3.1 Introduction
Chinaisoneofthelargestandfastestgrowingenergyusers.ThelatestBPStatisticalReviewof WorldEnergyranksChinaasthesecondlargestprimaryenergyconsumer,behindonlytheUnited States(basedontradedenergyonly).1Chinasprimaryenergyproductiongrewrapidlyoverthe pastdecade,tonearly2.4billiontofstandardcoalequivalent(SCE;Figure31).
Figure31:
ChinaEnergyBalance,19802007
Chinasoverallenergyproductiongrowthaveraged7%peryearduring19952007,acceleratingto 12% annually during the economic boom years of 20002007. However, Chinas energy consumption grew even faster than its production during these periods, by 9% and 13%, respectively. Chinas energy production shortfall has been offset largely by imports of coal, petroleumandliquidnaturalgas(LNG).
Fuel Coal HydroElectric Oil NaturalGas NuclearEnergy Total
China still depends heavily on coal to satisfy its primary energy needs. Natural gas accounted for only about 3.5% of total energy requirements in 2007 (Table 31). Chinas overall energy con sumption,andparticularlyforcoal,hasbeendriven primarily by industrial sector demand growth. For example,in2007approximately51%oftheenergy Table31: ChinaPrimaryConsumptionbyFuel Source:BPStatisticalReviewofWorldEnergy from coal was consumed in the production and Mtoe=Milliontonnesofoilequivalent supplyofelectricpowerandheatpower,whilethe
Rank 1 1 2 8 9 2 Mtoe 1,406 132 376 73 15 2,003
BP,2009.StatisticalReviewofWorldEnergy.June,48p.
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manufacturing sector consumed about 36%. However, future growth in energy consumption increasinglyislikelytocomefromgrowingconsumerdemandforautomobiles,airconditioning, residentialnaturalgas,andelectricity. Chinas government has promulgated policies promoting the production and use of its more environmentallybenignnaturalgasresources.Startingfromaverylowbaseproductionlevelin 1995,Chinasnaturalgasproductionnearlyquadrupledby2007,muchfasterthanthe82%growth incoalproductionoverthesametimeperiod.Severallargeinterprovincialandnumeroussmaller provincialnaturalgaspipelineshavebeenconstructedduringthepast10years,notablytheWest toEast pipeline from Qinghai to Shanghai. Despite this rapid growth, the natural gas pipeline systeminChinaremainsrelativelyundeveloped,presentingacontinuedchallengefornaturalgas resourcedevelopment. With an extensive mostly underground coal mining industry and numerous highmethane coal mines,Chinaleadstheworldbothincoalproduction(2billiontin2007)2andcoalminemethane emissions(Figure32).3Chinaisexpectedtocontinuetorelyheavilyoncoalinfuturedecades.As Chinas coalproduction increases and its coalmines extend to deeper levels below the surface, CMMemissionsareexpectedtocontinuetoincreasesignificantly,toapproximately150milliontof CO2equivalents(MtCO2eq)in2010andnearly200MtCO2eqby2020.
Figure32:
CH4EmissionsfromCoalMining,byCountry:20002020
(Source:USEPA,2006)
2 3
U.S.DepartmentofEnergy,EnergyInformationAdministration,2009.
U.S.EnvironmentalProductionAgency,2006.GlobalMitigationofNonCO2GreenhouseGases.EPA430R06005,SectionII
Energy,46p.
CMMMarketAssessment
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MostoftheCMMliberatedbycoalmininginChinaisstillventedtotheatmosphere.Considering Chinas growing energy demands, this vented CMM represents a large, underutilized energy resource.SomecoalminesinChina,suchasSihemineinShanxiProvince,areadoptingworldclass CMM drainage and utilization technology. However, extensive opportunities still exist at many mines for improving the technical performance of CMM drainage and utilization, as well as resolvingCMMmarketchallenges.AlllevelsofChinasgovernment(central,provincial,andlocal) have recognized the benefits of improved mine safety, resource conservation, environmental protection,andenergysecurity. Section3presentsanassessmentofthemarketfortheCMMproducedbyapotentialLiuzhuang mine drainage improvement and CMM utilization project. The specific technology options for CMMutilizationthatareavailablearediscussedindetailinSection5.Briefly,theseoptionsrange fromdirectsaletourbanorindustrialusersviapipeline;transportinCNGorLNGtankertrucksto urbanorindustrialusers;saleasatransportfuel;orconversiontoelectricalpowerattheminesite. TheselectionoftheoptimalendusefortheCMMisheavilydependentonthedemandandpricing forgasitself(anditspotentialconvertedproducts,suchaselectricalpower)atLiuzhuangmineand insurroundingareas,whichisthefocusofthischapter.
3.2 NaturalGasPipelineandTransportRoutes
Despiterapidgrowthinrecentyears,Chinasnaturalgastransportationsystemstillisintheearly stagesofdevelopment.ThefirstOrdos(Shaanxi)toBeijinggaspipelinewascompletedin1997, whileasecondOrdosBeijingPipeline,largelyalongthesameroute,wascompletedin2005witha capacityof12billionm3/year.Duringtherunuptothe2008Olympics,thegovernmentaccelerated fueldiversificationfromcoaltonaturalgastoreduceairpollutionintheBeijingarea. MorerecentmajornaturalgasinfrastructureprojectsinChinaincludethe4,000kmlongWestto East Pipeline, which has an annual natural gas transportation capacity of 17 billion m3/year. Constructionofthesecond4,843kmlongWesttoEastPipelineproject,withannualcapacityof30 billionm3/yearsourcedfromTurkmenistan,wasinitiatedinFebruary2008.Thewesternportionof thispipelinewasrecentlycompleted,whileitseasternportionisscheduledtobefinishedby2012. Bytheendof2008,thetotallengthofthenationalpipelinenetworkinChinahadreached31,000 km. Located about 70 km west of the mediumsized provincial city of Huainan (population approximately1million),LiuzhuangmineisadministeredandregulatedunderYingshangCounty, AnhuiProvince.However,Liuzhuangisquitefarfromexistingorplannednaturalgaspipelinesand thusfairlyisolatedfromthedevelopingregionalgasmarket.
CMMMarketAssessment
3-3
Several large gas pipelines are now in place and being operated, including a few located within about100kmofLiuzhuangmine(Figure33).TheCMMproducedatLiuzhuangislowpressureand low concentration, thus not at all suitable for sale via these interprovince pipelines, which are operatedatextremelyhighpressureandrequirehighpurityanddrymethane.Nevertheless,these regionalpipelinesystemsarerelevantbecausetheyindirectlycompetewithLiuzhuangCMMand alsoplaythelargestroleinestablishingnaturalgassalespricesintheregion.
Figure33:
NaturalGasPipelineinChina
(BlueboxshowslocationofLiuzhuangMine)(Source:Higashi,2009)
3.3 ChinasNaturalGasMarket
Chinasnaturalgasmarketisundergoingrapidexpansion,aswellasshiftingprofoundlyfromself sufficiencyjusttenyearsagotoincreasingdependenceongasimports.Afterdecadesoffocusing almostexclusivelyoncoalandoil,thegovernmentbegantoemphasizenaturalgasdevelopment starting in the late 1990s. Previously, natural gas generally had been viewed in China as a prohibitivelyexpensiveandscarcefuelrelativetocoalandthuswasnotheavilypromoted. NaturalgasconsumptioninChinahasbeenincreasingatanacceleratingratesinceabout2000, whenthenationalconsumptionlevelremainedamodest23.5billionm3(2.3Bcfd).By2007,the
CMMMarketAssessment 3-4
latestyearforwhichcompletefiguresareavailable,China`snaturalgasconsumptionhadreached 69.5 billion m3 (6.7 Bcfd), representing an increase of nearly 300% over 2000 (Figure 34).4 Consumptionisestimatedtogrowfurther,reaching135to250billionm3by2020(Figure35).
Figure34:
NaturalGasConsumptioninChinaSince2000
(Billionm3/year)
Figure35:
ProjectedNaturalGasDemandinChinain2020
(Billionm3/year)
PeoplesRepublicofChina,NationalBureauofStatistics.
CMMMarketAssessment
3-5
Duringtheperiod20002006Chinasnaturalgasconsumptionaveragedaveryhighannualgrowth rate of 14% per year. As natural gas fields are developed, additional longdistance natural gas pipelinesareconstructed,andLNGimportfacilitiesareexpanded,Chinasnaturalgasconsumption isexpectedtoreach115billionm3(11.1Bcfd)in2010and200billionm3(19.4Bcfd)in2020. Chinacurrentlyranksintheworldstop10countriesfornaturalgasconsumptionandisexpected to overtake Japan as Asias top gas market by 2015, if not sooner.5 However, despite the rapid growthChinasgasconsumptionstillstoodatonlyabout11%oftheU.S.levelinthatyear(which was672billionm3or59.5Bcfd),indicatingthatconsiderablegrowthpotentialremainsinChinas naturalgassector.
3.4 NaturalGasPolicyinChina
Chinas natural gas investment and pricing policies are controlled at the central level by the National Development and Reform Commission (NDRC), with many details of regulation and implementationlefttotheprovinciallevelauthorities.Chinascentralandprovincialgovernments generally have supported rapid natural gas growth through policy, regulation and the direct developmentofinfrastructure,suchastheWestEastPipeline.Thegovernmentsettargetsunder the 10th FiveYear Plan (200105; reiterated under the 11th FiveYear Plan of 20062010) for naturalgastoexpandtoprovide10%ofChinastotalprimaryenergyconsumptionby2020.6 ThedrivingforcesbehindChinasnaturalgasindustrygrowthincludecontinuedandaccelerating urbanization;thepenetrationofnaturalgasintonewandexistingurbanareas;andtheexpansion ofindustrialuse,includingthepetrochemicalsindustryandthepowersector. Urbancitygasdemandrepresentsthefastestgrowingsegmentofoverallnaturalgasdemandin China. This growth is occurring due to favorable supply costs, environmental protection advantages, increased urbanization rates, government support including an increasingly open utilitiesmarket,andthegrantingofexclusiveconcessionsbythegovernmenttoprivateandstate privatefirmstoconstructandimproveChinasnaturalgastransportationinfrastructure.
5 6
U.S.DepartmentofEnergy,EnergyInformationAdministration,2009.2008WorldEnergyOutlook,ReferenceCaseScenario. Higashi,Nobuyuki,2009.NaturalGasinChina:MarketEvolutionandStrategy,InternationalEnergyAgency,WorkingPaper Series,June,39p.
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3.5 NaturalGasProductioninChina
Chinas upstream natural gas (and oil) production sector is dominated by its three national oil companies: CNPC, Sinopec and CNOOC. These companies originally were formed during early economicreformsinthe1980s,whichreplacedtheprevioussystemwhereinthegovernmenthad directlyplannedanddevelopedtheoilandgassector.7 CNOOC was established in 1982 to manage offshore petroleum development. Sinopec was established in 1983 originally to control downstream refining. In 1988, CNPC was formed to managedevelopmentofonshoreoilandgasresources.In1998,thesectorunderwentafurther broadrestructuring,whereinCNPCandSinopecwereassignedgeographicregionsandpermittedto fullyengageinintegratedactivitiesfromupstreamtodownstream,muchlikeinternationalmajor oil companies. In 2000 all three companies were listed on the international stock exchanges in HongKong,NewYorkandLondon. CNPCisthedominantnaturalgasoperatorinChina,holdingabout75%ofdomesticgasresources and 80% of Chinas pipeline network (including major interprovincial trunk lines). CNPC also controlsseveralmajorgasimportprojects,suchastheCentralAsiapipelineandLNGimportsin JiangsuandDalian.Sinopec`scoregasresourcesarelocatedinShandongandSichuan,anditisalso seeking LNG business opportunities. CNOOC provides offshore gas by pipeline from the South China Sea to Hong Kong, and from the East China Sea to Shanghai. Having established the GuangdongandFujianLNGprojects,CNOOChasbecomeChinasleadingLNGcompany. Chinasnaturalgasproductionreachednearly70billionm3in2007(Figure36),heavilydominated by CNPC (54 billion m3). Several smallsize natural gas producers mainly owned by local governmentsalsoareactivein China but are relatively un important on a national scale. To promote development of CBMresources,thegovernment established the China United Coalbed Methane Corporation (CUCBM) in 1996 as the sole stateowned company with access to foreign investment, Figure36: NaturalGasProductioninChinasince2000,byCompany although this right was 3
(Billionm /year)
Higashi,Nobuyuki,2006.Energy.In:R.Kokubun,ed.,TheGovernabilityofChina,Tokyo.
CMMMarketAssessment
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expandedin2008toCNPCandSinopec.Althoughgrowing,coalbedmethaneproductionremains quitesmallinChina,about0.38billionm3in2007.
3.6 NaturalGasDistributioninChina
Asignificantgovernmentpolicyinrecentyearshasbeentoallowmajorprivatizationtotakeplace intheurbangasdistributionmarkets.Currently,therearehundredsofsmallformerlygovernment controlledcitygasenterprisesthatarebeingconsolidatedintoapproximatelyonehalfdozenmuch larger,modern,andmostlypubliclylistedcompanies.Theprivatecompanieshavebetteraccessto technology, capital, and management expertise. This privatization has helped to markedly accelerateChinasconsumptionofnaturalgasinurbanareas. Today, these halfdozen major and mainly Chineseowned gas companies compete to invest in Chinas rapidly growing urban markets, using capital funds raised on domestic, Hong Kong, and otherstockmarkets.Thesecompaniesaggressivelybidoncitygasassetsatauction,acquirethe equityinterestsofcitygasenterprisesthroughdirectnegotiation,orobtainindirectcontrolofcity gas operating concessions by jointly constructing and operating the systems with current municipalownedcitygasenterprises. For example, China Gas Holdings Limited (China Gas), listed on the Hong Kong Main Board, is a majorownerandoperatorofurbannaturalgasdistributionsystemsinChina.Notably,ChinaGas controlsthecitygasdistributioncompanyinHuainan,whichisthenearestmajorcitytoLiuzhuang mine. China Gas invests in, operates, and manages the city gas pipeline infrastructure, the distributionofnaturalgastoresidentialandindustrialusers,andtheconstructionandoperationof naturalgasrefillingstations.Thecompanyonlyjustenteredthenaturalgasdistributionbusinessin 2002,whenChinaapprovedconstructionoftheWesttoEastPipeline. Today,ChinaGashasgrownquicklyandholdsexclusivepipedgasdevelopmentrightsinsome64 citiesandregionsinChina,includinginHuainan(Figure37).Thecompanyhasapipelinenetwork morethan15,000kmlongthatserves3.2millionhouseholdusersandnearly19,000industrialand commercial users. In addition to city gas systems, China Gas also owns six highpressure intermediary natural gas pipelines and 11 LPG terminals along Chinas southeast coast with capacity220,000tonsandLPGstoragefacilitywith270,000m3capacity.8
8
Liu,Minghui,2008.TheDevelopmentandOpportunitiesofChinasCityGasMarket.ChinaGasLtd.
CMMMarketAssessment
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Figure37:
ChinaGasCityGasDistributionAreas
(Source:ChinaGas,2009)
3.7 CommercialandIndustrialGasMarkets
There are no significant commercial or industrial users of low or moderatequality natural gas within about 30 km of the Liuzhuang mine. Much further to the east near the major cities of Huainan(population1million)andHefei(5million),approximately100kmfromLiuzhuang,there are a number of commercial and industrial plants that could utilize natural gas. These include plants operated by theHefei Iron and Steel Corporation, Hefei Chemical Group, Hefei Chemical FertilizerGroup,AnhuiHuaibeiMining(Cement)Group,aswellasothergroups. However,asdiscussedlaterinSection5.5,thelongestpipelinethatcouldconceivablybejustified fromLiuzhuangminetoanenduserwouldbeapproximately10to30km.Consequently,noneof thecommercialandindustrialusersinAnhuiProvinceareconsideredtobeviablemarketsforCMM producedatLiuzhuangmine.
CMMMarketAssessment 3-9
3.8 LocalGasMarkets
UnusualforamodernChinesecoalmine,Liuzhuangmineislocatedinaruralfarmingareaquitefar from sizeable towns and cities. There is no established natural gas market and very little local demand.Consequently,asdiscussedinSection3.9,itisnecessarytorelyondatafromregional pricingfornaturalgasinHuainancityaswellasintherestofcentralAnhuiProvince. Liuzhuangminecurrentlyutilizeslowqualitywastecoalinboilersforgeneratinghotwater.A totaloffourboilers(each10tsteam/houratpressure0.40.5MPa)consumeapproximately14,400 t/yroflowqualitycoal.Thecoalusedtofueltheboilersislowqualitycoalthatareminedlocally butnotconsideredviablefortransportoutsidetheLiuzhuangareaduetoitspoorquality.This wastecoalisabundantandquiteinexpensive(essentiallyfree). SDICXinjiEnergyhasevaluatedthevillagesclosetotheLiuzhuangminebutdoesnotconsiderany to be viable endusers for CMM produced at the mine. Currently, these villages utilize either agricultural waste (straw) or waste coal for heating. The coal also tends to be lowquality coal suppliesthatareminedlocallybutnotconsideredviablefortransportoutsidetheLiuzhuangarea duetopoorquality.Thiswastecoalisabundantandquiteinexpensive.LiuzhuangCMMwould needtobesoldatanextremelylowpricetodisplacethiswastecoal,certainlymuchlowerthanits alternativevalueformoreprofitableutilizationapproaches,suchaspowergeneration.
3.9 NaturalGasPricinginChina
ThepriceofnaturalgasinChinaisregulatedbyboththecentralandlocalgovernments.Rather thansetbysupplyandmarketdemand,naturalgaspricesaredeterminedlargelyonthebasisof production,transportationanddistributioncosts,often(butnotalways)withsomeallowancefora rateofreturnoninvestment.Pricesarealmostcompletelydelinkedfromtheinternationalgas priceandthepricesofotherformsofenergyinChina. Currently,Chinahasthreetypesofgasprices:wellheadprice,citygatepriceandconsumerprice. Thewellheadpriceisthepriceatwhichthegasproducersselltothelongdistancetransmission companiesandissetbytheNationalDevelopmentandReformCommission(NDRC).Thecitygate priceisthewholesalepricesetbetweenthetransmissionandthemunicipalgascompanies;italso isregulatedbytheNDRC. Theconsumerpriceisthepriceatwhichthemunicipalgascompaniesretailtheirgastothevarious endusers,setbythedifferentmunicipalcompanies.Theconsumerpricevarieswiththecategory ofconsumersanddependslargelyontheirperceivedabilitytopay,ratherthanthecostsofsupply.
CMMMarketAssessment
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CoalbedmethanepricesaretheoreticallynotsubjecttoNDRCregulationandcanbenegotiated between the buyers and sellers. But when CBM is supplied through longdistance transmission pipelines,theregulated(lower)naturalpriceinthesameareasisnormallyusedasthereference fornegotiatinganddeterminingtheCBMprice.LNGpricesarethemostunregulated,beingfreely negotiatedbetweenthesellersandthebuyersateverystage. Increasingly since 2000 the Chinese government has sought to employ energy pricing to help promotenaturalgasuseasasubstituteforcoalandoil.However,thepowersector,whichrelies primarilyoncoalasthedominantfuel,hasbeenreluctanttousethemorecostlynaturalgasfuel. Thus,mostofthenaturalgasgrowthhasoccurredintheresidentialandindustrialsectors. The residential sector has demonstrated the ability to absorb higher prices and strong demand growthwhichaccompaniedthepenetrationofcitygas.Likewise,industrialsectorshavebeenable toabsorbrelativelyexpensivenaturalgasasfeedstockorbysubstationwithfueloil.Meanwhile, thechemicalfertilizerindustryhaslargelyretaineditslowgaspricesforitsmainfeedstock,asthe governmentallocatesgastothisindustrybasedonpoliticalandsocialconsiderationsaswellas economics. In large part, the government determines the price of natural gas on a costplus basis, with variationsbysector.Consequently,naturalgaspricesinChinaoftendeviatefromthoseonthe international market. When China was still self sufficient in natural gas production, this price regimewaseffectiveindevelopingChinasnaturalgasmarket.However,controlledpricingisless viable now that Chinas LNG and pipeline gas imports are growing rapidly. It also can lead to distortionswheresomepetrochemicalplantsproducetoomuchoutputbasedoncontrolledlow naturalgasfuelprices,whichcanbemuchlessthanthoseforoil. Although some price rationalization has occurred in recent years, the Chinese government still controlsthepriceofnaturalgasinmostmarkets.Chinahasbeenraisinggaspricesrapidlysince LNGimportsbeganin2006andisexpectedtocontinueincreasinggasprices.However,domestic gas prices remain significantly lower than international prices. In 2006, when the first LNG regasificationterminalinGuangdongwascompleted,forthefirsttimeChina`snaturalgasmarket was linkedwith the internationalmarket. Until recently the differential betweendomestic and internationalpriceshasbeenlimitedbecauseChinasgasimportsarestillsmall,butwithimports growingrapidlyitislikelythatChinasgaspriceswillrisetowardsinternationallevels. InDecember2007theNDRCreformedandsimplifiedthenaturalgaspricingsystem,establishinga moremarketorientedpricemechanismforChinasgasindustry.Theprincipalchangesmadeto Chinasnaturalgaspricingpolicywereasfollows:
CMMMarketAssessment
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Fewer Price Categories. Price categories were simplified by reducing the numerous categories used previously to only three categories: city gate, fertilizer, and industrial. Fertilizer plants pay the lowest citygate price, industrial users generally pay an intermediateprice,whileurbanenduserspaythehighestprices(Table32). Shift to Guidance from Direct Control. In addition, the NDRC moved from a mix of governmentset gas prices with some government guidance (for gas sold within the allocatedquota)toamoreflexibleapproachofsimplygovernmentguidancealone(for gas sold above the quota). The governmentset price represents the citygate price includingwellheadpriceandpipelinetransportationtariff,whichweresetbytheNDRC. The government guidance price indicates that citygate prices can fluctuate within a certainrangebasedonthegovernmentsetprice. LinkagetoOtherFuels.TheNDRCalsolinkedthewellheadgaspricewiththepricesof alternative fuels, establishing a marketoriented price mechanism. As a result, the wellheadpriceroseindirection(butnotmagnitude)withthepricesofcrudeoil,LPGand coal (basket weighted 40:20:20). The maximum yearonyear adjustment is 8%. The referenceoilpriceisaweightedfreightonboard(FOB)priceofWestTexasIntermediate (WTI),BrentandMinascrudes.LPGreferencepricesareFOBpricesinSingapore.Coal reference prices are the average price delivered to Qinghuang Island from Shanxi (Datongshighgrade)andShanxi(thermalcoal).
Gov't Set City Gate Price (RMB/m3) ($/Mcf) 920 690 875 770 710 725 660 660 660 560 560 585 830 660 920 1270 1120 1100 $3.81 $2.86 $3.63 $3.19 $2.94 $3.01 $2.74 $2.74 $2.74 $2.32 $2.32 $2.43 $3.44 $2.74 $3.81 $5.27 $4.64 $4.56
$4.15 = 1 RMB/m3 Sichuan - Chongqing
End User Category City Gas Fertilizer Industrial City Gas Fertilizer Industrial City Gas Fertilizer Industrial City Gas Fertilizer Industrial City Gas Fertilizer Industrial City Gas Fertilizer Industrial
(Source:Ni,2007)
Changqing (Ningxia)
Qinghai
Xinjiang
Liaohe, Zhongyuan (Henan)
West-to-East Pipeline
Table32:
NaturalGasPricesAccordingtoEndUserCategory
CMMMarketAssessment
3-12
Delivered gas prices can vary significantly across Chinas diverse gas fields, depending both on geographyaswellasthetypeofenduseranditsabilitytopay.Forexample,evenafterthe2007 deregulation decree, the price of natural gas delivered to fertilizer plants in western Chinas Xinjiangregionwasaslowas0.56RMB/m3($2.32/Mcf),whereasthegaspricesoldofftheWest EastPipelinetocitygasmarketsineasternChinawasmuchhigherat1.27RMB/m3($5.27/Mcf; Table 32).9 Since 2007 gas prices have been rising by about 8% per year, based on continued strongeconomicgrowthinChina,andareexpectedtoincreasefurtherincomingyearsasincomes rise.
3.10 NaturalGasPricingatLiuzhuangMine
Gas pricing mechanisms in China are complex. There is no local gas market close to Liuzhuang which can serve as a proxy for estimating the theoretical price of CMM produced at Liuzhuang mine.WithoutaformalapplicationtotheAnhuiNDRC,itisnotpossibletopreciselydeterminethe approvedLiuzhuangCMMprice.However,itispossibletoapproximatethetheoreticalgasprices basedonthecurrentregionalpricingregime. Table 32 indicates that the most relevant price for Liuzhuang would be the citygate price deliveredofftheWesttoEastgaspipeline,whichin2007wasabout1.27RBM/m3($5.27/MMBtu). ThisapproximatesthegaspricethatLiuzhuangCMMcouldexpectifitweredeliveredtoHuainan city(anunlikelyoptionasdiscussedinSection5).
3.11 DemandforNaturalGasforVehicleUse(CNG)
ThenumberofcivilianusemotorvehiclesinChinawas64.67millionvehiclesattheendof2008,up 13.5% from the previous year. Of this overall total, which includes both cars, trucks, and farm equipment,some24.38millionwerecars(up24.5%).Thislargeincreaseinvehiculartrafficisa majorcauseofincreasingpollutionproblemsinmanyofChina'scities. Consequently, both the central and local governments are promoting the use of CNG as an alternativevehiclefuel,asonewaytoreducepollutionlevels.CNGfueledvehiclesemit90%fewer particulate emissions than diesel or gasoline powered vehicles, with significant reductions in carbonmonoxideandnitrousoxideemissions.GreateruseofCNGintransportationalsocould helpslowChinasoilimportgrowth.
9
Ni,ChunChun,2007.ChinasNaturalGasIndustryandGastoPowerGeneration.InstituteofEnergyEconomics,Japan,July, 40p.
CMMMarketAssessment
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Especially at current gasoline prices, which due to continued price increases by the Chinese government during 2009 are currently about 25% higher than in the U.S., it can be up to 40% cheaperforChineseconsumerstofueltheirvehiclewithCNGratherthangasolineanddiesel.The coststoconvertacartorunonCNGfuel,ratherthangasoline,canbeaslowasRMB1700($250). ThenumberofCNGfillingstationsinChinaisincreasing,buttheirdistributionisconstrainedby theirdistancefromtheCNGprocessingplant,whichinturnisgenerallylocatedclosetoasuitable methanesource,whetheritisanaturalgasfieldorpipeline,oraCBM/CMMproject.Thecentral government is encouraging the building of new CNG filling stations and in the latest economic stimulusplanshasincludedincentivessuchasafasttrackapprovalprocessandcreditsupportfrom lendinginstitutions.
3.12 DemandandPricingforLNG
InparallelwiththegrowthofChinasnaturalgaspipelinesystem,LNGproductionandconsumption also are growing rapidly. Largescale LNG expansion continues, with the new Guangdong and FujianLNGTerminalsalongtheeastcoasthavingstartedupin2009,withannualcapacitiesof3.7 and2.6milliont,respectively.SeveraladditionallargeLNGimportterminalsareplannedtostart withinthenextfewyears.Inaddition,thereareincreasingnumbersofsmallscaleLNGproduction facilitiesthroughoutChinathatofftakenaturalgasfrompipelinesandthenconvertittoLNGfor local/regionaltransportanduse. The key advantages of LNG include that it can be transported flexibly over varying distances to relativelysmalldemandcentersthatarespreadoverawidegeographicarea.Inaddition,LNGcan be stored where needed in relatively large volumes to allow for daily or weekly fluctuations in demand. In China LNG is particularly competitive because only a small number of cities are connectedoradjacenttotheexistinggastransmissionpipelines.Numerousothercitiesarestill notconnectedtogaspipelines. The potential consumers of LNG include: (a) municipal and town gas companies which have no accesstothegastransmissionsystem;(b)largeindustrialandcommercialestablishmentswhich are not connected by pipeline; and (iii) municipal gas companies which are connected to the pipelinesystem,butwhichrequirestorageofLNGtomeetfluctuatinggasdemand.Despitethe growthinChinasgaspipelinesystem,itwillbedecadesbeforeallChinesetownsandcitiesare connectedthroughanextensivepipelinesystem.Therefore,LNGislikelytoretainashareofthe marketforsometime.10
10
WorldBank,2009.ShanxiCoalBedMethaneDevelopmentandUtilizationProject.Report4200CN,April20,101p.
CMMMarketAssessment
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Another significant advantage of LNG is that its prices are the most unregulated, being freely negotiatedbetweenthesellersandthebuyersateverystage.Thus,LNGpricescanbesignificantly higherthanothermoreregulatednaturalgasprices. Recently,smallsizeinlandLNGproducersoperatedbyprivatecompanies,suchasFortuneOilPLC, alsoareemerging.InXinjiang,forexample,anewprivatecompanyrecentlybuiltasmallLNGplant with production capacity of 0.6 billion m3/year(432,000 t/year), with delivery of LNG by tanker trucks.Suchaflexiblebusinesscanmakessenseforinlandandruralconsumers.
3.13 PowerMarketsandPricing
HuainanisthelargestcityneartheLiuzhuangmine,withapopulationofapproximately1million and growing rapidly. The city has a wide range of industrial and manufacturing operations. In 2008,thecitypurchasedabout2billionkWhofelectricityfromthenationalgridandalsoobtained powerfroman1,800MWcoalfiredpowerplantwithinthecitylimits.Majorelectricityconsumers includeelectricityintensivealuminumandcementfactories,whichaccountedforover200million kWhofpowerdemandin2007. Electricalpowerpricingisimportantfortheeconomicfeasibilityofthemostlikelyutilizationoption atLiuzhuangmine,which(asdiscussedinSection5)wasdeterminedtobepowergenerationusing smallscalereciprocatingengines. Chinas electricity prices are complex and still mostly regulated by the government. There are threegeneralpricecategories:thewholesaleprice,thetransmissionanddistributionprice,andthe retail price. The wholesale and transmission/distribution prices are approved by the NDRC, whereastheretailpriceissetbytheNDRC.Thepricingsystemforwholesalepowerisbasedona costplusprofitapproachandasamegrid,samepriceprinciple. 11 Since2002,auniformwholesalepriceforsimilartypesofpowerplantshasbeenintroducedwith theaimofreducingthehighoverallcost.Thispricingsystemdoesnottakeintoaccountefficiency andenvironmentalperformanceevenamongthesametypesofpowerplants. A coalfired power price adjustment mechanism was introduced in May 2006, allowing power generatorstopassoncoalpricehikeswithintheirwholesalerateatacapof8%peryear.Only about70%ofanyincreaseincoalpricecanbeaddedtothewholesalepriceforcoalfiredpower plants,whiletheremaining30%mustbeabsorbed.Themechanismappliesonlytocoalprices,not tonaturalgasfuelprices.Giventhatthegovernmentintendstoraisethepricefornaturalgasby
11
Ni,2007.
CMMMarketAssessment
3-15
8% per year, gasfired power generators will have more difficulties competing with coalfired generators and operating their plants if any increases in gas fuel cannot be included into their wholesalepowerprices. To promote the installation of fluegas desulphurization (FGD) equipment, which reduces SO2 pollution,anenvironmentpremiumhasbeensetat0.015RMBperkWhforqualifyingcoalfired powerplants.However,therearenoenvironmentalpremiumsortaxationpreferentialpoliciesfor gasfiredpowerplants. Table 33 shows the wholesale power price for thermal coalfired power plants in China. The recentwholesalepowerpriceforAnhuiProvinceis0.345RMB/kWh(withFGD),whichissimilarto the offpeak price that Liuzhuang mine pays for grid power (0.36 RMB/kWh). However, during more typical periods Liuzhuang mine pays 0.57 RMB/kWh, while peakperiod power rates can reachashighas0.85RMB.TheaveragepowerpriceduringApril2009was0.65RMB/kWh,during whichthemineutilized12.4millionkWhcosting8.11millionRMB.
Table33:
WholesalePowerPriceforthermalCoalFiredPowerPlantsinChina
(Source:Ni,2007)
CMMMarketAssessment
3-16
SECTION4
EvaluationofDegasificationTechnologiesand ReservoirSimulation

EvaluationofDegasificationTechnologies&ReservoirSimulation
4i
SECTION4CONTENTS

4.1 4.2 Introduction .............................................................................................................. 41
CMMDrainageTechniquesAppliedinHuainanCoalField......................................... 42
CrossMeasureBoreholesintheFloor.................................................................................43
InSeamBoreholeDrainageattheWorkingFace ................................................................43
BoreholeDrainagefromtheWorkingFace .........................................................................44
GasDrainagefromOverlyingCoalSeams............................................................................44
GasDrainagefromUnderlyingSeams .................................................................................44
GobGasDrainageUsingRoofBoreholes .............................................................................45
GobGasDrainageFromOverlyingTunnels(RockGalleries) ...............................................45
4.2.1 4.2.2 4.2.3 4.2.4 4.2.5 4.2.6 4.2.7
4.3
CMMDrainageandVentilationatLiuzhuangMine(CurrentMethods) ..................... 46
BoreholeDrilling...................................................................................................................46
VentilationDesign ................................................................................................................47
4.3.1 4.3.2
4.4
ReservoirSimulationModelingoftheLiuzhuangMine ........................................... 411
BaseCase CrossPanelInSeamDrainageBoreholeModel .............................................411

SimulationAlternativeNo.1 ..............................................................................................416
SimulationAlternativeNo.2 ..............................................................................................417
4.4.1 4.4.2 4.4.3
4.5
SurfaceCMM/CBMWellPotential .......................................................................... 418
Introduction .......................................................................................................................418
PreviousSurfaceWellCBM/CMMTestingatHuainan ......................................................420
CurrentCBM/CMMTestingatHuainan .............................................................................421
AdvancedHorizontalMultiLateralDrillingPotential ........................................................421
SurfaceGobWellPotential ................................................................................................424
4.5.1 4.5.2 4.5.3 4.5.4 4.5.5
4ii
SECTION4FIGURES

Figure41: Figure42: Figure43: Figure44: Figure45: Figure46: Figure47: Figure48: Figure49: Figure410: Figure411: Figure412: Figure413: Figure414: Figure415: Figure416: Figure417: Figure418: Figure419: Figure420: Figure421: Figure422: Figure423: Figure424: Figure425: SiteVisittoLiuzhuangMine.............................................................................................41
CrossSectionTypicalofLiuzhuangandOtherMinesintheHuainan
CoalField.......................................................................................................................... 43
ShortHorizontalBoreholeDrillsUsedasLiuzhuangMine ..............................................46
LiuzhuangMineGasExtractionPlant ..............................................................................47
SteelPipeUsedintheUndergroundtoSurfaceCMMPipelineSystem .........................48
SurfacetoInSeamDrillingRigandHoleOpeningDrillBits ............................................48
DetailedHourlyMethaneFlowRateandConcentration ................................................49
DetailedHourlyMethaneFlowRateandConcentration ..............................................410
SchematicofCurrentCMMDrainagePracticeatLiuzhuangMine ...............................411
ReservoirSimulationModeloftheCurrentLiuzhuangminedegasificationborehole .412
SorptionIsothermforCoalSeam131 ..........................................................................413
SimulatedReductioninPressure...................................................................................414
SimulatedReductioninGasContent .............................................................................415
SimulatedMethaneProductionfromaHorizontalInSeamBorehole
atLiuzhuang...................................................................................................................415
AlternativeDrainageDrillingScenarioNo.1 ..................................................................416
GasProductionRateforScenarioNo.1 .........................................................................416
Scenario1SimulatedReductioninGasContent ........................................................417
GasProductionRateforScenarioNo.2 .........................................................................417
Scenario2SimulatedReductioninGasContent ........................................................418
VerticalFracWellSchematic .........................................................................................419
HorizontalPinnateWellSchematic ...............................................................................422
HorizontalMultiLateralWellDrilling ............................................................................423
SurfacetoHorizontalGobBoreholeDrilledatLiuzhuangmine ....................................426
SurfacetoHorizontalGobBorehole ..............................................................................426
GobWellCasingStringDesignatLiuzhuangmine ........................................................427
SECTION4TABLES
Table41: Table42: AverageMethaneFlowandConcentrationofDrainedCMMfromSeam131 ..............49
SimulationInputstotheReservoirSimulationBoreholeDrainageModel ...................414
4iii
4.1 Introduction
Oneofthemostimportantopportunitiesforincreasingthecaptureandutilizationofmethaneat Liuzhuang mine is to improve the performance of the borehole drainage and gas collection systems.Earlyonintheevaluation,theARITeamandmineoperatorSDICXinjiconcludedthatin seam drilling at Liuzhuang was not going to be extremely productive because of the unstable mechanicalconditionandlowpermeabilityofthecoals. However,aninnovativedrainageprogramcenteredonlonger,directionallycontrolledhorizontal boreholesdrilledintothegobzoneabovethecoalseamsappearedtobeamuchmorepromising approach. These improved drilling methods would be augmented by upgrades to the CMM borehole completion and inmine pipeline system, with the main strategy being to reduce the unintendedentryofventilationairintothedrainedCMMgasstream. Thesestepshaveagoodchanceofincreasingtheconcentrationofmethanetoaround40%CH4 fromthecurrent710%,whichwouldmakethehigherqualityCMMeasierandmoreeconomicto utilize.AtestdrillingprogramwouldbeneededtoverifythatmediumqualityCMMisachievable. If successful, as discussed in Section 5, power generation using internationalclass CMMfueled reciprocatingenginesinthe1 to2MWsizerangewouldbethemostfeasibleutilizationoptionat Liuzhuangmine. Consequently,considerableeffortwasspentonevaluatingtheproposedalternativedrillingdesign option.HostedbySDICXinji,theARITeamsworkbeganareviewoftechnicaldataonthemineat SDICXinjismodernofficebuilding,followedbysurfaceandundergroundinspectionoftheentire CMMcollectionsystemandrelatedequipment(Figure41).Theevaluationassessedeachofthe sevenCMMdrainagemethodsthatarecurrentlyinuseorhavebeenappliedatothercoalminesin theHuainanCoalField.
Figure41:
SiteVisittoLiuzhuangMine
(Left):ARI,ValleyLongwallandOWTCpersonnelwithSDICXinjimanagement (Right):Liuzhuangmineoperationsbuilding(Source:ARI)
EvaluationofDegasificationTechnologies&ReservoirSimulation 4-1
TheevaluationconcludedthatsubstantialimprovementstotheCMMdrainageatLiuzhuangmine couldbeachievable.Usingadvanceddownholesteerabledrillingtechnology,verylong(1000m) horizontal boreholes could be drilled into the rock strata along the top of the future gob zone, preciselysituated1520mabovethetargetcoalseams. Simultaneously,extended(225mlong)inseamboreholesspacedapproximately10to20mapart could be implemented. These holes would be longer and more widely spaced thanthe current 100m,5mspacedboreholes.Thesedrillingupgradesareexpectedtosignificantlyincreaseboth thequantityandCH4concentrationofCMMdrainageatLiuzhuangmine.Thatcouldimprovemine safetywhileincreasingtheefficiencyandeconomicsofCMMutilizationaswellasgreenhousegas recovery.
4.2 CMMDrainageTechniquesAppliedinHuainanCoalField
CMM drainage methods need to be selected depending on the mechanical and gas storage properties of the coal deposits. In general, the mechanical properties of coal seams across the HuainanCoalFieldarefairlyuniform.Thecoalseamsinthisregiontendtobeweakandsheared, withverylowpermeability.ItshouldbenotedthatHuainancoalseamsaremuchmoredifficultto drillthantypicalU.S.orAustraliancoals.InseamboreholesinHuainanfrequentlycollapseeasily anddonotdrainveryeffectively. AsdiscussedinSection2,theLiuzhuangmineistypicalofcoalmineslocatedinthewesternhalfof theHuainanCoalField,whichhavelowtomoderategascontent.Incontrast,thecoalminesinthe eastern and northeastern part of Huainan more typically are highly gassy and may require an alternativeapproachtodrainage. At least seven distinct CMM drainage methods, comprising both crossmeasure and inseam boreholes,areorhavebeenemployedinvariousportionsofintheHuainanCoalField(Figure42).1 Thesemethodsarebrieflysummarizedbelow. AfterreviewingtheperformancetodateofcoalseamdrainageintheHuainanCoalField,reservoir simulation was used to evaluate alternate CMM drainage strategies at the Liuzhuang mine (discussedinSection4.4).Insummary,basedonthemodelinganalysis,themostcosteffective approach for CMM borehole drainage at Liuzhuang (and probably many of the other western Huainanminesaswell)verylikelywouldbetoutilizemoderndirectiondrillstopreciselyplacea smallnumberoflonghorizontalboreholesintothegobareaabout15to20mabovethemined seam,whereinducedfracturepermeabilityandmethaneconcentrationarelikelyhighest.
1
Yuanetal.,1998.
4-2
Figure42:
CrossSectionTypicalofLiuzhuangandOtherMinesintheHuainanCoalField
(Source:REIDrilling)
However,beforeadoptingthispractice,aninitiallowcosttestdrillingprogramisrecommendedto determinewhetherthistechnologyissuitableforthesitespecificconditionsatLiuzhuangmine. ValleyLongwallDrillingsexperienceinamechanicallysimilarcoalmineinnortheastChina,which hassimilarunstablecoaldrillingconditions,suggeststhatthisapproachalsocouldbesuccessfulat Liuzhuang. 4.2.1 CrossMeasureBoreholesintheFloor
WidelyusedintheolderminingareasofHuainan,shortboreholesaredrilledintooutburstprone mineable seams from drilling galleries in roadways located below the seam. Typically 9 to 15 boreholesinthreerowsandspaced8to12mapartaredevelopedinafanshapedpattern.Each boreholes drainage diameter is estimated to be only 4 to 6 m due to the low coal seam permeability.TheCMMdrainageratetypicallyisquitelowatonly0.01to0.05m3/minforSeam 131andevenlessat0.005to0.01m3/minforSeam112.Drainageefficiencycanreach15to30% ifonetothreeyearsofpredrainageisconducted. 4.2.2 InSeamBoreholeDrainageattheWorkingFace
AtleasttenHuainanmineshaveattemptedinseamboreholedrainageattheworkingfaceofSeam 131. However, this method usually is not very effective because the coal seams are fairly impermeable.Usingthisapproachboreholesaredrilledintotheseaminthestrikedirectionfrom theupperandlowerairways.Theboreholesgenerallyare73mmdiameter,30to50minlength, andspaced8to10mapart.Clustersof50to60boreholestypicallywoulddrainonly0.3to0.4 m3/minintotalandthenrapidlydecline.
4.2.3
BoreholeDrainagefromtheWorkingFace
ThismethodwasadoptedatsomeHuainancoalminestoreduceoutburstsinolderareasatthe driving face, which is a problem even in areas that had been drained using crossmeasure boreholesfromtheroadwaybelowtheflooroftheseam.Additionally,innewminesthereisno roadwayaccessfromwhichtodrillcrossmeasureboreholesbelowtheoutburstproneseams.This techniquewasfirstwidelyappliedstarting1998atthePan1mineintheeasternportionHuainan CoalField. Typically, 15 boreholes, 75 mm in diameter and 16 m long, are drilled at the driving face. The boreholes have anestimated drainage diameter of 3 to 4m. The boreholes are sealed air tight usingCPWIItyperubbersealer.Oncesealed,theholesareplacedonvacuumandproducedfor about16hours,achievingtotalmethaneflowratesof0.8to1.2m3/min. Drainage at the face is then stopped, driving is resumed, and drainage continues from the boreholesintheroadways.Thisprocessisrepeatedforevery8mofroadwayexcavated.Although notconsideredthemostefficientapproach,thismethodhasbeeneffectiveinhighoutburstareas with high stress and residual pressure, which tend to have the lowest permeability (<0.1 mD), notablytheXieliandPanmines. 4.2.4 GasDrainagefromOverlyingCoalSeams
OneofthemosteffectivedrainagetechniquesemployedtodateatHuainanistofocusondraining lowoutburst seams that stratigraphically overlie the less accessible and outburstprone seam targetedformining.Forexample,attheXinzhuangzimine,theminingtargetSeam6isoutburst prone,whereastheoverlyingSeam8situatedabout1530maboveSeam6hasmuchlowergas content.Clustersof9boreholesinthreerows(total27boreholes)aredrilledevery20minterval fromadrillingsiteinthefloorroadwayofSeam6.AsminingofSeam6proceeds,themethane drainageratestendtospikeabout20maheadand40mbehindtheworkingface.Thisdrainage method is fairly effective, with individual boreholes draining an average 0.17 m3/min and the clusterdrainingatotalofabout4m3/min. 4.2.5 GasDrainagefromUnderlyingSeams
AsimilarmethodtothatdescribedinSection4.2.4,exceptthatboreholesaredrilledfromalow outburstseamstratigraphicallyunderlyingtheoutburstproneseam.Forexample,attheXieNo.1 mineintheeasternHuainanCoalField,boreholesaredrilledfromrockroadwaysnearSeam10up intoSeam11.Oneadvantageofdrillinginanupwarddirectionisthatwaterdoesnotsoakintothe coal seam, which otherwise tends to create a soft paste, further reducing permeability and gas drainageeffectiveness.
4.2.6
GobGasDrainageUsingRoofBoreholes
ThroughouttheHuainanCoalField,andapparentlyatLiuzhuangmine(althoughnospecificdata wereavailable),asignificantfraction(estimated1736%)ofCMMreleasedcomesfromadjoining nonminedseamswhichneverthelessbecomehighlyfracturedduringlongwallcollapse.Drilling boreholes along strike into the roof above the seam can be an effective technique to drain methanefromthesenonminedcoalseams. ThisapproachwasfirstusedintheHuainanCoalFieldin1975,attheXieNo.2mine.Itismost effective when boreholes are positioned about 15 to 20 m above the roof of Seam 132. For example,arateof6m3/minwasachievedatPanNo.1mine.AttheXieqiaominejusteastand adjacenttoLiuzhuang,a360mlong,150mmdiameterboreholewasdrilledintothefracturedroof aboveSeam132usinganAustraliansteerable1,000mrateddrill.Basically,thisisthetechnique recommendedforLiuzhuangmine,althoughmultipleandsignificantlylonger(>1,000m)horizontal gobboreholesareenvisioned. 4.2.7 GobGasDrainageFromOverlyingTunnels(RockGalleries)
Usingasimilarprincipleoftargetingthefracturedgobabovethetargetcoalseam,thismethod employs roadways instead of boreholes for gas drainage. For example, the Li No. 1 mine in southeastern Huainan Coal Field (located within the XieLi area T on Figure 29 in Section 2) experiencedhighmethaneinfluxratesof1217m3/minwhileminingSeam132.Gasinfluxwas toohightobehandledbyconventionalshortboreholedrilling. Instead,a130mlongroadwaywasdevelopedalongstrikeofthe1mthickSeam15,located15m stratigraphically above the mining target Seam 132. This roadway was connected to the permanentdrainagesystem.WhentheworkingfaceinSeam132advancedabout10mpastthe roadway,stressfractureswereinduced,initiatingmethanedrainageofabout1.0m3/min.Once thefacepassed20mbeyondtheroadway,CMMdrainageincreasedto5to7m3/min,representing about2560%oftotalemissions. Thetunnel(orrockgallery)techniquehasalsobeenusedincertainotherChinesecoalmines with low coal seam permeability, such as in the Yangquan Mine No. 5 in Shanxi Province.2 The principal drawback of this method is that excavating largediameter roadways is extremely expensive.Overall,thismethodappearstobemuchlesscosteffectivethantheproposeddrilling ofhorizontalgobboreholesusingdirectionaldrills.
Stevens,S.H.,Brunner,D.,andLiu,Z.,YangquanMineCMMtoPowerProject:TechnicalandEconomicEvaluation.The2001International CMM/CBMInvestmentExposition/Symposium,November78,Shanghai,China.
4-5
4.3 CMMDrainageandVentilationatLiuzhuangMine(CurrentMethods)
ThissectiondiscussestheCMMdrainageandventilationsystemandtechniquesthatarecurrently employed at the Liuzhuang coal mine. Overall CMM drainage and ventilation currently is conductedusinganintegratedsystemconsistingofa)boreholesdrilledintotheseamsthatareto be mined for predrainage, as well as boreholes drilled into the gob zone for drainage during mining;andb)theventilationsystem,whichcomprisessurfacevacuumpumps,theCMMpipeline system,andanarrayofcompletedboreholes. 4.3.1 BoreholeDrilling
Currently,methanedrainageboreholesaredrilledatLiuzhuangmineusinganarrayof13individual rockdrills,twoofwhichareshowninFigure43.Noneofthesedrillsareequippedwithmodern downholedirectionalcontroltechnology.Onlyoneofthedrillsiscapableofdrilling500mlength boreholes,whiletheothersareratedtomaximum200mlength.BecauseLiuzhuangisarelatively new mine and not extremely gassy (although gas levels are anticipated to increase as mining proceedsintodeeperareas),boreholedrillingisnotasintensivelyemployedasinotherhighgas mines.
Figure43:
ShortHorizontalBoreholeDrillsUsedasLiuzhuangMine
(Source:ARI)
InseamdrillingatLiuzhuangminecurrentlyutilizesthefollowingtechniques: Inareaswithfavorablecoalconditions,drillingratesof100mpershiftmaybeexpected. Theshiftlengthis8hours,whichincludesanestimated5to6hoursofactualdrillingtime (16to20mperhouradvancerate). Shortboreholes(50 to110mlongand50 to93mmindiameter)aredrilledinadvance of the development headings to drain the gas prior to mining. Where there are no outburstproneconditions,drillinginadvanceoftheheadingsmaynotoccur. Normally, the lead time for drainage (where drilling occurs in advance of headings) is aboutthreemonths.
4-6
Boreholes50to110mlongand50to93mmdiameteraredrilledat5mspacing(parallel holes,perpendiculartothelongwallgateroads)todrainthegasfromthelongwallpriorto mining. Boreholes50to110mlongand50to93mmdiameteraredrilledinafanpatternfrom drillstubs(atintervalsalongthegateroads),atanangleof15to30degreesfromthecoal seam up into the strata above the coal seam prior to Longwall extraction. The typical verticalsectionoftheseboreholesincludes4mofcoaland16mofstone. A small number of 480m long holes have been directionally drilled by a drilling contractor.Drillingrateswerenotspecified. Drilling problems encountered to date include no return water, drill bit and drill string becomingstuck,veryhardroof,andzeropenetrationrate.
4.3.2
VentilationDesign
TheLiuzhuangminecurrentlyemploysacomprehensiveexhaustsystemwithasurfacemounted main ventilation fan. Manufactured in the United Kingdom by Howden, the fan is 2.8 m in diameterandhasaflowcapacityof20,000to28,000m3/min.Underground(forcing)auxiliaryfans insizesof0.6,0.7,and0.8malsoareinuse,deliveringlocalflowswhereneededof400m3/minvia ventilationairtubes. Themaingasextractionplantlocatedonthesurfaceconsistsoftwovacuumpumps(Figure44).A thirdpumpisplannedtobeinstalledby2011.CMMisextractedfromtheworkingfacesofthe minevia200 and300mmdiameterpipes,andfromthemainroadwaysusing600mmdiameter pipe.Thereare2x400mmdiameterpipesinstalledinparallelintheshaftfromundergroundto surfaceandan800mmdiameterpipefromtheshafttothegasplant.
Figure44:
LiuzhuangMineGasExtractionPlant
(Source:ARI)
4-7
Ventilationairintheundergroundroadwaysusuallyhasaconcentration(byvolume)intherange of 0.01 to 0.12% CH4 (average 0.02%), which is quite low and considered safe for mining operations. SDICXinji estimates that 80% of the gas from the working face is drained by the boreholedrainagesystem,whichhelpstokeeptheventilationairmethaneconcentrationverylow. Currently,thisdrainedgasisventedtotheatmosphere,pendingadoptionofautilizationprogram. Thetotalgasvolumefromdrainageis1.0to1.1millionm3permonthwithayearlyvolumeof13 million m3 (24.7 m3/min). During the period January to May 2009, the total volume of gas extractedwas5millionm3. TheundergroundtosurfaceCMMpipelinesystemconsistsofconventionalsteelpipeofvarying sizes(Figure45). Gasisextractedfromtheworkingfaceintheminevia200mmand300mm diameterpipe.CMMextractedfromthemainroadwaysistransportedvia600mmdiameterpipe. 2x400mmdiameterpipeisusedinparallelintheshaftfromundergroundtosurface,whilean 800mm diameter pipe transports CMM from the shaft to the gas plant. Figure 46 shows the surfacetoinseamdrillingrig&holeopeningdrillbits(upto600mmdiameter).
Figure45:
SteelPipeUsedintheUndergroundtoSurfaceCMMPipelineSystem
(Source:ARI)
Figure46:
SurfacetoInSeamDrillingRigandHoleOpeningDrillBits
4-8
Table41showsthemonthlyaveragemethaneflowandconcentrationofthedrainedCMMfrom Seam131fromoneofthelongwallpanelsatLiuzhuangmineduringthefirstfivemonthsof2009. Themethaneflowraterangedfromabout10to14.4m3/min,experiencing significantmonthly fluctuationsofabout50%.Themethaneconcentrationrangedfrom5to10%byvolume,averaging 10.02%duringthemonthofMay2009.AsdiscussedinSection5,thesignificantvariabilityinCMM flow rate and concentration significantly impacts the utilization potential of this gas stream. Furthermore,suchlowCH4concentrationsactuallyindicateacertainlevelofsafetyconcern,as theyfallwithintheexplosiverangeof5to15%.
Concentration CH4inPipeline (%) Average 14.41 14.37 14.24 12.57 10.02 GasMixture Flow (m3/min) Average 67.57 73.33 73.24 68.32 53.12
Jan09 Feb09 Mar09 Apr09 May09

Table41:
Time(min) Sum 44640 40320 44640 43200 44640
Area: 13
CH4Flow (m3/min) Average 9.74 10.53 10.43 8.60 5.34
CH4 (m3/day) Sum 434578 424754 300351 371347 238339
AverageMethaneFlowandConcentrationofDrainedCMMfromSeam131
(Source:SDIC)

Figure47showsthemoredetailedhourlymethaneflowrateandconcentrationfromSeam131
fromthe121301WorkingFaceatLiuzhuangmineduringtheperiodJanuarythroughMay2009.

Figure47:
DetailedHourlyMethaneFlowRateandConcentration
Seam131WorkingFace121301JanMay2009(Source:SDIC)
Similarly, Figure 48 shows the methane flow rate and concentration during December 2008 throughMay2009.Flowratesandconcentrationinitiallywerefairlystablebutoperationalevents later in the period caused large fluctuations. Again, these fluctuations have implications for utilization:variabilityofthismagnitudecouldbehandledbyreciprocatingenginesbutprobably notbyturbines.
Figure48:
DetailedHourlyMethaneFlowRateandConcentration
Seam131WorkingFace121301Dec2008toMay2009(Source:SDIC)
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4.4 ReservoirSimulationModelingoftheLiuzhuangMine
Reservoirsimulationisarigorousquantitativeapproachthatcanbeusedtomodel,understand, andoptimizeCMMdrainageatcoalmines.Usingmeasuredandinferredreservoirparameters, modelingisapowerfultoolfordeterminingthemostefficientboreholespacing,length,andtiming. For this analysis, a basecase model was developed based on current reservoir conditions and borehole placement. Two alternate scenarios were then evaluated, with different borehole spacing and lengths using directional horizontal drilling. Both of the alternate scenarios were configuredtomeettheChinesegovernmentsafetyrequirementtoreducetheinitialgascontentby 30%priortomining.Thecurrentstudyisbelievedtobethefirstapplicationofreservoirsimulation attheLiuzhuangmine. The reservoir simulation of the main coal seam reservoirs in Liuzhuang mine was conducted to better understand and optimize borehole length, spacing, and placement. Using Advanced ResourcesInternational,Inc.sCOMET3reservoirsimulator,asimulationmodelwasconstructed that represents the current Liuzhuang mine degasification boreholes. The model employs two layerstoenablesimulationofhorizontalinseamdirectionaldrilling.Detailsofthebasecaseand alternatescenariosmodeledaredescribedbelow. 4.4.1 BaseCase CrossPanelInSeamDrainageBoreholeModel
Forthebasecasesimulation,thecurrentdegasificationmethodusingshorthorizontalboreholes intoSeam131wassimulated(Figure49).
Figure49:
SchematicofCurrentCMMDrainagePracticeatLiuzhuangMine
(Source:ARI)
4-11
Permeabilitywasassumedtobe0.05mDintheXY(lateral)directionand0.005mDinthevertical (Z)direction,basedonmeasuredandestimatedpermeabilityvaluesintheHuainancoalfieldand sitespecificmeasurementsattheLiuzhuangmine.Whilepermeabilityisdifficulttomeasurein coal seams, the low permeability used in the simulation model is consistent with drainage experienceattheLiuzhuangmine,aswellaswelltestpermeabilitymeasurementselsewhereinthe Huainan Coal Field. No changes in permeability as a function of pressure are included in this model. TheCOMET3reservoirsimulationmodelcomprises22*1*2gridblocks(225m*5m*4.5m). The225mdimensionrepresentsthedistancefromthetailgatetotheheadgateofthemine.The 5mdimensionisthecurrentboreholespacing(adjustedlaterforthedifferentmodelalternatives), andthe4.5mscaleisthetotalaveragecoalseamthickness. Figure410showsamapviewofthetoplayerforthebasecasemodel,aswellasanorthsouth trending crosssectional slice through the model. The basecase scenario that was modeled representsa100mlonginseamboreholedrilledintoSeam131withanassumed5mdrainage width (the current borehole spacing). Just as currently practiced, the borehole was drilled in a crosspaneldirectionintothe225mwidelongwallfromthegateroad.Thecrosssectionalview showsSeam131dippingata30angle.Thecolorrepresentsgaspressure,whichremainscloseto originallevelsduetothelowcoalseampermeability.
Figure410: ReservoirSimulationModeloftheCurrentLiuzhuangminedegasificationborehole
(Source:ARI)
The sorption isotherm (pressure vs gas content) curve used in the model (Figure 411) was generatedbasedonknowndry,ashfreeLangmuirparameters(LangmuirVolumeandLangmuir Pressure).Thoseparameterswereconvertedtoinsituconditionsusinganaverageashcontentof 20% and an average moisture content of 1.7%. An average coal density of 1.4 grams per cubic centimeter(g/cc)wasusedtoconvertm3/ttom3/m3forinputintothereservoirsimulator.The averageinitialgascontentusedwas7m3/t,representingthemoderatelyundersaturatedinitial reservoircondition.Thisinitialsaturationwasassumedtobeconstantinallgridblocks.Otherkey reservoirparametersusedinthemodelingarepresentedinTable42.
Figure411: SorptionIsothermforCoalSeam131
(Source:ARI)
Figure412(crosssectionalview)andFigure413(planview)showthesimulatedreductioningas contentafter9monthsofproductionfromthe100mlonghorizontalboreholedrilledintoSeam 131atLiuzhuangmine.Gascontentremainsclosetovirginlevelsevenafter9monthsofdrainage fromtheborehole,reaching5.3and6.2m3/m3inLayers1and2,respectively,downslightlyfrom the original 7.7 m3/m3. The model predicts that methane production from horizontal inseam boreholesatLiuzhuangminepeakearlyatover100m3/day,followedbyahyperbolicdeclineto about20m3/dbymonth9(Figure414).
4-13
Parameter Coal Depth Coal Thickness Pressure Gradient Dip Initial water saturation Horizontal Permeability Vertical Permeability Porosity Sorption Time Fracture spacing Langmuir Volume Langmuir Pressure Initial Gas Content Moisture content Ash content Coal density Pore Compressibility Permeability Exponent Matrix Compressiblity Water density Water Viscosity Temperature Gas Composition Borehole Length Borehole Radius Borehole BHP
Table42:
Value 725 4.50 0.433 30 100 0.1 0.01 2 1 1 580 780 7 1.7 20 1.4 4.30E-05 3 1.45E-07 1 0.8 28 100 48 103
Units m m psi/ft degrees % mD mD % day cm scf/ton psia m3/t % % g/cc 1/kPa 1/kPa g/cc cp C meters mm kPa
Comments Base of seam (590.5 meters top of coal) Hydrostatic (9.79 kPa/m) To the south Estimated Assumed Assumed
d.a.f. (19.8 sm /m in situ) d.a.f. (7.7 sm /m in situ) Average for 13-1 seam Average for 13-1 seam Average for 13-1 seam Assumed (300e-6 1/psi) Assumed (1e-6 1/psi)
3 3
95% CH4; 1% CO2; 4% N2
15 psi
SimulationInputstotheReservoirSimulationBoreholeDrainageModel
(Source:ARI)
Figure412: SimulatedReductioninPressure
Currentcasecrosssectionalview(Source:ARI)
Figure413: SimulatedReductioninGasContent
Currentcaseplanview(Source:ARI)
Figure414: SimulatedMethaneProductionfromaHorizontalInSeamBoreholeatLiuzhuang
Currentcase(Source:ARI)

4.4.2
SimulationAlternativeNo.1
Forthefirstalternativesimulationscenario,theboreholewasmorethandoubledinlengthto220 m (Figure 415), compared with the original basecase length of 100 m (still only in layer 1). In addition,thespacingwasmodifiedinordertoreachthesameresidualgascontentasforthebase caseafter9monthsofproduction.Itwasdeterminedthatboreholesneededtobespacedapprox imately10maparttoreachthesameresidualgascontentasinthebasecase.Gasproductionrate andmatrixmethanemapsareprovidedinFigure416 andFigure417,respectively.
Figure415: AlternativeDrainageDrillingScenarioNo.1
(Source:ARI)
Figure416: GasProductionRateforScenarioNo.1
Horizontalboreholesdrilledevery10mandproducedfor9months(Source:ARI)
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Figure417: Scenario1SimulatedReductioninGasContent
220mhorizontalboreholesdrilledinSeam131only(Source:ARI)
4.4.3
SimulationAlternativeNo.2
Forthesecondscenario,directionaldrillingwasinvestigatedbyassuming220mlongboreholesare drilled,oneineachlayer.Asforalternative1,thespacingwasmodifiedinordertoreachthesame residualgascontentasforthebasecaseafter9monthsofproduction.Itwasfoundthatboreholes spacedevery20mwererequiredtoreachthesameresidualgascontentasforScenario1(5.3and 6.2 m3/t in Layers 1 and 2, respectively, down slightly from the original 7.7 m3/m3). Gas pro ductionrateandmatrixmethanemapsareprovidedinFigure418andFigure419,respectively.
Figure418: GasProductionRateforScenarioNo.2
Horizontalboreholesdrilledevery41mandproducedfor9months(Source:ARI)
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Figure419: Scenario2SimulatedReductioninGasContent
220mhorizontalboreholesdrilledinSeams131and112(Source:ARI)
4.5 SurfaceCMM/CBMWellPotential
4.5.1 Introduction
Currently, inmine borehole drilling is the only technology employed for CMM drainage and productionatLiuzhuangmine.However,therealsoispotentialfordrillingsurfaceCBM/CMMwells near the mine to predrain the coal ahead of mining. Unfortunately, surface wells in China generally have a much higher risk of failure and are more expensive than inmine horizontal boreholes. Also, surface wells have not been proven to be commercially successful to date elsewhere in the Huainan Coal Field region. At the Liuzhuang mine specifically, a relatively advancedsurfacetohorizontalgobwellwasattemptedseveralyearsago,butwithpoorresults. NoverticalorhorizontalCBM(i.e.,completeddirectlyincoalseams)predrainagewellshavebeen drilledatLiuzhuang,nordoestheminecurrentlyplantoattemptany. SurfaceCBM/CMMwelldesignsincludeverticalfracandhorizontalmultilateralwells(Figure420). CBMwellsofthesetypesarewidelyemployedintheU.S.,Canada,andAustralia,withatotalof morethan50,000productionwellscurrentlyincommercialoperation,contributingsubstantiallyto nationalgasproductioninthesecountries. AnothersurfacedrillingtechniquewithpotentialforenhancingCMMdrainageatLiuzhuangisthe use of vertical gob wells to drain during and after mining and longwall collapse. Gob wells are discussedinSection4.5.5.
Figure420: VerticalFracWellSchematic
(Source:ARI)
Aftertwodecadesofmostlydisappointingtrials,surfacewellsforCMMdrainagearestartingtobe implementedonalargescaleinseveralChineseminingregions.Asof2008,roughly1,800to3,400 vertical(datasourcesvary)and25horizontalmultilateralCBMwellsreportedlyhavebeendrilled in China. By far the greatest concentration of surface CBM well development has been in the geologicallyfavorablesoutheasternportionoftheQinshuibasin,ShanxiProvince.3,4 Surfacedrillingtechniques,wheneffective,havemajoradvantagesthatcanaugmenttheinmine CMMdrainageboreholes.CBM/CMMwellsproducegasfromareasnotyetaffectedbyminingand ventilationactivities,thusproducinghighmethaneCMM(typically95%CH4),muchhigherthanthe low (710%) methane concentration currently being drained at Liuzhuang. Gob wells typically produceCMMatamoderate(50%CH4)methaneconcentration.Ifpositionedclosetoplanned mining,surfacewellscancapturemethanethatotherwisewouldbereleasedduringinitialmine excavationanddevelopment,longbeforeanyinminedrillingcanbeapplied. Ultimately, surface wells reduce the need for inmine drainage, saving cost and improving the mines productivity, and increasing the overall effectiveness of methane capture. Modern coal miningcompaniesintheU.S.andAustralia(suchasConsolEnergy,BHPBilliton,andJimWalters Resources)typicallyapplyanintegratedprogramofbothsurfaceCBMandinmineCMMdrillingto maximizetheefficiencyofCMMdrainageandcoalmining.
3 4
Qiu,Haijun,CoalbedMethaneExplorationinChina,AmericanAssociationofPetroleumGeologists,AAPGAnnualConvention,SanAntonio, TX,April2023,2008. Huang,Shengchu,2009.CurrentStatusofMethaneEmissionsReductionsin4Sectors,China.MethanetoMarkets,SteeringCommittee Meeting,September30,40p.
4-19
However,duringtheneartermatleast,thepotentialforsurfaceCBM/CMMwellsatLiuzhuang mineappearstoberatherlimitedandrisky.VerticalwellexplorationdrillingintheHuainanCoal Field,amountingtoonlyadozenorsowellsdrilledsince1992,hasbeenmostlydisappointing.This isthoughttobeduetotherelativelylowcoalseamgascontentandpermeability,aswellasthe physicallyweakandshearedmechanicalpropertiesofthecoalseams. Chinas largest and most successful surface CBM/CMM field is the southeastern Qinshui basin, Shanxi Province, where more than 1,000 vertical hydraulically fractured wells currently are in operation. These surface wells are capturing methane that otherwise would be emitted to the atmosphereduringsubsequentcoalmining.DrillingcontinuesintheQinshuibasin,withoperators PetroChina, CUCBM, Lanyan (Jincheng Coal Group), and Green Dragon Energy adding several hundred new wells each year. There have been more than a dozen advanced horizontal multi lateralwells,whichareprovingtobehighlyeffectiveatpredrainingtheDaningandSihemines. ToplaceChinasexperiencewithsurfaceCBM/CMMdevelopmentincontext,itshouldbenoted thatothercountriesexperiencedahighinitialfailurerateforCBM/CMMdevelopment,eveninthe currentlysuccessfulareas.SurfaceCBM/CMMandgobwellsarenowextensivelyemployedona largescaleintheU.S.andAustralia,but10outofthe13currentlysuccessfulCMM/CBMfieldsin theU.S.andCanadafailedduringinitialtestingandwereabandoned,onlytobecommercialized yearslateronceoperatorsdevelopedmoreeffectivewelldesigns.Forthisreason,thecapitalrisk profilefordrillingverticalCBM/CMMwellsisgenerallymoresuitedforriskdiversifiednaturalgas explorationandproductioncompaniesratherthanforcoalminingfirms,wherethegeologicriskis concentratedonasinglelocality(themine). Despite early setbacks, vertical CMM/CBM testing continues in the Huainan Coal Field. It is possiblethatnewtechniqueswillsucceed,butthiscannotcurrentlybepredicted.Thisevaluation does not recommend that SDICXinji pursue surface drilling at the Liuzhuang mine at this time, becauseitappearsthatimprovinginmineboreholedrillingoffersamoreeffectiveandlowrisk nearterm strategy. The following sections of the report provide more detailed analysis of the performanceandpotentialforsurfacedrillingintheHuainanCoalField.
4.5.2
PreviousSurfaceWellCBM/CMMTestingatHuainan
During the period 1992 to 2000, a total of at least eleven vertical surface CBM test wells were drilled in the Huainan Coal Field.5,6 These wells were not successful in establishing production,
5
Zhang,Hong;Li,Guihong;Cui,Yongjun;andJing,Xianglan,2004,TheEvolutionofCBMReservoirformingDynamicSystemintheHuainan Coalfield,EasternChina.InternationalCoalbedMethaneSymposium,UniversityofAlabama,Tuscaloosa,May56. 6 YuanandLi,2003.
4-20
althoughonewellachievedapeakgasproductionrateof5,000m3/day.Ifsustainable,thislevelof productionwouldbeeconomic.However,itappearsthatthisratewasashorttermunsustained peak. In1995,theHuainanCoalAdministrationdrilledandhydraulicallyfracturedthreeverticalwellsto degasifycoalseamsinadvanceofmining.Twoofthewellswereconsideredsuccessful,producing about1,000m3/dayperwellfor3years.Thegasreportedlywasusedtodriveageneratorset.In addition, a directional surface gob well also tried at the Liuzhuang mine which successfully produced gas as well. The local land owners/farmers would occasionally restrict access to the wellheadanddemandcompensation.Nofurtherinformationwasavailableontheseearlysurface drillingprograms. 4.5.3 CurrentCBM/CMMTestingatHuainan
Surface CMM/CBM exploration and appraisal drilling continues in the Huainan Coal Field. Currently, the only vertical well CBM/CMM testing underway in the Huainan Coal Field is being conductedbyGreenDragonGasLtd.(GDG),whichholdsaProductionSharingContract(PSC)to exploreforandproduceCBM/CMM.GDGisarelativelysmalloperatorbasedinHongKongand listed on the London Alternative Investment Market. While most of GDGs activity has been focused on its Qinshui basin blocks, the company also operates the 584km2 Panxie East PSC licenseintheeasternhalfoftheHuainanCoalField.7)Thisareahashighergascontentthaninthe Liuzhuangminearea,locatedabout150kmtothewest. AtthePanxieblockineasternHuainanCoalField,GDGistargetingSeam131which,togetherwith Seams16and17,average600700mdeepand6.5mthick.(NotethatSeam131isbeingminedat asimilardepthatLiuzhuangmine.)Anindependentreservestudyestimated1.123Tcfoftotalgas in place was present at Panxie East, of which 472 Bcf is considered prospective CBM/CMM resources.8 Through 2008 GDG had drilled six vertical wells at Panjie East, of which five were completedopenholeanddewateringonpumpstartingMarch2008.Thewellswerenotinitially fracturestimulated.9Noproductionresultshavebeenreleased.10 4.5.4 AdvancedHorizontalMultiLateralDrillingPotential
AdvancedhorizontalCBM/CMMwellsdrilledfromthesurfaceandusingmultiplehorizontallaterals can be highly effective for predraining CMM from the virgin coals near mines. Also known as pinnate wells, this technology was first developed by CDX Gas for coal mine degasification
7 8 9
GreenDragonGasLtd.,corporatepressrelease,August24,2009.
GreenDragonGasLtd.,corporatepresentation,March2008.
GreenDragonGasLtd.,corporateannualreport,2007.
10 GreenDragonGasLtd.,corporateinterimresults,June2009.

4-21
purposes at the U.S. Steel Pinnacle mine in West Virginia, U.S..11 Horizontal multilateral CBM/CMMwellsarenowquitewidelyemployedincertaingeologicallyfavorablebasins,witha totalofmorethan1,000wellsproducingintheCentralandNorthernAppalachianbasins(U.S.),the Albertabasin(Canada),andeasternAustralia.Inaddition,about20pinnatewellshavebeendrilled inChinatodate. Eachpinnatewellsystemactuallycomprisesofapairofwells:averticalcavitycompleted,cased hole dewatering well that is penetrated by a separate multilateral openhole, horizontal gas productionwell(Figure421).Pinnatewellstypicallyaredrilledunderbalancedwithanairmist mixturetominimizeformationdamage.
Figure421: HorizontalPinnateWellSchematic
(Sideandplanviews)(Source:vonShoenfeldtetal.,2004)
Starting about 2005, pinnate (or as they are more commonly known in China, horizontal multi lateralMLD)wellsweresuccessfullyadaptedtoChinesecoalminedegasificationbytheChinese companyBeijingOrionEnergy(Orion).Orionsmostsuccessfulareahasbeeninthesouthern Qinshuibasin,especiallytheDaningandPanzhuangmineareas,wheretheyhavedrilledatleastsix MLDwellsineacharea(Figure422).TheOrionMLDwellsarelocatedclosetoplannedfuturecoal mining and thus can be considered primarily CMM (rather than CBM) wells. In fact, one of the Daning MLD wells was on line less than five years degassing coal seam #3 before it was mined through.
11
vonShoenfeldt,H.,Zupanik,J.,Wight,D.,andStevens,S.H.,UnconventionalDrillingMethodsforUnconventionalReservoirsintheUSand Overseas.2004InternationalCoalbedMethaneSymposium,UniversityofAlabama,Tuscaloosa,Alabama,May37,2004.
4-22
Figure422: HorizontalMultiLateralWellDrilling
(Source:BeijingOrionEnergy,ARI)
OneoftheOrionsPanzhuangwells(PZP012),whichwasdrilledonaProductionSharingContract controlledbyAsianAmericanGas,Inc.(AAGI),isbyfaristhebestperformingCBM/CMMwellof anytypedrilledinChinatodate.Thiswell,includingthelaterals,requiredonly8daystocomplete fromspud(startofdrilling)tototaldepth.OrionsMLDwellstypicallyemployonemainlateraland sixsidelateralsusinga6inchdiameterhole.Holelengthwithinthecoaltotalsabout5kmineach well(muchlongerthanthetypically100mlonginseamboreholesdrilledatLiuzhuangmine).The MLDwellsarecompletedopenhole(notcased)andarenotfracturestimulated.

The Orion/AAGI Panzhuang well produced a maximum confirmed rate of 50,124 m3/d (1.77 MMcfd) with casing pressure choke of 0.8 MPa,12 reportedly peaking some months later at approximately3MMcfd.FirstplacedonproductioninNovember2006,thewellhasproduceda remarkabletotalof37millionm3(1.31Bcf)ofhighpurityCMMinlessthanthreeyears.13MLD technologyhasprovedextremelyeffectiveinpredraininghighgascontentanthracitecoalsnear theDaningandSiheminesinthesouthernQinshuibasin. Unfortunately, MLD technology does not appear to be feasible for application at the Liuzhuang mine.UnusualforChina,thecoalseamsinthesouthernQinshuibasinaremechanicallyhardand stableanthracites,butstillhavesomemodestlevelsofpermeability(~0.5mD).Thesecoalsare highlysuitedtobeingdrilled,completedandproducedinanopenholeenvironment.Faultingis rareinthesouthernQinshuibasinandthedipangleisquitegentle(~5). Incontrast,LiuzhuangandtheotherminesintheHuainanCoalFieldarelowerinrank(highvolatile BituminousA),faultedandtectonicallysheared,andmechanicallyweakandunstable.Powdercoal inparticularwouldbedifficulttodrillhorizontallywhilemaintaininganopenhole.Faulting,fairly prevalentatLiuzhuang,wouldcausedrillingproblemsaswellasdifficultyremaininginseam.Also, thedipangleisprobablytoosteep(30)forhorizontaldrilling.Insummary,horizontalMLDdrilling technologyisnotrecommendedforLiuzhuangmine. 4.5.5 SurfaceGobWellPotential
Verticalwellsdrilledfromthesurfaceintothegobzoneoflongwallminesarecommonlyusedfor methanedrainageintheU.S.,particularlyintheWarriorandAppalachianbasins,buttheygenerally havenotbeensuccessfulinChina.Thisprobablyisduetothefrequentlysoftnatureofthecoal seams(powdercoal)andthelowpermeabilityofthecoalseamsandinterbeddedclasticrocks. Longwall mining of Seams 131 and 112 at Liuzhuang unavoidably releases methane from four overlying coal seams (14, 15, 16, and 17). Anticipating more serious methane influx and coal outburst hazards in the future as mining of Seam 131 moves to deeper areas, in 2007 the Liuzhuangmineconductedanexperimentaltrialofverticalandhorizontaldirectionalboringinto thegobzone.Verticalboringwasconductedfromthesurfaceabovetheminingface.Thewell servedadualpurpose:first,topredrainmethaneinthecoalseamsstratigraphicallyaboveSeam 131(Seams14,15,16&17)and,second,todischargegasfromthegobareaoncetheminingface passedtheverticalwelllocation.
12 13
ChinaUnitedCoalbedMethaneCorporationLtd.,pressrelease,February14,2007. AsianAmericanGas,Inc.,website,August31,2009.
4-24
Rather than a simple vertical gob well, the design was an experimental verticaltohorizontal surfacewell,makingitoneofthefirstsuchdeviatedgobwellsattemptedinanycountry.14Thewell wasintendedtoevaluatemethodsforaugmentingtherelativelypoorlevelofdrainageachievedby inminehorizontalboreholesatthemine. Equipmentinstalledforthegobdrainageexperimentconsistedofsurfaceverticalandhorizontal directionalboring,twounitsof2BE1303series,with560kWpowerrating,aswellastwo2BEY67 series mobile blowers powered by a 200kW mobile diesel generator. The mines monitoring system, a KJ90 series installed in May 2005, is considered very stable and capable of detecting powerfailure. Forthedischargepipenetwork,steelpipeofvaryingsizeswasinstalled: Abovegroundsection:diameter()820mm,totallength80m. Shaftsection:twinmain,426mm,totallength1600m. Ventilationdischargecrosscut:630mm,totallength650m. Miningface:325mm,totallength2200m.
Figure423showsaplanviewofthelayoutforthesurfacetohorizontalgobboreholethatwas drilledatLiuzhuangminein2007.Theverticalboreholewaslocatedabout140mfromtheinitial miningposition(inthedirectionofmining)andabout30mfromthereturnairway(inthedirection ofseamslope). Figure424showsacrosssectionalviewofthegobwellhole,whileFigure425detailsthewells casingstringdesign.First,alargediameter(311mm)holewasdrilledtoabout20mbelowthe base of the unconsolidated Quaternary alluvium and then cased and cemented with 244.5mm pipetoadepthof390m.Next,asmallerdiameter(216mm)holewasdrilledtonearthetopof Seams17and16.Thiswasthencasedwith177.8mmdiameterpipetoadepthof581m.Then,a 190mm hole was drilled to total depth of 668 mm, through the section containing Seams 14 through17,butremainingabout15maboveSeam131.Finally,a140mmdiameterperforated linerwashungacrossthefuturegobzone.
14
AnhuiGuotouXinjiGroupLiuzhuangMineCompanyLtd.AndAnhuiPolytechnicUniversity,CoalbedMethaneGasDrainageViaSurface HorizontalBoringResearchReport,2007,116p.(inChinese).
4-25
Figure423: SurfacetoHorizontalGobBoreholeDrilledatLiuzhuangmine
Planview
Figure424: SurfacetoHorizontalGobBorehole
Crosssectionview(Source:SDICXinjiEnergy)
4-26
Figure425: GobWellCasingStringDesignatLiuzhuangmine
Crosssection(Source:SDIC)
Asurfacegascontrolandmeasurementsystemwasinstalledfortestingthegobwell.Pipejoints used flange connections or were welded. Gas rate was measured using an orifice plate meter, basedonmonitoringpressureandflowvelocity. Priortodrilling,thegobwellwasestimatedtoreachpeakgasproductionofapproximately18,500 m3/day (650 Mcfd) on Day 11 of production. This would be typical of vertical gob wells in the WarriorbasinandAppalachianbasin. However, actual production from the gob well turned out to be only about onefifth of the predictedflowrate.Thecombinedmethanedrainageratemostlyrangedfrom10to15m3/min, withamaximumstablerateofonly2.55m3/min(3,672m3/day).Duringthe332madvanceofthe workingface,thecumulativemethanedrainedduringthetesttotaledabout45,501m3. Inretrospect,itappearedthatthebaseofthegobwellwastooclosetothegobzoneandmayhave beenoutsidethezoneofmaximumcracking.Thisresultedinseveralnegativeresults: Productionwasprobablynegativelyimpactedbyextremesubsidenceandblockagebysoftcoalas thegobdeveloped.Forexample,inthehorizontalplanetheboreholeterminuswasonly17to18 mawayfromSeam131,whereasthemodelrecommendedasafedistanceofatleast19.25m. In addition, the methane content was much lower than predicted. This indicates the gob well terminuswaspositionedtoodeepintothegobmixingzoneandthusdidnotbenefitfromgravity stratificationwhichtendstoconcentratebuoyantmethanenearthetopofthegob. Insummary,surfacegobwelldrillingtechnologyisnotrecommendedforLiuzhuangminedueto poorpastperformanceintheHuainanCoalFieldandhighriskoffuturefailure.
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SECTION5
EvaluationofCMMUtilizationTechnologies

5i
SECTION5CONTENTS

5.1 5.2 5.3 5.4 SectionOverview ...................................................................................................... 51
Introduction .............................................................................................................. 51
ChinaGovernmentPolicyTowardCMMUtilization................................................... 52
PowerGenerationUsingReciprocatingEngines ........................................................ 53
Introduction .........................................................................................................................53
MediumQualityCMMFueledPowerGenerationProjects.................................................55
LowQualityCMMFueledPowerGenerationProjects........................................................59
5.4.1 5.4.2 5.4.3
5.5 5.6 5.7 5.8 5.9 5.10 5.11 5.12 5.13
PowerGenerationUsingGasTurbines .................................................................... 510

VentilationAirMethane(VAM)Oxidation .............................................................. 512
TransportviaPipelinetoUrbanorIndustrialUsers ................................................. 513
CatalyticOxygenRemoval....................................................................................... 513
OtherMethaneUpgradingTechnologies................................................................. 514
CryogenicTechnologytoConvertCMMtoLNG ....................................................... 517
RetrofittingBoilerstoCMMFuel............................................................................. 519
CompressedNaturalGas(CNG)............................................................................... 520
GHGMitigationByFlaringCMM ............................................................................. 520
Introduction .......................................................................................................................520
FlaringProjects...................................................................................................................521
ApplicabilitytoLiuzhuang ..................................................................................................521
5.13.1 5.13.2 5.13.3
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SECTION5FIGURES

Figure51: Figure52: Figure53: Figure54: Figure55: Figure56: Figure57: Figure58: StagesoftheCMMtoPowerGenerationProcess ..........................................................54
LocationofChinaCMMPowerProjectsUsingCaterpillarReciprocatingEngines ..........54
TowerAppinCMMtoPowerStation..............................................................................55
120MWCMMFiredPowerStation,SiheMine,ShanxiProvince ...................................56
CaterpillarCat3520ReciprocatingEngine .......................................................................58
500kWShengliReciprocatingEngineandGenerator ...................................................510
CryogenicGasProcessingPlant .....................................................................................515
TestScaleCMMtoLNGPlant,Shigangmine,ShanxiProvince ....................................518
SECTION5TABLES
Table51: Table52: CaterpillarCAT3520GeneratorCMMFuelSpecifications...............................................57
MinimumMethaneConcentrationsRequiredforvariousVAMTechnologies .............512
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5.1 SectionOverview
Thisstudyevaluatedanumberofpotentialoptionsforutilizingcoalminemethaneproducedatthe Liuzhuangmine.Afewoptions(suchasgasturbines)wereconsideredtobetechnicallyinfeasible, whileothers(suchaspipelineconstruction)werenotcurrentlycosteffectiveatLiuzhuang. Intheend,theoptionofonsitepowergenerationusing1 to2MWsizeinternalcombustion(IC) reciprocatingenginesstoodoutasthemostfeasibleandeconomicallyviableoptionforutilizing CMM at Liuzhuang. Given the relatively small CMM volume produced at this mine and its low methane concentration, as well as the mines considerable distance from urban and industrial users,theICengineapproachseemsthemostpracticalandcosteffectiveapproachtoutilizeCMM at Liuzhuang. Increasingly, the IC power generation approach is being viewed in many parts of ChinaasapreferredoptionforutilizingCMMsupplieswithlowmoderatemethaneconcentration. There have been several recent studies of CMM drainage and utilization in China, at both the national level as well as for individual mines.1,2,3 None of the previous mines evaluated closely resemblethespecificgeologicandminingsituationatLiuzhuangmine,particularlytheextremely lowcurrentmethaneconcentrations.Forthisstudy,anoptimalCMMrecoveryandutilizationplan (presentedinSection6)wasdevelopedbasedontheanalysisofthemostappropriatetechnologies in this Section, the local market characteristics discussed in Section 3, and the CMM drainage systemimprovementprogramoutlinedinSection4. Thissectionofthereportdiscussesthetechnicalandpracticalaspectsofawiderangeofutilization options, including power generation, LNG/CNG, pipeline construction, and gas processing to upgradeitsquality.Ventilationairmethane(VAM)mitigationalsoisdiscussed.Finally,theoption offlaringthedrainedgasforgreenhousegasmitigationispresented.
5.2 Introduction
CMM utilization is a significant challenge at Liuzhuang mine because of the very low methane concentration (currently 710%), the relatively low to moderate flow rate (up to 37.5 m3/min, recalculatedat100%CH4),andtheminessignificantdistancefromlargeurbanorindustrialgas markets(aruralsettingsome70kmfromthenearestmetropolis,Huainancity).
1
InternationalEnergyAgency,2009.CoalMineMethaneinChina:ABuddingAssetwiththePotentialtoBloom:An
AssessmentofTechnology,PolicyandFinancialIssuesRelatingtoCMMinChina,BasedonInterviewsConductedatCoalMines
inGuizhouandSichuanProvinces.IEAInformationPaper,February,36p.
2 RavenRidgeResources,2009.FeasibilityStudyofCMMUtilizationforSongzaoCoalandElectricityCompanyCoalMines.
USEPAContractNo.EPW05063to13,May,150p.
3 ShiSu,TingRen,RaoBalusu,AndrewBeath,HuaGuo,CliffMallett,2006.DevelopmentofTwoCaseStudiesonMine
MethaneCaptureandUtilisationinChina.CSIROExplorationandMining,January,48p.

5-1
AdditionalutilizationchallengesincludethehighdegreeofvariabilityinbothCMMflowratesand methaneconcentrations,whichmayoccurovertimescalesthatrangefromshortterm(minutesto hours) to mediumterm (days to weeks). This variability distinguishes CMM fuel supplies from other, generally more stable, fuel sources (such as pipelined natural gas, LPG, etc.) and makes certainpotentialutilizationprocessesimpractical(notably,gasturbines). Typicallyinundergroundcoalmines,theCMMdrainageflowrateswillvaryby3050%overthe mediumterm (months). Flow depends on which seams (some high gas, others lower gas) and whichmineareas(withsimilarvariationingascontent)arebeingmined.Inaddition,theremaybe shorttermminingeventsaffectingCMMdrainage,whichcanbeplanned(machinerymaintenance, repositioning of the longwall, etc.) or unplanned (accidental mining into an unmapped fault, suddenrockorgasoutbursts,etc.). ThissectionoftheevaluationconsidersvariousalternativeCMMutilizationtechnologiesforthe Liuzhuangmineincludingthefollowing: Powergenerationusingreciprocatingengines Powergenerationusinggasturbines Ventilationairmethane(VAM)oxidation Transportviapipelinetourban,industrial,orvillageusers Compressednaturalgas(CNG) Catalyticoxygenremoval Othermethaneupgradingtechnologies Liquifiednaturalgas(LNG) RetrofittingboilerstoCMMfuel FlaringCMMforgreenhousegasmitigation
5.3 ChinaGovernmentPolicyTowardCMMUtilization
Early in 2006, Chinas State Council enacted policies to accelerate CMM and CBM utilization, requiringpowergridcompaniestoprioritizetheongridsalesofelectricitygeneratedbyCBM.The StateGridcurrentlyguaranteesthatallsurpluselectricitygeneratedbyCMM/CBMplantscanbe soldonthegrid. Oneimportantsteptakenbythegovernmentin2008wasthenewregulationthatcoalminesmust utilizeCMMwithCH4concentrationshigherthan30%.
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Asaresultofthesepolicies,asofJuly2009Chinareportedlyhad570individualcoalminemethane andcoalbedmethanepowergeneratorsinoperationandhookedintothestatepowergridin10 provinces.4Installedcapacitycurrentlytotals484MW,upfromonly154MWin2007.According toStateGridstatistics,CMM/CBMpowerplantsgenerated1.122billionkilowatthoursofelectricity duringthefirsthalfof2009.Some42percentofthiselectricitygenerated(473millionkilowatt hours)wasconsumedbytheminecompanies,withtheremaining58percent(649millionkilowatt hours)soldintothepowergrid. MostCMM/CBMpowergeneratorsinChinaarefairlysmallcapacityandlocallymade,butrecently largerimportedunitswithupto3MWcapacityarebeinginstalled.Theaveragegeneratingunit sizeinChinahasincreasedto784kilowatts/unit,upfromonly546kilowattsin2007.
5.4 PowerGenerationUsingReciprocatingEngines
5.4.1 Introduction
FirstappliedonalargescaleinAustralia,theuseofCMMfueledreciprocatingenginesequipped withgeneratingsetstogenerateelectricpowerhasbecomeapreferredoptionforCMMutilization inChina.Today,thisapproachisbeingusedsuccessfullyatnumerousminesinChina,whereboth medium (3050% CH4) and lowquality (~6 to 30% CH4) CMM is being utilized for power generation. The power generation process typically works off of drained CMM stored in an aboveground storagetank(typically30,000m3capacity),whichisthenpretreatedforuseinthereciprocating gasengines(Figure51).ThestoredCMMisfilteredfordustandparticlesthrough10 andthen1 micronfilters,driedtobelow80%relativehumidity,andthensentthroughafueltrain,wherethe pressure is regulated at 5 to 35 kPa. Following pretreatment, the CMM is sent through to the generator sets that are built close to the mining site and managed with switchgear to provide synchronization, voltage checks, loading and unloading of the engines and overall system protection.
Huang,2009.
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Figure51:
StagesoftheCMMtoPowerGenerationProcess
Figure 52 shows the location of CMM projects in China that currently utilize Caterpillar reciprocatingengines.(OtherenginemanufacturersalsohaveinstallationsinChinabutnomapis available for them.) Caterpillars largest project (108MW) is at the Sihe mine near Jincheng, Shanxi, while much smaller installations of Caterpillar engines also are in operation at nearby Chengzhuang and Meiganshi mines. Further northeast in Shanxi Province, the Yangquan Coal GrouphasinstalledthreeCaterpillarenginestotaling5.4MWinstalledcapacity.Finally,Huainan CoalGrouphasinstalledtwoCaterpillarengineswith3.6MWtotalcapacityintheHuainanCoal FieldinAnhuiProvince,approximately50kmfromtheLiuzhuangmine.
Figure52:
LocationofChinaCMMPowerProjectsUsingCaterpillarReciprocatingEngines
EvaluationofCMMUtilizationTechnologies 5-4
5.4.2
MediumQualityCMMFueledPowerGenerationProjects
TheoveralloperatingefficiencyofICenginesimprovessignificantlywithinthe1 to2MWunitsize range compared with smaller units, which have lower reliability and thermal efficiency. Furthermore,ICunitslargerthanabout2MWlacktheflexibilitytohandlethevariabilityinfuel concentrationandvolumethatarecharacteristicofCMMprojects.Forthesereason,ICunitsinthe 1 to2MWsizerangeareconsideredtohavetheoptimalscaleforpowergenerationatcoalmines inChinaandothercountries. AsdiscussedinSection4,althoughmethaneconcentrationatLiuzhuangminecurrentlyislow(7 10%CH4),itmaybepossibletoboostfuelqualityatLiuzhuangminetoalevelofapproximately 40%CH4throughtheimplementationofimprovedboreholedrillinganddrainagepractices.The highermethaneconcentrationwouldenabletheapplicationofthesemorereliableandefficient1 to2MWscalereciprocatingenginesforpowergeneration. Caterpillar,Deutz,andJenbacherarethreeoftheleadingmanufacturersofinternalcombustion engines that have been used to convert mediumquality (approximately 40% or higher CH4 concentration)CMMtoelectricityinChinaandothercountries.Below,theoperatingexperience andequipmentutilizedatthreesignificantprojectsemployingthesetypesofmediumqualityIC enginesforpowergenerationisbrieflysummarized.ThesethreelocationsaretheTower/Appin, Sihe,andYangquanmines. Tower/Appin.OneofthefirstandlargestCMMtopowergenerationprojects,aswellasoneof thelargestinstallationsofreciprocatingenginegeneratorsofanykind,wasthe94MWCMMfired powerstationatBHPsTowerandAppinminesnearSydney,Australia(Figure53).5Commissioned in1996,thisprojectconsistsof94individual1MWreciprocatingengines.
Figure53:
TowerAppinCMMtoPowerStation
Lee,John,C.Y.,Teo,Thomas,andTnay,ChoonHwa,2008.SustainableApplicationofReciprocatingGasEnginesOperatingon CoalMineMethaneGas.October,11p.
5-5
TheTower/Appinprojectconsumes600,000m3/dayofCMM(average71%CH4)drainedfromtwo separatemines.Thefuelsupplyissupplementedwithnaturalgaswhennecessary,suchasduring periods of reduced mining or CMM drainage activity. The Tower/Appin project employs 94 CaterpillarG3516leanburngeneratorsets,eachofwhichproduces1,030kWofcontinuouspower. Asofmid2008,mostoftheunitshadcompleted80,000runningoperatinghours. TheG3516engineisa16cylinderbulldozerenginethatisconnectedtoaCaterpillarSR4brushless generator.Housedinsoundproofsheds,the94generatorsetsinstalledattheTower/Appinmine complex convert about 280 m3/min (>20 MMcfd) of coal mine methane at 5085% methane concentrationstogenerate94MWofelectricity.Thatequatestoafueltopowerconversionrate ofapproximatelyabout3m3/min/MW(calculatedat100%CH4).(Asimilarconversionratewas assumedfortheproposedLiuzhuangmineproject.) The CAT3516 model also is the most widely used engine for moderateconcentration biogas projects,suchaslandfillgasutilization,whichtendtohavesimilaroperatingcharacteristicsand challengescomparedwithCMMprojects. SiheMineProject.ModeledaftertheTower/Appinpowerproject,therecentlyconstructed120 MWprojectatSiheminelocatednearJincheng,southeasternShanxiProvinceisthelargestCMM topowerprojectcommissionedtodate(Figure54).6TheSihemineprojectutilizesatotalof60 CaterpillarG3520Cgeneratorsetsrunningonmoderatequality(~50%CH4)CMM.Thegenerator setsthemselvesproduceover108MWofelectricpower.Inadditional,exhaustheatisrecovered offtheenginesandusedtodrivesteamturbinestoproduceanadditional12MWofelectricpower. With jacket water heat recovery for hot water production, the total production target is a combined120MW.
Figure54:
120MWCMMFiredPowerStation,SiheMine,ShanxiProvince
(Source:Leeetal.,2008)
Leeetal.,2008.
5-6
The Caterpillar CAT3520 generator set also could be a suitable candidate for application at Liuzhuangmine.TheCAT3520isa20cylinderdevelopmentoftheoriginal16cylinderCAT3516 design,whichsignificantlyincreasesitsoutput.Its1.8MWsizerepresentsthelargestandmost efficientengineratingcurrentlyavailableforCMMorsimilarfuelbiogasprojects,includingthose fromothermanufacturers.TheCAT3520usesover90%oftheCAT3516movingparts,aswellas 100%ofthecriticalpartsthatareindirectcontactwiththecombustionchamber. The latest and most advanced version of this model (CAT G3520C; Table 51 and Figure 55) operatesat1,500rpmwithacontinuousratingof1,966ekWunderstandardoperatingconditions. Anopencombustionchamberdesignallowsittooperateusinglowpressuregassuppliesofjust5 to35kPa(0.7psito5psi).Thelowboostpressurerequirementreducestheinstallationcostof fueltreatmentsystemsoftenfoundinlowenergyfuelenvironments.
Table51:
CaterpillarCAT3520GeneratorCMMFuelSpecifications
(Source:Caterpillar)
This G3520C can utilize a wide range of CMM fuel concentration and so can remain useful throughout the life of a coal mining project. With special modifications, the CAT3520C can be adaptedtoutilizemethaneconcentrationsdownstoabout25%.Also,withspecialpretreatmentit canutilizeVAMascombustionairwithupto3%CH4concentration. Tocompensateforthepressuredropacrossthegastrain,thegeneratorsetwouldrequireagas supplypressureof40to60kPa,withlessthan0.69kPaforsteadystateor4.83kPafortransient persecondoffuelpressurerateofchangeattheentryofthefueltrainsystem. EquippedwiththeADEMIIIelectroniccontrolmodule,thegeneratorsetallowsforfullengine control from a single source. Its advanced air/fuel ratio control is designed for use without an oxygensensor,allowingashighasa19.2barBMEPratingwhilesupplyinghighpowerdensityand meeting NOx emission levels of 500 mg/NM3. An optional NOx level of 250 mg/NM3 also is availablethrougha54Cseparatecircuitaftercoolersystem,providinggreateremissionscontrol forprojectsthatmustmeetstricterlocalregulationsorforprojectownersinterestedinpursuing carbontradingopportunities.
Figure55:
CaterpillarCat3520ReciprocatingEngine
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YangquanProject.AnothersignificantCMMtopowerprojectutilizingreciprocatingengineswas recentlyinitiatedattheYangquancoalminecomplexineastcentralShanxiProvince.7Theproject coversthreeminesoperatedbyYangquanCoalGroup(YCG):MineNo.5,MineNos.2and3,and theXinjingMine.Separately,asdiscussedinSection5.9,YCGalsoisevaluatingthefeasibilityofa CMMtoLNGplantatadifferentminesite. FirstcommissionedinMay2007,theYangquanCMMtopowerprojectcurrentlycomprisesthree Caterpillar G3520CCMM gas engines generating 1.8 MW each (5.4 MW total). CMM fuel is delivered at average methane concentration of approximately 40%, with significant shortterm variationslastingseveraldaystoaslowas30%andashighas48%.Thegeneratorsetsaregrid parallel, operate continuously, and have overall electrical efficiency of about 40%. Power generatedfromtheprojectisusedinthemineorsoldbacktothegridduringtimesoflowinternal demand. Ultimately, YCG envisions the installation of as much as 90 MW capacity using CMM fueledICgasenginesforpowergeneration. 5.4.3 LowQualityCMMFueledPowerGenerationProjects
The commercial utilization of lowconcentration CMM (generally less than about 30% methane concentration)forpowergenerationisuniquetoChina.Coalminesandnationalsafetyregulatory agencies in other countries have placed priority on avoiding or minimizing contamination with ventilationair,throughtheuseofimprovedinmineandsurfacedrilling,aswellasdrainageand pipelinesystemsthatarelesspronetoairleakage.Thesesteps,plusthecommonlymorefavorable geologicdrainageconditions,haveresultedincoalminesintheU.S.andAustraliacapturingamore concentratedCMMstream,typicallywith5095%CH4levels. However,manyChinesecoalmineshavebeenutilizinglowconcentrationmethane.Theseprojects generallyemployChinesemadeShenglienginesthathavebeenspecificallydesignedtoutilizethis challengingfuelsource.Theseenginesutilizeacomputercontrolledcarburetordevicetocontrol andoptimizemethaneconcentrationoftheinputfuelgastoutilizelowqualityCMMintherange of630%methaneconcentration.Inaddition,waterisinjectedduringgastransmissiontoreduce theriskofexplosion.Adehydrationdevicelaterseparatesthewatervaporfromthegas,allowing thegastobeusedforpowergeneration.
7
YangquanCoalMineMethane(CMM)UtilizationforPowerGenerationProject,ShanxiProvince,China:MonitoringReport. UNFCCCProjectNumber0892,August10,2009.
5-9
Forexample,twoShenglilowconcentrationengines(500kWeach)alreadyhavebeeninstalledby SDICXinji at the companys Xinji No. 2 mine (Figure 56). As of report time, SDICXinji was still consideringtheinstallationof8x500kWShenglilowconcentrationpowerplantsattheLiuzhuang mine(nofinaldecisionhadbeenmade).
Figure56:
500kWShengliReciprocatingEngineandGenerator
5.5 PowerGenerationUsingGasTurbines
Gas turbines appear to be impractical for power generation at Liuzhuang mine. Gas turbines require a minimum methane concentration of approximately 50% CH4. They also require quite stableCMMfuelsupplyandconcentrationovertime,withonlysmallfluctuationspermittedduring efficientoperation. However,owingtoroutineminingoperationsandtypicalgeologicvariationswithinthemine,the quantity and quality of methane tends to vary significantly and unpredictably at coal mines in China,faroutsidethepracticalrangeforoperatinggasturbines.Forexample,atLiuzhuangmine both the quantity and quality of CMM fuel commonly vary by +/ 30% over short (hourly) and medium(dailytoweekly)timescales(Figures47and48inSection4).Tosomeextent,theuseof surface gas storage tanks can help moderate these shortterm volume and quality fluctuations. Nevertheless, the effective variability remains far outside the range for efficient turbine usage, whichcanonlyhandleconcentrationvariabilityofapproximatelyseveralpercent. Inoneearlybutunsuccessfulcasestudy,duringthemid1990stheSongzaoCoalAdministration mine attempted to adapt a gas turbine for utilizing coal mine methane at one of their mines in
5-10
SichuanunderaUNDPsponsoredcoalbedmethanesupportproject.8Followingthisdisappointing trial application, turbines have widely been considered to be inappropriate for use under most ChinaCMMutilizationconditions. Similarly,earlyapplicationofgasturbinesatcoalminesinAustraliawerenotconsideredsuccessful. Duringtheperiod1984to1999,theWestCliffcoalmineinNewSouthWalesoperateda15MW gasturbinefueledbyCMM.Similarly,theAppincoalminerana15MWgasturbineduring1986to 1995.Bothofthesemineshadhighmethaneconcentration(>50%).Ultimately,excessivelyhigh maintenancecostsandoperatinginefficienciescausedbyvariationsinCMMconcentrationledto thedecommissioningoftheseturbineunits.TheywerereplacedbyICengines.9 Amorerecentapplicationofgasturbineshastakenplacesince2000attherelativelysmallAkabira coalmineinJapan,whereminingactivityhadceasedfollowingcumulativeproductionofabout40 milliontofcoal.10Theabandonedworkingsofthismineproduceapproximately3m3/minuteof CMMwithrelativelyhighandstablemethaneconcentration(80%CH4). TheJapanesefirmKanamotoCompanyengineeredandinstalledanarrayoffivemicroturbines each with 6kW capacity (total 30 kW). These microturbines, which were manufactured by CapstoneTurbines(California,U.S.),aremorecommonlyusedforcriticalneeds,smallscalepower generation applications, such as urban hospitals. The project, which has been funded by the research organization Japan Coal Energy Center (JCOAL), is not considered to be commercially viablebutisrunasaR&Ddemonstration. Incontrast,experiencegainedfromovertenyearsofcommercialoperationattheAppinMinein Australia,thepasttwoyearsatSiheminenearJincheng,Shanxi,aswellasothercoalmineshave demonstrated that internal combustion (IC) engines have much greater tolerance for the wide variationsinmethaneconcentrationandsupplythataretypicalofCMMproduction. Based on sitespecific conditions at Liuzhuang mine, notably the low absolute methane concentration and the temporal fluctuations in CMM quantity and quality, gas turbines are consideredtobetechnicallyimpracticalforapplicationattheLiuzhuangmine.
8
Siegel,J.S.,Liu,Huanjie,andAncell,K.L.,1998.DevelopmentofCoalbedMethaneResourcesinChina:Reportofthe EvaluationMission.UnitedNationsDevelopmentProgramme,ProjectNumberCPR/92/G31/A/IG,November,53p. 9 Black,D.andAziz,N.,2009.ReducingCoalMineGHGEmissionsthroughEffectiveGasDrainageandUtilisation.Coal Operators'Conference,UniversityofWollongong&theAustralasianInstituteofMiningandMetallurgy,p.217224. 10 Hirasawa,Hiroaki,2003.CoalMineMethaneProjectConductedbyJCOAL.
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5.6 VentilationAirMethane(VAM)Oxidation
Ventilationairmethane(VAM)isasignificantcomponentofoverallmethaneemissionsfromcoal mines and a number of technical applications for VAM utilization or mitigation are under development.Theseapplicationsincludedirectuseasaprincipalenergysourceinoxidationunits, leanburnturbines,andkilns,whereitismixedwithcoalfinesorothercombustiblematerials.In additiontodirectgreenhousegasabatement,itisalsopossibletorecoverandtransfertheheat producedfromthisoxidationtogenerateelectricity. Currently, there is only one VAM power generation project in commercial operation, a 6MW MEGTEK Vocsidizer application in Australia that was commissioned in 2007. This technology employsareverseflowoxidizationreactoralongwithasteamturbinetoutilize250,000m3/hourof VAM.OtherprecommercialVAMprojectsarecurrentlyunderwayintheU.S.,Canada,andU.K.11 Unfortunately, the methane concentration in the ventilationair at Liuzhuang mineisextremely low, averaging only about 0.02% by volume. Currently, commercially available technologies to mitigate VAM (via thermal oxidation) requireCH4 concentration to be at least 0.2% (Table 52). Thus,LiuzhuangmineVAMisfartoodiluteanddoesnotappeartobeaviablecandidateforVAM mitigation.12,13
MEGTEC CANMET TFRR CFRR Parameter Minimum CH4 Concentration 0.2% 0.1% Minimum Plant Size Huge Large Application to date Field Bench CSIRO CMR 0.4% Small Bench EDL CSIRO Turbine Turbine 1.6% 1.0% Small Small Pilot Bench Ingersol Rand Turbine 1.0% Small Field
Table52:
MinimumMethaneConcentrationsRequiredforvariousVAMTechnologies
ElsewhereathighgasminesintheHuainanCoalField,theHuainanCoalMiningGroup,ChinaCoal InformationInstitute,andMEGTECSystemshavejointlyevaluatedaVAMpowergenerationproject to utilize Vocsidizer technology for power generation using lowconcentration VAM. A pre feasibilityreportsupportedbyUSEPAhasbeencompletedforthatsite.14
11 12
BlackandAziz,2009.
Mattus,R.,2006.VAMtoElectricity1stLargeScaleInstallation.ProceedingsoftheInternationalCoalbedMethane
Symposium,UniversityofAlabama,Tuscaloosa,May2225.
13 Mallett,C.,2004.DevelopingaDiverseCMMIndustryincludingVAMUtilisation.MethanetoMarketsMinisterialMeeting,
1517November2004,CSIRO,Australia.
14
Huang,Shengchu,Liu,Wenge,Sun,Qinggang,Liu,Xin,Zhao,Guoquan,andDou,Xiaodong,2006.AnalysisofPotentialsand ProspectsofCMMProjectinChinaThroughMethanetoMarketsPartnership(sic).ProceedingsoftheInternationalCoalbed MethaneSymposium,UniversityofAlabama,Tuscaloosa,May2225.
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5.7 TransportviaPipelinetoUrban,Industrial,orVillageUsers
Liuzhuang mine islocated about 70 km west of Huainan city in a rural, mostly agricultural area. Upgradingthemethaneconcentrationtoapproximately40%maybeachievablewiththedrilling improvementsrecommendedinthisreport.ThatwouldenableLiuzhuangtoutilizemorereliable andmoreefficientlargerreciprocatingengines(1 to2MWunitsize).Shengli,Caterpillar,Deutz, andJenbacherhaveinstalledthesetypesofunitsinnumerousChinesecoalmines,withthelargest arrayfeaturedatthe120MWJinchengpowerplantinShanxiProvincethatwascommissionedin 2007. GiventhesmallvolumeofCMMsupplyfromthemineanditsrelativelylowconcentration,aswell astheminesdistancefromsizeablecitiesandindustrialusers,itwouldbefartoocostlytobuild andoperateagaspipeline.SDICXinjialsoconsidersthelocalvillagemarketstobetoosmalland unable to afford the market price for CMM at Liuzhuang mine. As discussed in Section 9, the alternativeuseofCMMasfuelforpowergenerationprovidesitwithavaluethatisconsiderably more expensive than the current village practice of obtaining energy form lowquality, locally minedcoalaswellasfromagriculturalwaste. PipelinecostsarefairlywellestablishedinChina,comparedwiththeothertechnologiesdiscussed inthischapter.Thus,itisworthconsideringthecapitalcostsforalowpressure40.6cmdiameter, 70kmlongpipelinetoHuainancity.Basedontypicalunitcostsof$7,600percmkm($30,000per inchmile),totalcapitalcostswouldbeapproximately$21million.Bycomparisonthe5yeargross revenuesfromgassaleswouldtotalonlyabout$18million,assuming105millionm3isproducedat adrainagerateof40m3/minandthensoldatthecurrentpriceof1.2RBM/m3($5.00/Mcf).This wouldnotevencoverreturnoftheinitialcapital,muchlessoperatingandmaintenancecostsof thepipelineorreturnoncapital.
5.8 CatalyticOxygenRemoval
AnotherpotentialcommercialmethodtoenableutilizationofCMMsuppliesatLiuzhuangmine wouldbetoremovetheoxygenusingacatalysis.Thisprocessisoccasionallyusetotreatnatural gasthatisslightlybelowpipelinespecification,specificallytoremovealloftheoxygenfromthe CMMstream,whichmostlyoriginatedfromcontaminationwithmineventilationair. Unfortunately, catalytic oxygen removal does not reduce nitrogen levels. In fact, applying this methodatLiuzhuangmineactuallywouldconcentratetheremainingN2fromapproximately68% intheinitialrawCMMstream(assuming10%CH4initialconcentration)tonearly88%following oxygenremoval.Methanelevelswouldincreasecommensuratelytoabout12%,stillaverylow concentration.Theresultingmethane/nitrogenmixturewouldremaindifficulttoutilize.
Catalytic oxygen removal is not a particularly widely used technology, but it has been used at selectedcoalminesintheU.S.totreatCMMthatalreadyisrelativelyhighinmethanecontent(70 90%),thoughstillslightlybelowpipelinespecifications.Aftertreatment,theCMMisthensoldtoa pipelineashighqualitynaturalgas. Inonerecentcoalmineapplication,catalyticoxygenremovalhasbeenusedsince2006totreatgob gas at the Tower mine in Carbon County, Utah, U.S.15 This longwall mine generates a large gob zone that extends an estimated 110 m above and 15 m below the main seam, fracturing the surrounding coal and tight sandstone formations and releasing extensive CMM volumes. After miningthelongwallpanelsaresealedtoisolateandconcentratethegobgas.Incertainmining aspectstheTowermineresemblesLiuzhuang. The Tower mine utilizes unstimulated vertical surface gob wells to produce CMM. Methane concentrationisabout75%intheunsealedgobareasduringmining,increasingto94%inthepost mining sealed gob (both of which are far higher than at Liuzhuang currently). A skidmounted catalyticcombustorisusedtoreduceoxygenlevelsfromabout2%byvolumeatgasinlettounder 10ppmafterprocessing.Heatgeneratedbythecombustorissimplydissipated,thoughinother applications the heat might be recovered and utilized if practical. Gas flows of up to 127,000 m3/day(4.5MMcfd)havebeentreatedatthisplant. Aftertreatmentwithanickelplatinumcatalyst,theCMMgasistransportedabout8kmviaa10 inchdiameterpipelinetoagasprocessingplantforfurtherCO2andwaterremoval.Finally,thegas issoldthroughaninterstatepipeline. Gas sales from Tower mine reached 56,000 m3/day (2 MMcfd) in 2007 and were expected eventuallytoreachtheunitscapacityof227,000m3/day(8MMcfd).Despiteoperatinginaharsh climate at 2,300 m (7500 ft) elevation, with wide temperature swings, run time has been high (99%).Fiveyear,fullcycletreatmentcostsfortheTowermineplantwereestimatedtobeabout $0.59/m3 ($0.021/Mcf), which is considered to be economically viable for this particular application.
5.9 OtherMethaneUpgradingTechnologies
SeveralothertechnologiesexistforpotentiallyboostingthemethanecontentofCMMatLiuzhuang mine. These include cryogenics, pressureswing adsorption, and molecular gate techniques.16
15
Rhodes,Q.ZaneII,2008.O2RemovalKeytoTowerMineProject.AmericanOilandGasReporter,May,p.132139.
16
Carothers,F.P.andSchultz,H.L.,2008.UpgradingDrainedCoalMineMethanetoPipelineQuality:AReportonthe CommercialStatusofSystemSuppliers.UnitedStatesEnvironmentalProtectionAgency,EPA430RO8004,January,26p.
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However, the main problem for these methods is that Liuzhuang mine is starting with very low methane concentration (710% CH4), whereas these technologies normally are practical only at muchhighermethanepurity(>50%CH4)aswellaslargerplantscale. CryogenicUpgrading.TheupgradingmethodwithmostexperienceofupgradingCMMgasquality istheuseofcryogenictechnologytoseparatenitrogenandotherunwantedgasesfrommethanein theCMMstream,resultinginpipelinequalitynaturalgas. JimWaltersResources(JWR),oneoftheearliestCMMandCBMoperatorsintheU.S.,operatesa cryogenicmethaneupgradingprocessforgobgasproducedatthreedeeplongwallminesinthe BlackWarriorbasin,Alabama(Figure57).17DuringtheinitialdecadeofCMMdrainageatthese mines,JWRsgobwellproductionwassimplymixedwithalargervolumeofpureCBMproduction fromverticalfracwellstogenerateablendedpipelinequalitygas.However,whenminingceased in the older gob areas, the methane concentration in the gob wells gradually deteriorated to unacceptablylowlevels,sothatblendingnolongerwasfeasible.
Figure57:
CryogenicGasProcessingPlant
(JimWaltersResourcesmineinAlabama,U.S.)(Source:Katz,2006)
JWR considered utilizing their lowquality CMM as fuel for power generation using turbine or reciprocating engines, or perhaps upgrading it to pipeline quality gas using pressureswing
17
Katz,Richard,2006.CryogenicMethaneExtractionintheAlabamaCoalFields.InternationalCoalbedMethane Symposium,UniversityofAlabama,Tuscaloosa,May2225.
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absorption. However, these methods were rejected as not practical or economic for their particularapplication,probablybecausetheinitialmethaneconcentrationwasalreadyquitehigh (6570% CH4). In 2000, JWR hired contractor BCCK Engineering, Inc., which also operates its technologyattwootherU.S.coalmines,todevelopacryogenicprocessthatwouldboostmethane concentrationofthegobgastopipelinequality. TheJWRBCCKcryogenicplantwasdesignedwiththroughputcapacityofabout340,000m3/day(12 MMcfd).Onaverage,thegasproducedfromtheinactiveminegobareasconsistsofmethane(65 to70%),nitrogen(28%),CO2(3%),ethane(1%),andO2(1%),aswellasvaryingamountsofwater. Afterprocessingtheupgradedgasstreamconsistsofatleast96%methane,whichisconsidered pipelinequality. ThefirstprocessusedinJWRscryogenicplantemploystwostagesofcompressiontoboostthe producedgobgaspressurefromtheinitial15psiinlettoabout300psioutlet.Smallamountsof hydrogen sulfide are then removed using carbon absorption. Oxygen (1%) is removed using catalyticcombustion(NiPtcatalyst).Aheatexchangercoolsthegasandisusedagaintodrythe gaslaterintheprocess.Theminor(initial3%)carbondioxideisdissolvedinarecirculatingamine bathandthenboiledawaywithCO2emittedtotheatmosphere.Waterisremovedusingadual chambermolecularsievedehydrator. The final stage of the process is nitrogen removal. Nitrogen, by far the largest contaminant, is removedbycryogenicallyliquefyingtheothergascomponentsat215F.Thisleavenitrogenisthe gasphaseandseparationisasimplestep.Theconcentratedliquidmethaneisthenmovedacross theheatexchangeroffthecatalyticcombustorandregasified. Plant maintenance is significant, requiring about 25 hours of down time per month, mainly to servicevalvesandfilters.Otherwisetheplantperformsreliablyandrunsfairlycontinuously(24 hoursperday,7daysperweek).BCCKconsiderstheircryogenicprocesstobeeconomicatthis BlackWarriorbasinapplicationataminimumnaturalgaspriceofabout$3.50/Mcf. However,cryogenicprocessingisnoteconomicallyfeasibleforLiuzhuangmine.Itshouldbenoted that pipeline and surface infrastructure already was in place at this mine site, which saved significantcostcomparedwithconstructingaplantatLiuzhuang.Also,JWRssurfacegobwells which provide the CMM input are highly productive, thanks to favorable geologic conditions, whereas gob wells have not worked effectively and are not economically viable at Liuzhuang. Furthermore, the minimum plant scale is about 10 times larger than Liuzhuangs current CMM drainage.Undoubtedly,theprincipalreasonarguingagainsttheuseofcryogenicsatLiuzhuangis thelowCH4concentration(710%vs6570%attheJWRplant),andtheresultinghighenergycosts tocompressandchillthemuchlargerinputgasvolumes.
5-16
Insummary,theuseofcryogenicseparationtechnologytoboostmethaneconcentrationdoesnot appeartobeaviabletechnicaloptionfortheCMMatLiuzhuangmine.Again,themainproblemis thatmethaneconcentrationsarefartoolowatLiuzhuangandtheenergyrequirementneededto chillandprocesstheCMMarefartoohigh.Aseconddrawbackisthathighproductivitysurface gobwellsmaybeneededtoproducesufficientgasfortheminimumfeasibleplantscale,whichis about10timesthesizeofcurrentdrainageatLiuzhuangmine.
5.10 CryogenicTechnologytoConvertCMMtoLNG
A variant of the cryogenic process discussed above is to maintain concentrated methane in the liquidstateforsaledirectlyasliquefiednaturalgas(LNG),whichismethanechilledtoaliquidstate, ratherthanheatingandregasifyingtheLNGforuseinapipeline,turbine,orengine.Chinanow has worldclass smallscale LNG production and distribution capabilities, at least for highpurity naturalgasinputstreams. Forexample,in2002theHenanZhongyuanGreenEnergyHiTechCo.Ltd.(basedinPuyang,Henan Province) aspinoffofSinopec constructedChinasfirstcommercialLNGproductionfacilityat theZhongyuanoilfield.Theplanthasadesigncapacityof55millionm3/year.LNGproducedat theplantisdeliveredbyafleetof18specializedroadtankerstoLNGstoragetanksatendusersin citiessuchasBeijing.18Separately,theJinchengCoalGroupoperatesaCBMtoLNGplantinShanxi Province,butthisprojectutilizeshighpuritymethane(95%CH4)asitsinput. Converting lower quality CMM to LNG also may be practical, albeit more energy intensive than usinghighpuritynaturalgasfeedstock.AtleasttwosmallscaleCMMtoLNGprojectshavebeen proposed or are undergoing pilot testing in China, one in at the Yangquan coal mine in Shanxi ProvinceandasecondattheSongzaocoalmineinSichuanProvince. Yangquan,Shanxi.YangquanCoalGroupLtd.(YCG),ChinaslargestCMMproducer,isevaluating theconstructionofasmallscaleCMMtoLNGprojectatitsShigangcoalmineinShanxiProvince.19 TheShigangminestartedproductionin2004.Coalrankisanthracite,withmoderatelyhighgas content(13m3/t)andlowmoderatepermeability(0.5mD).Currentcoaloutputisapproximately 800,000t/yearandscheduledtoincreasetoabout900,000tin2010.
18 19
FortuneOilPLC,AnnualReport,2008,106p.
YangquanCoalGroup,MethanetoMarketsPoster,2009.

5-17
CMMdrainedatShigangminehasmethaneconcentrationrangingfrom30%to50%(average40%). ThecurrentCMMdrainagerateisabout10m3/min,nearlyallofwhichisvented.Anadditional7.6 m3/minofCMMisreleasedbytheventilationsystemasverylowqualitymethane(0.5%). AscurrentlyenvisionedtheprojectwouldconcentrateCMMthatiscurrentlybeingemittedtothe atmosphere to generate town gas quality product. The $7.5million plant would use cryogenic liquefactionandseparationtechnology.Itwouldutilizeabout4,300m3/day(6m3/min)ofCMM feedstocktoproduceapproximately20,000t/yearofLNG,generatingannualemissionreductions estimatedbyYangquantobeupto400,000tCO2e. Asapreliminarytest,YCGconstructedasmallscaleCMMtoLNGplantwith4,300m3/daycapacity that produces 1.22 t/day of LNG (Figure 58). (For comparison, the capacity of Yangquans test plantisabout3m3/min,lessthan10%ofLiuzhuangscurrentCMMdrainagerate.)Ifsuccessful, the$7.5millionplantwouldhandleupto60m3/minCMMinputandgenerate20,000t/yearof LNG,whichwouldberegasifiedandusedinthelocaltowngassystem.
Figure58:
TestScaleCMMtoLNGPlant,Shigangmine,ShanxiProvince
(Source:YangquanCoalGroup,2009)
Songzao,Sichuan.AsecondsmallscaleCMMtoLNGisunderconsiderationatSongzaoinSichuan Province.20Asoflate2007,theminewasproducingabout400,000t/year.Methanedrainagewas about 32 m3/min, which is comparable in size to the Liuzhuang mine. However, the methane concentrationofthedrainedgaswasmuchhigher,averagingabout45%.
20
RavenRidgeResources,2009.
5-18
Insummary,cryogenicconversionofCMMtoLNGdoesnotappeartobethemostpracticaloption forutilizingCMMatLiuzhuangmine,particularlycomparedwiththeproventechnologyandplant scaleflexibilityofpowergenerationusingICengines.
5.11 RetrofittingBoilerstoCMMFuel
CMMisoftenusedasaboilerfuelinChinaforresidentialandcommercialhotwaterandspace heatingpurposes.Forexample,during20042007,theHuainanCoalGroupreportedlyretrofitteda totalof14boilerswithcapacityof4tonseachatsevencoalmineslocatednearurbanareasinthe HuainanCoalField.Formerlyfueledwithcoal,theseboilerswereconvertedtoutilizeCMM.In total, the boilers combust 65.8 million m3/year of CMM, equivalent to estimated emission reductionsof1.67MtCO2eqperyear.21 Unfortunately,unliketherelativelyurbaneasternportionoftheHuainanCoalField,theLiuzhuang mine is located in the rural western region and opportunities for use of CMM in boilers is very limited.Theresidentialblocksadjacenttothemineareequippedwithsmallboilers.However, theseboilersarecapableofusinglowquality(highash)coal,whichisnotreadilymarketable,in abundant supply, and essentially a free fuel for the mine. Therefore, CMMfired boilers do not appear to offer a costeffective option for utilizing the drained methane compared with power generation.Inaddition,thecurrentmethaneconcentration(710%)inthedrainedCMMismuch toolowtobeusedinastandardgasfiredhotwaterboiler,whichmuchliketheflaringmitigation technologydiscussedbelowrequiresatleast25%CH4concentrations.22 Alternatively, CMM could be cofired along with coal in boilers at Liuzhuang mine. However, disadvantages include the fact that mine boilers are not used continuously, output has wide seasonalfluctuations(weather,climate),aswellastheverylimitedlocaldemandforboilers.SDIC Xinji estimates that converting its boilers entirely to CMM (not feasible given current low CH4 concentrations) would only utilize about 10 m3/minute of the 37.5 m3/minute CMM supply it expectsby2011.Overall,CMMutilizationinboilersisalessattractiveoptioncomparedwithIC powergeneration.
21
Yuan,Liang,Zhang,Bingguang,Zhang,PingandZhou,Deyong,2007.NewProgressMadeinHuainanMiningAreaCMM
ExtractionTechnologiesandOptionsofEmissionReductionandUtilization.HuainanCoalGroup,8p.
22 AlternativeEnergyDevelopment,Inc.,1998.TechnicalandEconomicAssessmentofCoalMineMethaneinCoalFiredUtility
andIndustrialBoilersinNorthernAppalachiaandAlabama.UnitedStatesEnvironmentalProtectionAgency,430R98007,
April,46p.

5-19
5.12 CompressedNaturalGas(CNG)
CompressedNaturalGas(CNG)ismethanethathasbeencompressedtolessthan1%ofitsvolume at standard temperature and pressure conditions, enabling it to be stored and transported in strengthened containers at pressures approximately 200220 bar (29003200 psi). Currently in China,CNGiswidelyusedasagassourceforresidentialandindustrialusersand,increasingly,asa vehiclefuel. AlthoughmacroconditionsinChinacertainlyfavortheuseofCNG,thecurrentlowconcentration of methane at Liuzhuang mine (710%) makes it costly to compress CMM for CNG use. Even if methane concentration is improved to around 40%, as anticipated with the recommended boreholedrillingimprovements,vehiclesandotherpotentialCNGendusersinChinaareunlikelyto beequippedtoutilizesuchlowpurityfuel.
5.13 FlaringCMMforGHGMitigation
5.13.1 Introduction
Should direct or indirectutilization somehow prove to be impractical at Liuzhuang mine, a final option to consider would be the feasibility of flaring the captured CMM stream. Although less efficientordesirablethanutilization,flaringcouldbeanoptionforremoteCMMfacilitieswhere utilization is more challenging, and at least could reduce the overall GHG potential of emitted CMM. One of the positive factors of flaring CMM is the potential for significant GHG reduction. In addition, it is a simple technology with low capital and operating costs, is generally reliable to operate,andrequiresashortmanufactureandinstallationleadtime.Installationrequirements include a methane flow rate of at least 80 liters/second of pure methane flow, with methane concentrationofatleast20%. Apartfromcostsandfeasibility,animportantconsiderationissafety.Specificallythereneedstobe suitable flame arrestor technology installed to prevent flame propagation back into the mine. Although European mine safety regulators have permitted flaring projects to take place at coal mines,thisparticularsafetyissueisofgreatconcernforbothUSandChinaminesafetyregulators. It is not clear whether flaring would be permitted at all under current regulations in those countries.
5-20
Conventional open flares actually have low combustion efficiency, as little as 60%. Advanced flaring technology, such as that developed by the German engineering company Haase EnergietechnikAG,canincreasetheefficiencyofgascombustiontoashighas99.9%.23 Modern flaring projects are skid mounted for ease of installation, and are automatic and/or remotely controlled via internet connection. To protect against lightening as an unintended ignitionsource,multiplefailsafeconcentrationtransducersareemployedtoautomaticallyinterrupt thesupplyofgastotheextractionpumpsandtheflare. 5.13.2 FlaringProjects.
Since 2004 Harworth Power (UK) has been operating a CMM flaring project at the suspended Harworthcoalmine,whichemploysoneenclosedflarecombusting2,000m3/hour(33m3/minute) of CMM with 4555% CH4 concentration.24 Similar sized flaring projects also are underway at HarworthsKellingley(4050%CH4),Thoresby(3040%CH4),andWelbeck(3545%CH4)coalmines. Bycomparison,theflowratesattheseindividualprojectsareapproximatelyonethirdhigherthan thecurrentCMMdrainageratefromboreholesatLiuzhuangmine,thusonascalebasisalonehave atleastsomeapplicability. 5.13.3 ApplicabilitytoLiuzhuang
HarworthsexperienceintheUKindicatesthatsustainedflaringrequiresCH4concentrationsofat least25%(27%forareliableflarestart).However,currentmethaneconcentrationinCMMdrained atLiuzhuangmineisonly7to10%,whichismuchtoolowforflaring.Assumingtherecommended borehole upgrades are able to boost methane concentrations to about 40%, the IC power generationoptionwouldhaveanoverallpositiverateofreturn(Section9),makingitdemonstrably abetterapproachthansimpleflaring.Inaddition,itisunlikelythatChinesecoalmineregulators wouldpermitflaringprojectsundercurrentregulations.Therefore,flaringisnotrecommendedas amitigatingtechnologyforLiuzhuangmine.
23
ClarkeEnergy,2007.TheModernHighTemperatureFlare.U.S.CoalMineMethaneConference,St.Louis,Missouri,U.S.,
September26.
24 HarworthPowerLtd.,2007.CMMFlaring.U.S.CoalMineMethaneConference,St.Louis,Missouri,U.S.,September26.

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SECTION6
TechnicalAnalysisandPreliminaryEngineering Design

TechnicalAnalysisandPreliminaryEngineeringDesign
6i
SECTION6CONTENTS

6.1 6.2 Introduction .............................................................................................................. 61
ProposedDesignandUseofCMMDrillingandDrainageComponent ....................... 61
BoreholeDrillingImprovements ..........................................................................................61
CMMDrainageSystemImprovements ................................................................................67
6.2.1 6.2.2
6.3
ProposedDesignandLayoutofPowerGenerationComponent ................................ 69
Introduction .........................................................................................................................69
EngineTypeandSize............................................................................................................69
PowerHouselayout,BackupandRedundancyofGenerators&Boilers...........................611
LayoutofGasGenerators...................................................................................................611
ProcurementSchedule.......................................................................................................612
6.3.1 6.3.2 6.3.3 6.3.4 6.3.5
6.4
VAMMitigation ...................................................................................................... 613
6ii
SECTION6FIGURES

Figure61: Figure62: Figure63: Figure64: Figure65: Figure66: Figure67: Figure68: Figure69: Figure610: PreliminaryEngineeringStrategyforBoreholeDrillingatLiuzhuangmine ....................61
PreliminaryEngineeringDesignforInSeamDirectionalDrilling ....................................62
ProposedBoreholeDrillingEquipmentandProcedures .................................................63
DirectionalDrillCapableofDrillingLong1000mBoreholes...........................................63
SchematicofDrillingSetupforDrillingLong(1000m)Boreholes...................................64
CurrentGobDrainageMethodsatLiuzhuangMine........................................................65
ProposedPreliminaryEngineeringDesignforGobBoreholeDrilling .............................66
PreliminaryDesignforImprovedBoreholeCompletion .................................................67
GroutInjectionProcessforBoreholeCasingCompletion ...............................................68
SeamlessHighDensityPolyethylenePipe.......................................................................68
SECTION6TABLES
Table61: Table62: SummaryofCMMDrainageandUtilizationImprovementsRecommended forLiuzhuangMine ..........................................................................................................61
PreliminaryPowerGenerationDesignandSpecifications ............................................610
6iii
6.1 Introduction
Thissectionpresentsthetechnicalanalysisandpreliminaryengineeringdesignforaproposedcoal minemethanedrainageandutilizationimprovementprojectatSDICXinjiEnergysLiuzhuangmine, locatedintheHuainanCoalField,AnhuiProvince,China.Thedesignisbasedontheminespecific data and evaluation discussed in detail in previous sections of this report. It also draws upon experiencegainedfromother,oftenlargerscaleCMMdrainageandpowergenerationprojects thathavebeenoperatingforthepastseveralyearsatcoalminesinChina,Australia,andtheU.S.. In summary, the proposed Liuzhuang CMM utilization project has two principal engineering components (Table 61): a) Equipment and technical process improvements for the borehole drillinganddrainagesystems,comprisingthreesubareas(drilling,boreholegrouting,andpipeline upgrades); and b) Installation of smallscale power generation at the mine using reciprocating internalcombustion(IC)engines,whichhasbeenconfiguredtousethemoderatequalityCMMfuel (40%)thatisprojectedtobeproducedasaresultoftheboreholeanddrainageupgrades.
Component Borehole Drilling Borehole Wellhead CMM Pipeline Power Generation Technology Directional Drills Improved Grouting Fused HDPE Pipeline IC Engine Generators Number of Units 2 2 Anticipated Benefit Longer, precise borehole placement, higher methane concentration Reduced air leakage, higher methane concentration Reduced air leakage, higher methane concentration
10 x 1.255 MW CMM utilization, high efficiency & reliability
Table61:
SummaryofCMMDrainageandUtilizationImprovementsRecommendedforLiuzhuangMine
6.2 ProposedDesignandUseofCMMDrillingandDrainageComponent
6.2.1 BoreholeDrillingImprovements
The preliminary engineering strategy for borehole drilling at the Liuzhuang mine is shown schematically in Figure 61 (obliqueviewfromtopofpanel). As previously discussed more fully in Section 4, advanced directionallycontrolledborehole drillsemployingdownholesteer able motors would be used to placelongerandmoreprecisely positioned boreholes to more Figure61: PreliminaryEngineeringStrategyforBoreholeDrillingat
effectively drain CMM at the Liuzhuangmine
mine.
TechnicalAnalysisandPreliminaryEngineeringDesign 6-1
Specifically,atwophasedrillingstrategyisenvisioned.First,fewerbutlonger(225mlong)and more precisely positioned horizontal boreholes would be drilled into the coal seams in a cross paneldirection.Second,verylong(1000m)boreholeswouldbedrilledinalongitudinaldirection downthelengthofthepanel,notinthecoalseamitselfbutratherarcedupwardsovertheseam andthendrilledhorizontallyandpreciselypositionedwithintheoverlyingfracturedgobzone. Theselongerproposedboreholeswouldreplacetheshort,unsteered,crossmeasureboreholes and relatively highcost rock galleries that currently are being used at the mine for methane drainage. Surface gob wells, while frequently effective in the U.S., have not been successful at LiuzhuangmineorelsewhereintheHuainanCoalFieldandthusarenotrecommended. AsshowninFigure62 (topview),theinseamboreholeswouldbeapproximately225mlongand spaced 10 m apart, which is expected to improve CMM drainage and methane concentration. Notethattheboreholeswouldbedirectionallydrilledessentiallystraightacrossthepanel,whereas the current unsteered and unsurveyed boreholes very likely arc in various directions with unpredictabletrajectories.Currentpracticealmostcertainlyresultsinalessefficientplacementfor drainage, with some portions of the seam undrained, while other parts of the seamhave many boreholesthataretoocloselyspacedandpossiblyevenintersecting.
Figure62:
PreliminaryEngineeringDesignforInSeamDirectionalDrilling
(Source:ARI)

TheproposedboreholedrillingequipmentandproceduresforLiuzhuangmineareschematically
showninFigure63.Keycomponentsoftheproposeddrillingsystemincludethetruckmounted
drillitself,highqualitydrillrods,downholesurveyingequipment,blowoutpreventer,stuffingbox,
anddiversionvalves.Figure64showsanactualdrillingsetupsimilartotheonerecommendedfor
useattheLiuzhuangmine.Thisdrillingarrangementiscapableofroutinelydrillinglong(1000m)

boreholesincoalseamsoradjoiningrockstrateinareaswithsuitablegeologicconditions(i.e.,few faultsandlimitednaturalfracturing).Figure65showsdetailsofthedrillconfigurationsimilarto whatcouldbeemployedatLiuzhuangmine.
Figure63:
ProposedBoreholeDrillingEquipmentandProcedures
(Source:REIDrilling)
Figure64:
DirectionalDrillCapableofDrillingLong1000mBoreholes
Figure65:
SchematicofDrillingSetupforDrillingLong(1000m)Boreholes
6-4
OnesignificantrecommendedoperationalimprovementwouldbetoproduceCMMsimultaneously whiletheboreholesarebeingdrilled.Typically,boreholegaspressurebuildsupduringdrillingand canlimitpenetrationduetoequipment,boreholecondition, andsafetyconcerns.However,as demonstratedatSihemineinShanxiaswellasinnumerousminesinAustraliaandtheU.S.,CMM production while drilling relieves excess gas pressure down the hole and enables much longer boreholestobedrilled(e.g.,1,000morlonger).Thegasandcuttingsgeneratedduringthedrilling processwouldbedivertedusingagas/waterseparatorinthestuffingbox.Ablowoutpreventer wouldbeusedtocontrolboreholepressureandfluidproductionincaseofsuddengasoutbursts (kicks). ThecurrentmethodforgobdrainageatLiuzhuangmineemployscrossmeasureboreholesthatare drilledtowardtheretreatinglongwallface(Figure66,top).Drillstationsarespacedapproximately 80mapartalongtailgateentryandramped up10morsointotheoverlyingstrata.From thesedrillingstations,boreholesupto110m longand5090mmdiameterareangled15 30 up into the overlying rock strata. After drilling is complete, the stations are sealed and connected to a vacuum. CMM is re leasedasthepanelisminedthroughandthe fracturedgobforms,liberatingthemethane gas trapped the coal seam and adjoining strata.Thegobzoneislaterisolatedtolimit ventilationaircontamination. The current method for gob drainage also employsrocktunnels(galleries)drilledfrom a gallery developed in rock about 1825 m above seam, located along tailgate side of panel(Figure66,bottom).Thegalleriesare Figure66: CurrentGobDrainageMethodsatLiuzhuang
sealedtolimitairinfluxandthenconnected Mine(Source:ARI)
to the vacuum system. This approach is costly yet still leads to considerable unintended influx of ventilation air into the CMM stream, becauseitisextremelydifficulttoeffectivelysealoffthegalleryfromtheventilationsystem. TheproposedpreliminaryengineeringdesignforboreholedrillingatLiuzhuangmineisbasedon U.S. and Australian borehole drilling technologies that have been successfully implemented in otherChinesecoalmineswhichhavegeologicconditionscomparabletothoseatLiuzhuangmine
(Figure67).Themostnotablerecommendedchangeisthatthecurrentshortgobboreholesand rockgallerieswouldbereplacedbyfewerlong(1000m)directionallydrilledhorizontalboreholes drilledfromtheendsofthepanel.Theboreholesareplacedatdifferentverticallevelswithinthe gobzone,becausethegobgasislikelytobestratifieddependingonthedistributionofmining inducedfractures.
Gob Drainage : RECOMMENDED
30
1500-1700m 1500 -1700m
10m 20m 20m
50m
CROSS=MEASURE BOREHOLES DRILLED FROM STATIONS ALONG THE TAILGATE ENTRY
Current design could be replaced by long, 1000-m horizontal gob boreholes directionally drilled from the ends of the panel. Could accomplish similar results.
220-280m 220- 280m
PLAN VIEW
CROSS SECTION VIEW
5m 10m 30m
4m
SEAM 13-1 13-1 750-1000m
Figure67:
ProposedPreliminaryEngineeringDesignforGobBoreholeDrilling
(Source:ARI)
Theproposedchangescouldhavenumerousbenefitsforminesafety,costofCMMcontainment, andcoalminingproductivityatLiuzhuang.Anestimated75%fewerboreholeswouldbedrilled (counting the tangential boreholes individually). The proposed changes also could reduce the number of drill setups, borehole collars, standpipes, and wellheads by about 88%, dramatically increasingtheefficiencyofboreholedrilling.Despitethereduceddrilling,thereservoirsimulation modelindicatesthatthesamevolumeofmethanewouldberecovered. Thereducednumberofwellheadsalsoislikelytominimizethepotentialforairintrusionintothe gatheringsystem,therebyimprovingrecoveredgasquality.Fewerboreholesalsoreducethetime requiredfordrillingaswellasmethanedrainagecosts.Thereispotentialforfurtherreductionin drainagetimebyreducingboreholespacing.Thetargetedreducedresidualgascontentshould improveminesafety.Finally,thereducedresidualgascontentsshouldenableanincreasedcoal productionrate.
However,priortoadoptingtheserecommendeddrillingchanges,asmallscaletestwouldneedto be conducted at Liuzhuang mine, for example, involving the drilling of one or several long boreholesintothegobzone.Thiswouldhelpdemonstratethefeasibilityoftheimproveddrainage andverifytheachievementoftheprojectedhighermethaneconcentration. 6.2.2 CMMDrainageSystemImprovements
Inadditiontoupgradesinboreholedrilling,improvementsarerecommendedtoothercomponents oftheCMMdrainagesystem,includingmoreeffectiveboreholesealingaswellastheconstruction oflessleakproneCMMpipelines. BoreholeGrouting.AsdiscussedinSection4,verylikelyoneofthesignificantcausesofthelow methaneconcentrationinthedrainedCMMatLiuzhuangmineisleakageofventilationairaround theboreholewellhead.ApreliminarydesignforimprovedboreholecompletionatLiuzhuangmine isshowninFigure68.Afterboringoutashort,largediameterhole,anapproximately20mlength ofsteelcasingwouldbeinsertedtoprotecttheholefromcollapse.Groutwouldthenbeinjected down the casing, diverted by the rock at the end of the hole to flow around the outside of the casing.Thegroutwouldbekeptwithintheholebyafoamplugatthewellhead,whilearelieftube is provided to allow excess grout to escape. This method would help ensure a secure bond betweenthecasingandthecoalseamorrock,minimizingtheentryofventilationairintotheCMM stream.
Figure68:
PreliminaryDesignforImprovedBoreholeCompletion
DetailsofthegroutinjectionprocessforboreholecasingcompletionareshowninFigure69.A tightlyfittedpig(piston)isusedtoforcegroutdowntheinsideofthecasing.Thegroutwouldbe thendivertedaroundtheoutsideofthecasing.Theboreholewouldthenbepressuretestedto confirmatightsealwiththehostcoalseamorrock.Suchapressureleakofftestisperformedby firstincreasingpressureintheborehole,thenverifyingthatnosignificantpressureleakoffoccurs

overafixedtimeperiod.Afterthepressureleakofftest,thenowhardenedgroutandremaining lengthoftheboreholewouldbedrilledouttoitstotallength.
Figure69:
GroutInjectionProcessforBoreholeCasingCompletion
HighDensity Polyethylene (HDPE) Pipeline. Also as discussed in Section 4, another significant cause of the low methane concentration at Liuzhuang mine could be unintended leakage of ventilationairintothesteelpipelinesystem,whichtransportsdrainedCMMtothesurfaceunder vacuum.Thecurrentpipelinesystemutilizeslengthsofsteelpipethataretemporarilyconnected usingflanges,Orings,andbolts.Thisapproachcanresultincorrosionandairleakageatthejoints. Instead,seamlesshighdensitypolyethylene(HDPE)pipe,thestandardpipelinematerialusedin U.S.andAustralianundergroundcoalmines,couldbeusedtoreplacesteelpipeinanupgraded CMM pipeline network at Liuzhuang mine (Figure 610). HDPE is light, slightly flexible, non sparking,andhastheadvantageofbeingmuchmorecorrosionresistantthansteel.Thermalfusers wouldbeusedtoheatandsoftentheendsoftheHDPEpipe,enablinglonglengthsofHDPEpipeto bepermanentlyjoinedtogether.Thisprovidesamuchmoresecuresealthantheconventionaland currentlyemployedflangedsteelpipe.
Figure610: SeamlessHighDensityPolyethylenePipe
Inaddition,tofurtherimproveminesafetyandreducethelikelihoodofsuddenairintakeintothe pipelinedrainagenetwork,apipelineintegritysystemshouldbeinstalled.Thisisafairlysimple andlowcostarrangementwherebysmalldiameterimpactvacuumtubingiswrappedaroundthe HDPEpipeline.Generallythefirstcomponenttobebrokenintheeventofpipelinedisruption,the impact tubing would serve as an early warning system in case of pipeline disruption or actual rupture.Anadditionalstepwouldbetoinstallactuatorvalvesatregularintervalswhichwould then automatically shut down the affected section of pipeline. This would further minimize unintendedairintakeandmaintainhighmethaneconcentrationwithintheCMMpipelinesystem. Today,pipelineintegritysystemsareconsideredstandardoperatingpracticeinundergroundgas proneminesintheU.S.andAustralia. Costs for the HDPE fusing system are provided in Section 8. Overall, the costs for the recom mendedchangestotheboreholecompletionandpipelinesystemareexpectedtobecomparable tothoseofcurrentpracticesatLiuzhuangmine.
6.3 ProposedDesignandLayoutofPowerGenerationComponent
6.3.1 Introduction
Thissectiondiscussestheoverallhandlingandutilizationofmoderatequality(40%CH4)CMMfor powergenerationattheLiuzhuangmine,includingtheequipmentanditsplacementatthemine. FollowingCMMdrainageandtransporttothesurface,thefuelcyclecontinueswithstorageofthe drainedCMMinanabovegroundgasstoragetank(typically30,000m3capacity).Thestoragetank provides a more stable flow and concentration for efficient utilization by the reciprocating gas engines,whichotherwisecouldexperiencedeleteriousswingsinfuelqualityorquantity. ThestoredCMMisfilteredfordustandsolidparticlesfirstthrough10micronandthen1micron filters. Then the filtered CMM is dried to below 80% relative humidity and sent through a fuel train,wheretheinletpressureisregulatedintherangeof5to35kPa.Followingthispretreatment cycle,theprocessedCMMissentthroughtothegeneratorsets,whichareinstalledclosetothe miningsiteandmanagedwithswitchgeartoprovidesynchronization,voltagechecks,loadingand unloadingoftheenginesandoverallsystemprotection(Figure51,Section5). 6.3.2 EngineTypeandSize
The basic concept for power generation at the Liuzhuang mine is to install an array of approximately 10 reciprocating engines that are equipped with generator sets for power production.AsdiscussedinSection5,avarietyofindividualenginesizesiscommerciallyavailable intherangeofapproximately0.5to3.0MWofdesignedoutput,butthemostefficientunitscaleis
considered to be the 1 to 2MW range. Manufacturers of IC engine and generator sets appropriateforCMMapplicationsincludeGEJenbacher,Caterpillar,Deutz,Shengliaswellasother companies. Fortheillustrativepurposesofthisfeasibilitystudyandreport,anintermediatesizeengineand generatorsetpairwasselectedwithmidrangeoutputofapproximately1.255MW,comparableto a particular midsized Deutz reciprocating engine model. This engine model benefits from the operating efficiencies of minimum size (about 1MW), but yet is not too large (>2 MW) to compromiseflexibilityshouldCMMfuelsuppliesfluctuateasanticipated.Itshouldbenotedthat otherenginetypesandsizesmayprovetobeequallyormoreappropriateandcosteffectivefor application at Liuzhuang mine. As well, offered prices from IC manufacturers can vary widely depending on the particular application. It is recommended that the specific engine size and manufacturermostappropriatefortheLiuzhuangprojectbedeterminedbycompetitivebidding. Assumingtheboreholedrillingimprovements(Section6.1)areabletoachievethetargeted37.5 m3/minCMMdrainageratewith40%CH4concentration,andthat100%ofthedrainedCMMis available for power generation, it is estimated that Liuzhuang mine could provide a stable fuel supplyadequateforapproximatelytenenginesoftheselectedsize(10x1.255MW=12.55MW total;Table62).
Number of Generators Engine Size - Electrical Output Maximum Generating Capacity Fuel Utilized Fuel Utilized Energy Export (net) 10 1255 12.55 2250 37.5 69.45
units kWe MW m3/hr CH4 m3/min GWhr
Table62:
PreliminaryPowerGenerationDesignandSpecifications
Theuseofgasenginesofevengreaterrating(>2MW)wouldbemarginallymoreefficientandthe capital cost would be slightly lower. However, larger engines have not yet been adapted to moderatequality CMM or comparable biogas fuel and thus would require modification and a periodofdevelopment.Withoutdevelopmentandoperatingexperiencetheriskoffailurelikely wouldbetoohighforthisapplication. Based on evaluations of successful CMMtopower projects, it is recommended that that only enginesthathavebeenfullydevelopedandareproventoworkreliablywithCMMorbiogasshould beconsideredforLiuzhuangmine.Caterpillar,Deutz,andGEJenbacherallmanufactureengines and generating sets that meet these criteria forthe development of the Liuzhuang mine power plantlayoutandpowerhousedesigns.
6.3.3
PowerHouselayout,BackupandRedundancyofGenerators&Boilers
ThePowerStationlayoutconsistsofoneworkshopcontainingthe10gasenginegeneratorsaswell asonewasteheatboiler.Thereisprobablynotenoughgeneratingcapacityorfueltowarrantthe useofasteamturbinedrivengenerator. Fortunately, the CMM produced at Liuzhuang mine does not contain high levels of sulfur. However,shouldsulfurprovetobeaproblemasminingmovesintootherfaultblocks(unlikelyin Huainan Coal Field), the engines would require more frequent oil changes as well as major overhaulsafterlessthan10,000hoursofoperation.Aspartofthebiddingprocesstheaccurate maintenance and down time of the offered engine needs to be determined and considered, becausethiscouldreduceengineavailabilityforpowergenerationtoaslowas80%. Maintainingabackupgeneratorforredundancyappearstobetoocostlyfortherelativelysmall proposedpowerplantatLiuzhuang.Theboilerplantisconsideredsecondary;whenshutdownfor maintenance, the excess heat can be vented to the atmosphere with an exhaust bypass at the wasteheatboilerofeachengine. 6.3.4 LayoutofGasGenerators
The proposed layout of the generators is based on that which is common for dieseldriven generators,withthesetslaidoutinanopenhallandcoveredbyacommonoverheadcrane.The generatorsarearrangedinparallelon3.5mcenterswithspaceatoneendforcranedropoffanda workingarea.Thedimensions ofthebuildingwouldneedtobelargeenoughtoaccommodate theserequirements. The open hall arrangement is typical of heavier mediumspeed diesel engines that require substantialcranestoinstalltheenginesandfacilitatetheirmajoroverhaul.Overheadcraneshave theseriousdisadvantageofpreventinganyuseofthespaceoverthegeneratingsetsforancillary plant.Inadditional,theproposedenginesareofrelativelylightweightandhighspeed,thusnot necessarily requiring an overhead crane for maintenance or overhaul. For the infrequent installationandremovalofthegeneratingset,itslightweightpermitsittobeskidded(dragged). Thenormalpracticewiththissizeandtypeofgeneratorisnolongertohaveanoverheadcrane. Considerationmustbegiventothefarhigherriskandramificationsofafuelleakandfirewithgas. Adieseloilleakisnotanimmediateorseriousriskandadieselenginefirecanberelativelyeasily controlled and terminated. A gas leak on the other hand is a serious problem and would necessitatecompleteshutdownofallenginestoavoidexplosion.Reciprocatingenginesbynature vibrateexcessively,leadingtoveryhighriskoffailureoftheirancillaryplant,includingthegastrain, thusgasleakageisasignificantrisk.
6.3.5
ProcurementSchedule
A project of the type and size of the proposed Liuzhuang 12.55MW CMM power plant project normallywouldbecontractedasasingleturnkeycontract,leavingdesigncoordinationbetween the distinct packages of work to the main contractor. SDICXinji is likely to coordinate overall designandexecutioninhouse. Theoverallprojectcomprisesfivedistinctworkpackages: 1.GasGeneratorPlant,comprising: Generatorsets. Coolingsystemincludingroofmountedradiators,circulatingpumps,combinedheatand power(CHP)heatexchangers,accumulators,andinterconnectingpiping. Generatorenclosureincludingventilationandinternallighting. Oildaytankandwasteoilpump,pipingandstoragetank. Exhaustsystemuptoandincludingtheexhaustisolatingvalve. Fuelgassystemuptobutexcludingthegasisolatingvalveonthegasbusmain.Plantto include emergency shut off valves, condensation traps, flame arresters, filtration, and pressureregulation. Generator local control and cable termination panel including interconnecting flexible cablebetweenthegeneratorandpanel,andallgeneratorcabling. Enginemanagementpanelandinterconnectingcablewithgenerator. Generatorenclosureinstrumentationandmonitoring. Coolingwatermakeuptank,mixingsystemandpiping. Generatorfirefightingequipment.
2.CHPandBuildingHeating,comprising: CHP primary circuit including circulating pumps, control valves, and piping up to but excludingthegeneratorheatexchanger. Mainhallventilation/heaterunits,includingcirculatingpumps, control valves, piping, andinstrumentationandcontrol. Hotwaterexportsystemcomprising:circulatingpumps,temperaturecontrolvalve,and pipinguptoconnectionwithdistrictheatingpiping.
6-12
3.WasteHeatBoilersPlant,comprising: Waste heat boiler, complete with water treatment plant, exhaust stacks, filters, etc. necessaryforcompleteworkingsystem. Exhaustcollectionmanifoldandtransferpipingtoboilerplant,includinginsulation. Steam delivery piping and return up to and including the steam turbine room isolating valves. Wasteheatcoolingsystemincludingcirculatingpumps,watersupply,coolingtowers,and allinterconnectingpipingandcontrol.
4.SteamTurbineGenerators,comprising: Steamgeneratorsets. Steampipingwithingeneratorroomincludingalllagging. Steamturbinecontrolandinstrumentation. Turbineancillaryplantincludingoilcooling,treatment,storage,etc.
5. Gas Treatment and Distribution. Possibly as an extension to the contract for off site gas abstraction,storage,andtransfer,andcomprising: Gasfilters,waterseparation,andwherenecessarygasscrubbingplant. Gas boosting plant including; flame traps, gas blowers, coolers, pressure relief, and recirculationsystem. Allinterconnectingpipingandpowerhousebusmainincludingvalvedbranchesforeach generatorandlagging.
6.4 VAMMitigation
AsdiscussedinSection5,VAMmitigationisnotconsideredfeasibleatLiuzhuangminegiventhe current very low CH4 concentration in the ventilation air stream (average 0.02%). All of the currentlyavailableanddevelopingVAMoxidationtechnologiesrequireCH4concentrationsofat least0.2%tobeselfsustainingandtechnicallyfeasible(Table51,Section5).
6-13
SECTION7
EmissionsReductionsfromProjectImplementation

7i
SECTION7CONTENTS

7.1 7.2 7.3 Introduction .............................................................................................................. 71
BaselineEmissions .................................................................................................... 72
EmissionsReductions ................................................................................................ 74
SECTION7TABLES
Table71: Table72: Table73: GHGEmissionReductionEvaluationKeyAssumptionsandResults .............................72
EstimatedAnnualEmissionsReductionsforLiuzhuangMine .........................................74
EstimatedTotalGHGEmissionsReductions ....................................................................75
7ii
7.1 Introduction
Methane(CH4)isagreenhousegas(GHG)withaglobalwarmingpotential(GWP)over20times greater than carbon dioxide (CO2). Because of this, projects that capture and utilize or destroy methanethatisotherwiseventedintotheatmospherewillreduceprojectrelatedemissionsand potentially generate a considerable amount of carbon offsets in the process. Ultimately, the monetizationofanyemissionsreductionsbeginswiththeselectionofanappropriatemethodology developedunderoneofthemanycertificationregimes. Theobjectiveofthischapteristoestimateemissionsreductionsfromtheproposedprojectactivity. Theproposedprojectwouldreducetheamountofcoalminemethaneliberatedbycapturingand combusting (oxidizing) methane that would otherwise be emitted to the atmosphere. If done accordingtothesystemsandproceduresofaspecificcertificationregime,theproposedproject could generate carbon offsets. Numerous certification standards exist with approved methodologies for coal mine methane projects. Many of these methodologies are based on existingmethodologiesapprovedundertheUNFCCCaccreditedcleandevelopmentmechanism (CDM),whichisthemostwellknownoftheinternationalcertificationregimes. Currently,therearesome4,823activeprojectsintheCDMpipeline.1Another865projectshave been withdrawn or rejected by either the Executive Board (EB) or by Designated Operational Entities (DOEs). Of the active projects in the CDM pipeline, 1,985 have been registered, 236 projectsareintheprocessofregistration,and2,602areatvalidation.Nearly40%oftheprojects (1,916)activeintheCDMpipelinearehostedbyChina.Currently,Chinaisthenumberonecountry byissuedcertifiedemissionreductions(CERs),accountingfor48%or174millionCERs.Chinaalso accountsforoverhalfofCERsexpectedby2012and2020(55%and57%,respectively). Duetomethaneshighglobalwarmingpotential,CMMprojectscangeneratesignificantcarbon offsets and have become one of the leading types of CDM projects. Currently, there are 68 CBM/CMMprojects in the CDM pipelinewith total planned power generation capacity of more than1000MW.Fully66ofthesearelocatedinChina(theothertwoprojectsareinMexicoand India). To date 26 of the projects submitted have been registered by the CDM EB, and only six CBM.CMMprojectshavebeenissuedCERs,allofwhicharecategorizedinthecoalminemethane projectsubtype. ThisanalysisexaminestheGHGreductionpotentialfortheproposedCMMdrainageandutilization improvement project at Liuzhuang mine. The analysis considers emissions directly avoided by powergenerationusingCMMfuel,aswellasindirectemissionsavoidedbydisplacingcoalfired
1
Fenhann,J.,2010.CDM/JIPipelineAnalysisandDatabase.UNEPRisoCentre,Denmark,1January2010.
7-1
power. Key assumptions regarding project timing, coal mining, CMM production, and power generationaresummarizedinTable71.
Topic Timing Key Project Parameters Project Initiated Project Fully Implemented Project End Coal Production CMM Drainage Coal Production (2010) Coal Production (2011 on) CMM Drainage Rate CMM Utilized / CMM Drained CMM Concentration Expected Power Generation Power Generation Capacity Operating Efficiency Cumulative Project Power Production Global Warming Potential of Methane GHG Reduction Total Emissions Avoided by Power Generation Total Project Emissions Net Total Emissions Avoided Value 2010 2012 2034 3.00 7.85 37.50 100% 30-40 12.55 90% 2,448 21 9.18 0.92 8.26
Unit mid-year January December million t/year million t/year m /minute percent percent MW percent GWh tCO2e/tCH4 million t CO2e million t CO2e million t CO2e
3
Table71:
GHGEmissionReductionEvaluation KeyAssumptionsandResults
BecausetheproposedprojectislargelycontingentuponthesuccessfulupgradingofCMMdrainage equipmentandproceduresatLiuzhuang,thereisconsiderableuncertaintyregardingtheactual emissions reductions that would be achieved. This analysis utilizes a streamlined emissions calculationmethodologythatwasdevelopedbytheWorldBankforthe120MWCMMtopower projectatSihemine,nearJincheng,ShanxiProvince.
7.2 BaselineEmissions
Definedasthescenariothatreasonablyrepresentstheanthropogenicemissionsbysourcesof greenhousegasesthatwouldoccurintheabsenceoftheproposedprojectactivity,2thebaseline emissions for the Liuzhuang projectenable theemissions reductions expected by the proposed project to be estimated. The baseline covers all gases, which in the case of Liuzhuang mine is principallythecoalminemethanecapturedandtheCO2exhaustfromthereciprocatingengines usedforpowergeneration;othergreenhousegasesareminimal.
2
CDMRulebook,3/CMP.1,Annex,paragraph44.
7-2
The basic methodology used for developing an approved consolidated baseline and monitoring methodologywasCDMdocumentACM0008.3 PEME=CONSELEC,PJxCEFELEC+CONSHEAT,PJxCEFHEAT+CONSFossFuel,PJxCEFFossFuel(2)
Where:
PEME=Projectemissionsfromenergyusetocaptureanduseordestroymethane(tCO2e) CONSELEC,PJ = Additional electricity consumption for capture and use or destruction of methane (MWh) CEFELEC=Carbonemissionsfactorofelectricityusedbycoalmine(tCO2/MWh) CONSHEAT,PJ = Additional heat consumption for capture and use or destruction of methane, ifany(GJ) CEFHEAT=Carbonemissionsfactorofheatusedbycoalmine(tCO2e/GJ) CONSFossFuel,PJ=Additionalfossilfuelconsumptionforcaptureanduseordestructionofmethane (GJ) CEFFossFuel=Carbonemissionsfactoroffossilfuelusedbycoalmine(tCO2/GJ)
BaselineemissionsatLiuzhuangminearefairlystraightforwardtocalculatebecausetheminehas been in operation for several years and has established a reasonably stable CMM drainage performancerecord.Inaddition,currentlythemineisventingallofthecapturedCMM,withno utilizationprojects. Table72showstheestimatedbaselineemissionsforLiuzhuangmine,whichisconnectedtothe NorthChinapowergrid.By2011,oncethemineisunderfullscaleexpandedoperationproducing theplanned7.85Mt/yearcoal,andassumingaCDMprojectisapprovedandinplacebythattime, its annual baseline greenhouse gas emissions related to coal mine methane production are estimated to be approximately 374,733 tCO2eq (note : uncertainty range is estimated to be approximately+/ 10%).
CDMExecutiveBoard,ApprovedconsolidatedbaselineandmonitoringmethodologyACM0008.Consolidatedmethodology forcoalbedmethane,coalminemethaneandventilationairmethanecaptureanduseforpowerelectricalormotive)and heatand/ordestructionthroughflaringorflamelessoxidation.
7-3
Parameters CONSELEC,PJ CEFELEC PEME,y GWPCH4

MMELEC EffELEC CEFCH4 CEFNMHC
Description Additional electricity consumption for use of methane Carbon emissions factor of electricity used by coal mine Project emissions from energy use to capture and use methane GWP of CH4 density of CH4 under normal condition Methane measured sent to power plant Efficiency of methane destruction/oxidation in power plant Carbon emission factor for combusted methane Carbon emission factor for combusted non-methane hydrocarbo Concentration (in mass) of methane in extracted gas NMHC concentration (in mass) in extracted gas Relative proportion of NMHC compared to methane Project emissions Baseline emissions from destruction of methane Electricity generated by project activity in year y OM emission factor for North China Grid BM emission factor for North China Grid Emission factor for North China Grid baseline emissions Leakage Emission reduction
Liuzhuang 0 0.98255 0 21 0.00067 19.72 0.995 2.75 2.75 0.40 0 0 37,540 0 99000 1.0585 0.9066 0.98255 374,733 0 337,193
Sihe 0 0.98255 0 21 0.00067 181.474 0.995 2.75 2.75 0.55 0 0 345,461 0 823200 1.0585 0.90660 0.98255 3,362,175 0 3,016,714
Unit MWh tCO2e/tCH4 tCO2e ratio t/m3 Mm3 percent tCO2e/tCH4 tCO2e/tNMHC percent percent percent tCO2e MWh tCO2e/tCH4 tCO2e/tCH4 tCO2e/tCH4 tCO2e tCO2e tCO2e
PCCH4 PCNMHC r
PEy BEMD,y GENy EFOM,y EFBM,y
EFELEC
BEy
Ly ERy
Table72:
EstimatedAnnualEmissionsReductionsforLiuzhuangMine
7.3 EmissionsReductions
The reductions in greenhouse gases attributed to the proposed project are twofold : a) direct combustionofCMMattheminebythepowerplantengines;andb)indirectreductionofpower consumption purchased by the mine from more GHGintensive (dominantly coalfired) energy sourcesofftheNorthChinagrid. Table72alsoshowstheestimatedprojectemissionsreductionsatLiuzhuangmine.2010would representapartialyearofemissionsreductions,asprojectinstallationandrampupproceeds.By 2011,underfullscalecoalproductionandCMMfueledpowergeneration,theannualemissions reductions for the proposed project are estimated to be approximately 337,193 tCO2eq, representinga90%utilizationratefortheICenginesanda100%utilizationratefordrainedCMM supply. TheCMMpowerprojectitselfwouldgeneratesustainedannualemissionsofabout37,540tCO2eq, whichwasestimatedbasedontheCMMfuelconsumptionandthermalefficiencyoftheengines. Thisissubtractedfromthebaselinetoyieldtheoverall337,193tCO2eqannualemissionreduction.
7-4
Table73showsthetotalestimatedemissionsreductionsthatwouldoccurovertheentire25year project lifeof the CMM project at Liuzhuang mine. Emissions from the power project itself are subtracted from baseline emissions to yield the total net emission reduction estimate of approximately8.26MtCO2eq.
Year
Estimated Estimed Estimated Estimated Net Emission Baseline Project Leakage (t Reductions (t Emission Emissions (t CO2eq) CO2 eq) CO2 eq) (t CO2eq) 18,770 37,540 37,540 37,540 37,540 37,540 37,540 37,540 37,540 37,540 37,540 37,540 37,540 37,540 37,540 37,540 37,540 37,540 37,540 37,540 37,540 37,540 37,540 37,540 37,540 919,723 187,367 374,733 374,733 374,733 374,733 374,733 374,733 374,733 374,733 374,733 374,733 374,733 374,733 374,733 374,733 374,733 374,733 374,733 374,733 374,733 374,733 374,733 374,733 374,733 374,733 9,180,959 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 168,597 337,193 337,193 337,193 337,193 337,193 337,193 337,193 337,193 337,193 337,193 337,193 337,193 337,193 337,193 337,193 337,193 337,193 337,193 337,193 337,193 337,193 337,193 337,193 337,193 8,261,235
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Total (t CO2eq)
Table73:
EstimatedTotalGHGEmissionsReductions
(Overthe25yearlifeoftheproject)
7-5
SECTION8
CapitalandOperatingCosts

8i
SECTION8CONTENTS

8.1 8.2 8.3 Introduction .............................................................................................................. 81
DrillingImprovements .............................................................................................. 81
PowerGeneration..................................................................................................... 83
SECTION8TABLES
Table81: Table82: Table83: Table84: EstimatedCoststoUpgradeCMMBoreholesandDrainageSystem ..............................82
Estimtatedcostsforfusionequipmentandtraining .......................................................82
EstimatedCapitalCostsforProposedPowerStation......................................................83
EstimatedOperatingCostsforProposedPowerStation.................................................83
8ii
8.1 Introduction
ApreviousstudypreparedbytheHuainanCoalGroupincooperationwithUSEPAestimatedcapital and operating costs for various CMM utilization projects in the Huainan Coal Field.1 However, thesecostsdatebacktothelate1990sand,furthermore,theLiuzhuangminedidnotexistatthe timethisstudywasperformed. ThenaturalgaspriceinHuainanatthetimeofthestudywasassumedtobe0.20RMB/m3.Thatis about onesixth of the current gas price, reflecting both subsequent price inflation and partial freeingofgovernmentcontrolsonnaturalgasprices.Currentcostsandpriceswereusedinthis analysisfortheLiuzhuangmine,datingfromaboutthefirsthalfof2009.Fortunately,todayscosts andpricesaremuchmoreeconomicallyfavorableforCMMutilization.
8.2 DrillingImprovements
The estimated costs for the proposed upgrades to the CMM borehole and drainage system at LiuzhuangmineareshowninTable81.Thepreliminarydesignspecifiestwolongholedirectional borehole drills, one for each mining district at Liuzhuang (the second longwall at the mine is plannedtostartoperationin2010).AlsoincludedarespecialnonmagneticandMECCAdrillrods, downholemotors,directionalsurveytools,aswellasotheritems.Thetotalcapitalcostsforthe drillingpackageareestimatedtobeapproximately$3.5million,whichincludescontingenciesand engineeringcosts. Two sets of HDPE fusion equipment also are recommended for Liuzhuang mine, one for each miningdistrict.Thefusionmachineshandlelargeandsmalldiameterpipe.Thetotalestimated capitalcostsforthepipelineupgradecomponentsareapproximately$0.7million(Table82). BasedondiscussionswithSDICXinji,thelaborcostsforoperatingtheproposedCMMdrillingand pipeline equipment are assumed to be comparable to costs currently incurred for the existing drillinganddrainagepracticesatLiuzhuangmine.Thus,therearenoincrementaloperatingcosts associatedwiththedrillinganddrainageoperations.
1
ChinaCoalbedMethaneClearinghouseandUSEPA,2001.InvestmentOpportunitiesinCoalMineMethaneProjectsin HuainanMiningArea.April,20p.
8-1
Description 1. Longhole Directional Drill a. Drill and Power and Control Unit b. Spare Parts 2. Drill Rods a. Non-Magnetic Drill Rods b. Drill Rods MECCA, 3m 3. Downhole Motor a. 5/6 Stage "N" Motor b. Subs / Swivel, etc. c. Spare U-Joints and Bearings d. Fishing Tools e. Over-core Rods 4. Survey Tools a. MWD Downhole Survey Tool b. Ancillary Equipment and Spare Parts 5. Miscellaneous Items a. Drill Bits $3,000 b. Hole Openers $6,000 c. Miscellaneous Tools and Equipment $30,000 d. Wellhead Equipment (Initial Boreholes) $3,000 7. Other a. Shipping b. Training and Technical Support $50,000 $10,000 est. week 1 26 $50,000 $260,000 pc pc package package 20 6 2 6 $60,000 $36,000 $60,000 $18,000 $350,000 $50,000 package package 2 2 $700,000 $100,000 $30,000 $10,000 $10,000 $10,000 $250 package package package package package 4 4 3 2 400 $120,000 $40,000 $30,000 $20,000 $100,000 $7,000 $500 Rod Rod 4 800 $28,000 $400,000 $650,000 $80,000 package package 2 2 $1,300,000 $160,000 Unit Price Unit Quantity Total Cost
TOTAL (USD): $3,482,000
Table81:
EstimatedCoststoUpgradeCMMBoreholesandDrainageSystem
Description 1. Fusion Equipment a. Fusion Machine (100 mm - 150 mm) b. Fusion Machine (200 mm - 400 mm) 2. HDPE pipe for Training a. 200 mm SDR 17 b. 300 mm SDR 17 c. assorted fittings 3. Pipeline Equipment a. Integrity System b. Pneumatic Valves c. Gas/Water Separators d. Monitoring Meter Runs e. Assorted fittings 4. Other a. Shipping b. Technical Support and Training $30,000 $10,000 est. week 1 4 $30,000 $40,000 $6 $5,000 $3,600 $6,000 $5,000 meter Unit Unit Unit lot 4000 25 5 4 10 $24,000 $125,000 $18,000 $24,000 $50,000 $25 $60 $5,000 meter meter lot 2000 2000 10 $50,000 $120,000 $50,000 $40,000 $50,000 package package 2 2 $80,000 $100,000 Unit Price Unit Quantity Total Cost
TOTAL (USD):
$711,000
Table82:
Estimtatedcostsforfusionequipmentandtraining
8-2
8.3 PowerGeneration
Theproposedpowergenerationsubcomponentenvisionsanarrayoften1.255MWreciprocating engineswithrelatedpowergenerationequipment.Estimatedcapitalcostsfortheproposed10x 1.255MWpowerstationatLiuzhuangminearesummarizedinTable83.
Liuzhuang million USD 16.67
Capital Costs Power Station (incl foundation, electrical mechanical & gas connections, control cabling, and commissioning) Electrical Connection Gas Interconnection Land Acquisition Permitting (electric, gas, environmental) Emergency Spares Total Capital Costs
0.25 0.17 0.00 0.08 0.17 17.33
Table83:
EstimatedCapitalCostsforProposedPowerStation
Theproposeddesignassumesthattheinmineboreholedrillingandpipelineupgradesareableto achieve a CMM supply of about 37.5 m3/min at a 40% methane concentration, although some enginemanufacturers(e.g,Caterpiller)ratetheirequipmentasuseabledowntoabout25%CH4 concentration. Thecapitalcostsforthepowerstationareestimatedtototalapproximately$17.33million,mainly for the engines and generator sets, building foundation, electrical work, control cabling, and commissioning. Other capital costs include electrical and gas connections, permitting, and emergency spares. These figures already build in a 10% engineering contingency. Given that Liuzhuangminecontrolsthelandsurfacealreadyassignedforapowergenerationprojectatthe mine,nolandcostsareincluded. Operatingcostsfortheproposed10x1.255MWpowerstationatLiuzhuangmineareestimatedto beapproximately$1.7millionperyear(Table84).Operatingcostsforthepowerstationinclude management & administration, daily operation costs including consumables, and lifecycle preventivemaintenance.
Annual Operating Costs Management & Administration Daily Operation Including Consumables Life Cycle Preventive Maintenance Total Annual Operating Costs million USD/yr 0.54 0.43 0.72 1.70
Table84:
EstimatedOperatingCostsforProposedPowerStation
8-3
In the course of a typical year, the operating efficiency for the power station is assumed to be approximately 90%, with the engines out of commission for 10% of the year due to routine maintenance or repair. This is a slightly lower and more conservative utilization rate than the experienceattheBHPTower/AppinmineprojectnearSydney,Australia,whichhasexperienceda longtermaverage8,000hoursinoperationoutofanaveragetotal8,766hours/year(including leapyears),fora91.3%utilizationrate.
8-4
SECTION9
EconomicandFinancialEvaluation

9i
SECTION9CONTENTS

9.1 9.2 9.3 9.4 9.5 9.6 9.7 9.8 Introduction .............................................................................................................. 91
ProjectTiming ........................................................................................................... 92
CapitalandOperatingCosts ...................................................................................... 92
PowerSalesorSavings.............................................................................................. 92
FiscalParameters ...................................................................................................... 93
FinancialPerformance............................................................................................... 93
SensitivityAnalysis.................................................................................................... 95
Conclusions ............................................................................................................... 95
SECTION9TABLES
Table91: Table92: Table93: FinancialAnalysisKeyAssumptions.................................................................................91
CashFlowAnalysisofCombinedCMMBoreholeDrainageandPower
GenerationProjectatLiuzhuangMine ............................................................................94
SensitivityAnalysis...........................................................................................................95
9ii
9.1 Introduction
The economic and financial performance of the Liuzhuang mine CMM drainage and utilization projectwereevaluatedusingkeyinputsdiscussedintheprevioussectionsofthisreport.Asimple cashflowmodelofCMMdrainageandpowersaleswasconstructedtoevaluateprojecteconomics andsensitivities.Keyperformancemeasuresthatwereusedforevaluatingtheprojectincluded netpresentvalue(NPV),internalrateofreturn(IRR),andpaybackperiod(years). Monte Carlo analysis is frequently used in evaluating resource exploration projects, where the uncertaintiesareextremelyhigh.However,thekeycharacteristicsoftheLiuzhuangmineproject areconsiderablybetterconstrained.Thus,aconventional+/ 25%engineeringsensitivityanalysis wasconductedtoshowprojectvariabilityinatransparentmanner. KeyassumptionsfortheprojectaresummarizedinTable91andthendiscussedbelow.
Topic Timing Key Project Parameters Project Initiated Project Fully Implemented Project End Coal Production CMM Drainage Coal Production (2010) Coal Production (2011 on) CMM Drainage Rate CMM Utilized / CMM Drained CMM Concentration Expected Power Generation Power Generation Capacity Operating Efficiency Cumulative Project Power Production Power Price Power Price (base) Power Price (escalation) Borehole Drainage Investment Investment Costs CMM Pipeline Investment Power Generation Investment Total Capital Investment Operating Costs Financial Performance CMM Drainage System Opex Power Generation Opex Net Present Value (r = 10%; base case; pre-tax) Internal Rate of Return (base case; pre-tax) Value 2010 2012 2034 3.00 7.85 37.50 100% 30-40 12.55 90% 2,448 0.05 1% 3.42 0.71 17.33 21.46 same 1.70 11.51 17.6% Unit mid-year January December million t/year million t/year m /minute percent percent MW percent GWh USD/kWh per year million USD million USD million USD million USD as current million USD million USD percent
3
Table91:
FinancialAnalysisKeyAssumptions
9-1
9.2 ProjectTiming
The Liuzhuang mine CMM improvement project was assumed to begin early during 2010 and require two years to implement. This schedule is consistent with other large CMMtopower projectsinChinaandalsocorrespondswithSDICXinjisoverallplantoboostcoalproductionat Liuzhuangmineto7.85Mt/year.Forpurposesofthecashflowevaluation,thecapitalcostsforthe drillingandpowergenerationcomponentsweresplitevenlyoverthe201011period.Nofurther expansionwasassumedafter2011,althoughitcouldwellbepossibletoboostCMMproduction furtherbyadditionalboreholedrillingintononminedcoalpanels.
9.3 CapitalandOperatingCosts
AsdiscussedinSection8,theestimatedcapitalandoperatingcostsforthedrillinganddrainage portionoftheprojectareprovidedinTables81and82,respectively.Powergenerationcapital andoperatingcostsareprovidedinTables83and84,respectively.Asdiscussedbelow,sensitivity analysiswasperformedbyvaryingtheseparametersby+/ 25%. Notethat,onceashorttrainingperiodhasbeencompleted,thelaborcostsforoperatingthenew boreholedrillingsystemareassumedtoequivalenttocurrentpracticesatthemine.Thesecosts arecurrentlybornebythemineaspartofthemethanedrainageandsafetyfunction.Therefore, noincrementallaborcostswereassumedtobechargedtothepowergenerationproject.
9.4 PowerSalesorSavings
ElectricitygeneratedbycoalenterprisesfromCMMcanbeusedbytheenterprisesthemselves. Surplus electricity must be sold to the grid, which must accommodate such sales. The price of electricity fed to the grid is fixed by the State or established by the posted price of electricity generatedbylocalthermalpowerplantsequippedwithdesulfurizationcleanupdevices. MostofthepowergeneratedbytheLiuzhuangmineprojectisassumedtobeconsumedinternally bythemine,withthepotentialtoexportpowertothegrid.Powersaleswerecomputedbasedon volume and price, which was estimated at $0.05/kWhr for the Liuzhuang mine region. A real (inflationadjusted)increaseinpowerpricesamountingto1%/yearwasassumedunderthebase casescenario.
9-2
9.5 FiscalParameters
CoalenterprisesconductingCMMrecoveryandutilizationprojectswithapprovedmininglicenses receive preferential state policies on the resources tax, value added tax (VAT), income tax of enterprises, and the tariff tax, as well as other benefits. On October 25, 2006, the Ministry of Finance,theStateAdministrationofTaxation,andChinaCustomsexemptedimporttariffsandVAT for CMM equipment. Since January 1, 2007 the same bodies have implemented a levyfirst refundlaterpolicyonCMMdrainageandsales.1 CMM recovery and utilization technical transformation projects can enjoy import tariffs and preferential policies when importing necessary equipment, instruments, spare parts and componentsaswellasspecialtools.DepreciationofequipmentforrecoveryofCBM(CMM)canbe acceleratedonthebasisofbaselineyearandthedepreciationcapitalcanbeincludedinenterprise cost. AccordingtoChinaslatest(11th)5yearplan,theVATonproducts(suchaselectricity)whichuse recovered CMM as their main input is reimbursed simultaneously with the levy up to 2020. ProjectsutilizingrecoveredCMMalsoareexemptfromincometaxforafiveyearperiodstarting from the first year profitability is attained. The enterprises are allowed to deduct 150% of expendituresfortechnicaldevelopmentinthatyearfromtaxableincomeofthatyear.
9.6 FinancialPerformance
Theprojectasmodeledhasreasonablygoodfinancialperformance(Table92).Onapretaxbasis, itachievesaninternalrateofreturnof17.8%,withaNPVestimatedatapproximately78.6million RMB($11.5million).Thepaybackperiodonadiscountedbasisisprojectedtobeduringtheyear 2020orabout10yearsfromprojectinception. Projectrisksareconsideredrelativelysmallandmanageable.Duetostrongeconomicgrowth,the riskofdecliningnaturalgasandelectricitypricesinChinaisconsideredlow.Likewise,theChinese RMBiswidelyviewedtobestrengtheninginacontrolledmannerrelativetotheUSD,thuscapital costs for the project may actually decline in the future. Fuel supply at the mine is related to footagedrilledandappearstobefairlysecure.Financingrisksappearmanageable,asthecapital requiredforthepowerprojectissmallrelativetoSDICsoverallsize.
Huang,Shengchu,2007.ProgressandProjectOpportunitiesoftheCMMDevelopmentandUtilizationinChina.Presented attheMethanetoMarketsPartnershipExpo,Beijing,China,October30 November1.
9-3
Item Borehole Drill Capex Factor

1 6.83
Unit
(million USD) (million RMB) (million USD) (million RMB) (m3/min) (million m3/yr) (million USD) (million RMB) (million USD) (million RMB)
2010 1.74 11.89 0.35 2.38 24.7 12.99 8.67 59.19 1.70 11.59 0.90
2011 1.74 11.89 0.35 2.38 37.5 19.72 8.67 59.19 1.70 11.59 0.90 2.98 11.3 99 5 1.01
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
TOTAL 3.48 23.78
Borehole Drill Opex
1 6.83
0.35 2.38 37.5 19.72
0.35 2.38 37.5 19.72
0.35 2.38 37.5 19.72
0.35 2.38 37.5 19.72
0.35 2.38 37.5 19.72
0.35 2.38 37.5 19.72
0.35 2.38 37.5 19.72
0.35 2.38 37.5 19.72
0.35 2.38 37.5 19.72
0.35 2.38 37.5 19.72
0.35 2.38 37.5 19.72
0.35 2.38 37.5 19.72
0.35 2.38 37.5 19.72
0.35 2.38 37.5 19.72
0.35 2.38 37.5 19.72
0.35 2.38 37.5 19.72
0.35 2.38 37.5 19.72
0.35 2.38 37.5 19.72
0.35 2.38 37.5 19.72
0.35 2.38 37.5 19.72
0.35 2.38 37.5 19.72
0.35 2.38 37.5 19.72
0.35 2.38 37.5 19.72
8.71 59.46
CMM Production
100% CH4 100% CH4
486.36 17.33 118.39
Power Generation Capex
17.33 6.83
Power Generation Opex
1.70 6.83
1.70 11.59 0.90 2.98 11.3 99 5 1.02
1.70 11.59 0.90 2.98 11.3 99 5 1.03
1.70 11.59 0.90 2.98 11.3 99 5 1.04
1.70 11.59 0.90 2.98 11.3 99 5 1.05
1.70 11.59 0.90 2.98 11.3 99 5 1.06
1.70 11.59 0.90 2.98 11.3 99 5 1.07
1.70 11.59 0.90 2.98 11.3 99 5 1.08
1.70 11.59 0.90 2.98 11.3 99 5 1.09
1.70 11.59 0.90 2.98 11.3 99 5 1.10
1.70 11.59 0.90 2.98 11.3 99 5 1.12
1.70 11.59 0.90 2.98 11.3 99 5 1.13
1.70 11.59 0.90 2.98 11.3 99 5 1.14
1.70 11.59 0.90 2.98 11.3 99 5 1.15
1.70 11.59 0.90 2.98 11.3 99 5 1.16
1.70 11.59 0.90 2.98 11.3 99 5 1.17
1.70 11.59 0.90 2.98 11.3 99 5 1.18
1.70 11.59 0.90 2.98 11.3 99 5 1.20
1.70 11.59 0.90 2.98 11.3 99 5 1.21
1.70 11.59 0.90 2.98 11.3 99 5 1.22
1.70 11.59 0.90 2.98 11.3 99 5 1.23
1.70 11.59 0.90 2.98 11.3 99 5 1.24
1.70 11.59 0.90 2.98 11.3 99 5 1.26
1.70 11.59 0.90 2.98 11.3 99 5 1.27
42.42 289.71
Annual Operation Efficiency Power Conversion Factor Net Power Capacity Net Power Production Power Price Escalation (above inflation) Escalated Power Price Power Sales or Savings
90% 2.98 (m3/min/MW) (MW) (GWhr/yr) $0.050 1% (USD/kWhr) (per year) (USD/kWhr) (million USD) 6.83 (million RMB) (million USD) 6.83 (million RMB) Capital Return (million USD) 6.83 (million RMB) (million USD) 6.83 (million RMB) (million USD) (million RMB)
2.98 7.5 65 $0.050 1.00
2,448
$0.050 $0.051 $0.051 $0.052 $0.052 $0.053 $0.053 $0.054 $0.054 $0.055 $0.055 $0.056 $0.056 $0.057 $0.057 $0.058 $0.059 $0.059 $0.060 $0.060 $0.061 $0.062 $0.062 $0.063 $0.063 3.27 22.33 -9.18 5.01 34.24 -7.44 5.06 34.59 3.02 20.62 0.83 2.49 17.04 5.11 34.93 3.07 20.96 0.75 2.31 15.75 5.17 35.28 3.12 21.31 0.68 2.13 14.56 -9.01 5.22 35.63 3.17 21.67 0.62 1.97 13.45 -7.04 5.27 35.99 3.22 22.02 0.56 1.82 12.43 -5.22 5.32 36.35 3.28 22.38 0.51 1.68 11.49 -3.54 5.38 36.71 3.33 22.75 0.47 1.55 10.61 -1.99 5.43 37.08 3.38 23.11 0.42 1.44 9.80 -0.55 -3.77 5.48 37.45 3.44 23.48 0.39 1.33 9.05 0.77 5.28 5.54 37.83 3.49 23.86 0.35 1.22 8.36 2.00 13.64 5.59 38.20 3.55 24.24 0.32 1.13 7.72 3.13 21.37 5.65 38.59 3.60 24.62 0.29 1.04 7.13 4.17 28.50 5.71 38.97 3.66 25.01 0.26 0.96 6.58 5.14 35.08 5.76 39.36 3.72 25.39 0.24 0.89 6.08 6.03 41.16 5.82 39.75 3.78 25.79 0.22 0.82 5.61 6.85 46.77 5.88 40.15 3.83 26.19 0.20 0.76 5.18 7.61 51.95 5.94 40.55 3.89 26.59 0.18 0.70 4.78 8.31 56.74 6.00 40.96 3.95 26.99 0.16 0.65 4.41 8.95 61.15 6.06 41.37 4.01 27.40 0.15 0.60 4.07 9.55 65.22 6.12 41.78 4.07 27.82 0.14 0.55 3.76 10.10 68.98 6.18 42.20 4.13 28.23 0.12 0.51 3.47 10.61 72.45 6.24 42.62 4.20 28.66 0.11 0.47 3.20 11.08 75.65 6.30 43.05 4.26 29.08 0.10 0.43 2.95 11.51 78.60 11.51 78.60 138.50 945.98 0 00 66.57 454.65
Net Revenues
-62.72 -50.81 1.00 -9.18 0.91 -6.76
Discount Factor Discounted Net Revenues
10%
-62.72 -46.19 -9.18
Cumulative Net Disc Rev
-15.95 -13.45 -11.14
-62.72 -108.91 -91.87 -76.12 -61.56 -48.11 -35.67 -24.19 -13.58
Net Present Value Internal Rate of Return
11.51 78.60 17.6%
Table92:
CashFlowAnalysisofCombinedCMMBoreholeDrainageandPowerGenerationProjectatLiuzhuangMine
9-4
Evenundertheworstcasescenario,shouldCMMfuelsuppliesatLiuzhuangminesomehowprove to be lacking in quantify or quality, the engine gen sets could readily be sold or repositioned to other mines in the Huainan Coal Field, with a high salvage value (estimated 80% of the original installedcost).
9.7 SensitivityAnalysis
Sensitivity analysis was performed on the CMM drainage and power generation project at Liuzhuangminebyvaryingkeybasecaseparameterstoanalyzetheirimpactonpretaxproject economics(Table93).Fourkeyfactorswerevariedby25%:electricitypricegrowth,capitaland operatingcosts,andutilizationefficiency.
Variable Power Price Escalation Drilling/Power Capex Drilling/Power Opex Operating Efficiency -25% IRR NPV 17.1% 71.60 25.5% 21.3% 16.6%
Table93:
Base Case IRR NPV 17.6% 78.60 17.6% 17.6% 17.6% 78.60 78.60 78.60
25% IRR NPV 18.1% 85.82 13.0% 14.1% 18.6% 38.74 43.74 88.43
118.47 113.47 68.78
SensitivityAnalysis
Thelargestimpactscamefromvaryingthecapitalandoperatingcostsforthedrillingandpower components, with project NPV declining by about onehalf should capital or operating costs increase by 25% over the base case levels. On the other hand, the power price escalation and operatingefficiencychangeshadrelativelysmallerimpactsonprojecteconomics.Allsensitivity casesyieldedpretaxreturnsofover10%,andthuscouldbeconsideredeconomicallyviable.
9.8 Conclusions
The Liuzhuang mine CMM drainage and utilization project appears to have favorable economic performance,includinggoodIRR(17.6%),robustNPV(78.6millionRMB),andareasonablereal paybackperiod(10years).Changesincapitalandoperatingcostwouldsignificantlyaffectthe projects performance, while changes in the power price and power plant operating efficiency wouldhavelesseffect.Eventheworstcasescenariowouldstillallowforthesaleofthedrilling and power generation equipment to other mines in the Huainan region at an estimated 80% salvagevalue.
9-5
SECTION10
PotentialImpactsandRecommendations

10i
SECTION10CONTENTS
10.1 10.2 10.3 Summary................................................................................................................. 101
PotentialImpactsoftheProject.............................................................................. 101
RecommendedNextSteps ...................................................................................... 103
10ii
10.1 Summary
Asdiscussedindetailinprevioussectionsofthisreport,theproposedcoalminemethanedrainage andutilizationimprovementprojectatLiuzhuanghasconsiderablepositivetechnical,economic, and environment merit. The project would improve the safety and technical efficiency of CMM drainage and transport at the mine particularly as the mine advances into deeper gasprone geologiclevels resultinginproductionofCMMwithsignificantlyhighermethaneconcentration that is more feasible to utilize. By utilizing CMM supplies that currently are being vented, the projectwouldconvertacleanerenergysourcetopowerandhelptoreduceoverallGHGemissions relatedtothemine. TheestimatedfinancialperformanceoftheLiuzhuangprojectisrobust,whiletherisksofincreased capitalandoperatingcosts,reducedpowerprices,andothervariablesappeartobemoderateand manageable. If successful, the advanced techniques, equipment, and management practices demonstratedbytheprojectcouldbeappliedbroadlybySDICXinjiEnergyandothercoalmine operatorsthroughouttheHuainanCoalField,resultinginsignificantlyincreasedCMMutilization andreducedGHGemissionsinthisstrategiccoalminingregion.
10.2 PotentialImpactsoftheProject
Environmental Impacts. In 2009 SDICXinji prepared an environmental impact study of the conceptual8x500kWpowergenerationprojectatLiuzhuangmine.Thisstudyevaluatedpotential surface, air, water, noise, traffic, and other impacts and concluded that no significant environmentalimpactswouldbecausedbytheproject. Likewise, the currently proposed 10 x 1.255 MW power generation project is expected to have negligible overall environmental impacts, with the exception of small but manageable local increaseinCOandNOxemissionsfromtheICengines.Impactsfromincreasedcoalproduction, traffic,andinfrastructureconstructionrelatedtotheprojectareconsideredtobeneglible. Air Quality. The project is expected to have positive overall impacts on local and regional air quality.PowergenerationutilizingCMMfuelisfarcleanerthanthatfueledbycoal,whichisthe dominantfuelsourceforpowergenerationandboilersinAnhuiProvince.TheuseofCMMfueled power generation by the mine would back out coalfired power purchased from the grid, thus resultinginloweroverallemissionsattheprovincelevel. Locally, there would be a small increase in CO and NOx emissions related to the IC engines. However,thepowerstationislocatedapproximately0.5kmfromthenearestofficeand1.0km
10-1
fromthenearestresidence.Prevailingwinds(westtoeast)wouldtendtocarrytheseemissions awayfrominhabitedstructuresontothenearbyfarmland. Increased Coal Production. By enhancing the efficiency of CMM drainage, the project could facilitate and reduce the costs of coal production at Liuzhuang mine. However, the actual coal production target is set independently by the government and SDICXinji Energy. Even if the projectisnotimplemented,thecoalproductiontargetatLiuzhuangminestillwouldbesetat7.85 million t/year, an achievable level even under the current CMM drainage practices. Thus, the projectitselfwouldhavenosignificantimpactontheincreasedproductionoruseofcoalinthe region. IncreasedTraffic.TheCMMdrillinganddrainagesubcomponentsarenotexpectedtoresultin significantlyincreasedtrafficaboveorinsidethemine.Thedrillingandpipelineequipmentcould be delivered in several large truck loads. Maintenance would take place primarily within the existingminedrillingrepairshop.Verylikelytheimprovedboreholedrillingwillreducethelevelof traffic at the mine, since there will be fewer (but longer) boreholes drilled and thus reduced equipmentmobilization. Regardingthepowergenerationsubcomponentoftheproject,therewouldbeaslightincreasein trafficduringtheconstructionperiod(20102011),requiringseveraldozenheavytruckloadsto deliver the IC engines and related equipment. However, current traffic at Liuzhuang mine is relatively light and easily handled by the existing road system both inside and surrounding this modern mine. During several visits to the mine, daily traffic was observed to be smoothly accommodatedbyexistinginfrastructurewithnotrafficissuesatall.Followingconstructionofthe powerstation,startingabout2012,trafficlevelswouldlikelyreturntocurrentlevels,apartfrom theneedforperiodicenginemaintenance.Overall,theprojectisexpectedtohavenegligibleand easilymanageableimpactsonthetrafficatLiuzhuangmine.Noadditionalroadconstructionor modificationintrafficpatternswouldbeneededtoaccommodatetheproject. Infrastructure Impacts. The CMM drilling subcomponent would be implemented within the existingminedesign,withnosignificantmodificationsrequiredtothemineinfrastructure.The existingminehoists,roads,powerfacilities,watersupply,andcuttingsdisposalsystemsappearto beadequatetohandletheproposeddrillinganddrainageimprovements. ThepowerstationrequiresconstructionofasmallfacilityforhousingtheICenginesandrelated equipment and a short power transmission line would be constructed. SDICXinji has already identifiedthelocationforthisfacilitydirectlyattheminesite.Thebasicfoundationalreadyexists andthusthepowerprojectalsowouldhavenegligibleinfrastructureimpacts.
10-2
IncreasedEmployment.Asacapitalintensiveactivity,theproposedCMMdrainageandutilization projectisnotexpectedtocreateasignificantnumberofnewjobsatLiuzhuangmine.Thecurrent drillinganddrainagepersonnelcouldbereadilytrainedtooperatethenewdrillingandpipeline constructionequipment,withnooverallincreaseinemploymentexpected.However,thepower generation subcomponent would require approximately one dozen new positions, including severalrequiringadvancedtraininginICenginemaintenanceandpowerengineering.Complex taskssuchasICengineoverhaulwouldbecontractedtooutsidespecialists,mostlikelytheengine manufacturer;thesecostshavebeenaccountedforunderroutinepoweroperatingexpenses. Housingforprojectrelatedpersonnelisavailableintheapartmentbuildingsdirectlyadjacentto themine(within1.0km),asareothernecessarylivingfacilitiessuchasmarkets,banks,dininghalls, entertainmentfacilities,andamedicalclinic. ScientificandTechnicalImpacts.Oneofthemostimportantaspectsoftheproposedprojectisits potential for improving CMM drainage and utilization in a most challenging subclass of underground coal mine in China : lowpermeability, lowmoderate gas mines which currently produce CMM with extremely low methane concentrations (<10%). Many of the mines in the Huainan Coal Field are of this type. Successful implementation of the proposed advanced technologiesatLiuzhuangminecouldprovideademonstrationthatwouldfacilitateadoptionat dozensofothersimilarminesintheregion.ThiscouldhelpdramaticallyreduceCMMemissionsin theHuainanCoalField.
10.3 RecommendedNextSteps
Now that the evaluation and preliminary design phases have been completed, further steps to progressthisproposedprojectcouldinclude: Internal SDICXinji project technical and economic evaluation, make necessary modificationstofinalprojectdesign,obtaincorporategono/godecision. Obtainnecessaryapprovalsfromprojecttechnical,financial,social,andenvironmental regulatingauthorities. Contactequipmentandserviceproviderstoobtainsitespecificquotesandtimetablesfor thedrilling,pipeline,andpowergenerationequipmentandinstallation,andoperation. Conduct project scoping and training visits to other mine locations in China, U.S., and Australiawheresimilarequipmentisinoperation. RegisterprojectwithCDMapprovalauthorities.
10-3

Final Feasibility Study Liuzhuang

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Coalbed Methane

Feasibility Study for Coal Mine Methane Drainage and Utilization

U.S. Environmental Protection Agency February 2010

PreliminaryDesignofCMMDrainageandUtilizationSystem. Basedonareviewofthegeology,reservoirconditions,miningdesign,andmarketopportunitiesat LiuzhuangmineandtheHuainanCoalFieldingeneral,thefollowingpotentialimprovementstothe minesCMMdrainageandutilizationsystemarerecommended(TableA):

10 x 1.255 MW CMM utilization, high efficiency & reliability

1.4.1 1.4.2 1.4.3

ConclusionsandRecommendations ........................................................................ 120

Manufacturer Chinese(mobile) Caterpillar Deutz Deutz Caterpillar Deutz Jenbacher

Stable Relatively stable Stable Stable Relatively stable

Simple Simple Single Simple Simple

15* coal seam 15* coal seam

13-1# coal seam Lower 13-1 #coal seam#

12# coal seam

11-1# coal seam

Upper 9 # coal seam

Purple brown-light yellow granitophyre,

Coal Stratigraphy and Lithology at Liuzhuang mine

PreFeasibility Study and Mine Site Selection

LongwallblocksatLiuzhuangminehavethefollowingcharacteristics: Lengthrangesfrom1500to1700m. Widthrangesfrom220to280m(plantogoupto340m).

Yuan,Liang;Zhang,Liqing;Li,Ping;andZhou,Deshui,1998.UndergroundCoalbedMethaneDrainageintheHuainanMining Area.ProceedingsoftheInternationalWorkshoponCoalbedMethaneRecoveryandUtilization,November1213,1998, Beijing,China.

2.3.1 2.3.2 2.3.3 2.3.4

Coal District Xieqiao West

Table22: 2003EstimateofCBM/CMM ResourcesintheHuainanCoalField

Period System Group Section Column

Seam 17-2 17-1 16-2 16-1

Coal Thickness Range Average

0-4.32 0-3.19 0-5.41 0-3.96

0.55 0.00 0.41 0.69

Upper Shihezhi Group

0-1.71 0-3.51 0-2.11 1.83-14.42 0-2.16

0.08 0.66 0.17 4.87 0.45

Lower Shihezhi Group

Liuzhuangminehasanestimated1.35billiontoftotalprovedcoalreserves.Seams131,112,and 8accountforhalfofthistotal.Ninethinnerseams,whicharenotyetbeingmined,comprisethe remaininghalf.Coalminemethaneresources,oftenmislabeledasreservesinChinabutactually

U.S.DepartmentofEnergy,EnergyInformationAdministration,2009.2008WorldEnergyOutlook,ReferenceCaseScenario. Higashi,Nobuyuki,2009.NaturalGasinChina:MarketEvolutionandStrategy,InternationalEnergyAgency,WorkingPaper Series,June,39p.

$4.15 = 1 RMB/m3 Sichuan - Chongqing

Liaohe, Zhongyuan (Henan)

4.2.1 4.2.2 4.2.3 4.2.4 4.2.5 4.2.6 4.2.7

ReservoirSimulationModelingoftheLiuzhuangMine ........................................... 411

BaseCase CrossPanelInSeamDrainageBoreholeModel .............................................411

4.4.1 4.4.2 4.4.3

SurfaceCMM/CBMWellPotential .......................................................................... 418

4.5.1 4.5.2 4.5.3 4.5.4 4.5.5

Jan09 Feb09 Mar09 Apr09 May09

Time(min) Sum 44640 40320 44640 43200 44640

CH4Flow (m3/min) Average 9.74 10.53 10.43 8.60 5.34

CH4 (m3/day) Sum 434578 424754 300351 371347 238339

95% CH4; 1% CO2; 4% N2

Qiu,Haijun,CoalbedMethaneExplorationinChina,AmericanAssociationofPetroleumGeologists,AAPGAnnualConvention,SanAntonio, TX,April2023,2008. Huang,Shengchu,2009.CurrentStatusofMethaneEmissionsReductionsin4Sectors,China.MethanetoMarkets,SteeringCommittee Meeting,September30,40p.

Zhang,Hong;Li,Guihong;Cui,Yongjun;andJing,Xianglan,2004,TheEvolutionofCBMReservoirformingDynamicSystemintheHuainan Coalfield,EasternChina.InternationalCoalbedMethaneSymposium,UniversityofAlabama,Tuscaloosa,May56. 6 YuanandLi,2003.

5.4.1 5.4.2 5.4.3

5.5 5.6 5.7 5.8 5.9 5.10 5.11 5.12 5.13

PowerGenerationUsingGasTurbines .................................................................... 510

5.13.1 5.13.2 5.13.3

Huang,Shengchu,Liu,Wenge,Sun,Qinggang,Liu,Xin,Zhao,Guoquan,andDou,Xiaodong,2006.AnalysisofPotentialsand ProspectsofCMMProjectinChinaThroughMethanetoMarketsPartnership(sic).ProceedingsoftheInternationalCoalbed MethaneSymposium,UniversityofAlabama,Tuscaloosa,May2225.

Insummary,cryogenicconversionofCMMtoLNGdoesnotappeartobethemostpracticaloption forutilizingCMMatLiuzhuangmine,particularlycomparedwiththeproventechnologyandplant scaleflexibilityofpowergenerationusingICengines.

6.3.1 6.3.2 6.3.3 6.3.4 6.3.5

VAMMitigation ...................................................................................................... 613

10 x 1.255 MW CMM utilization, high efficiency & reliability

boreholesincoalseamsoradjoiningrockstrateinareaswithsuitablegeologicconditions(i.e.,few faultsandlimitednaturalfracturing).Figure65showsdetailsofthedrillconfigurationsimilarto whatcouldbeemployedatLiuzhuangmine.

Gob Drainage : RECOMMENDED

1500-1700m 1500 -1700m

10m 20m 20m

CROSS=MEASURE BOREHOLES DRILLED FROM STATIONS ALONG THE TAILGATE ENTRY

220-280m 220- 280m