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Contents Executive summary 3 Introduction 4 Background 5 The “gas conflict” between local and central enterprises 7 CBM exploration, utilization and the influence of mining right arrangement, 13 Shanxi’s “gas with coal” reform plan and the “Sanjiao Mode” 17 Discussion and analysis 19 Conclusions 22 References 24 Acknowledgements 25 About the authors 25

A coalbed methane LNG truck


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In the foreseeable future, China will likely continue its coal-dominated energy strategy. To ensure cleaner operations, improve mining safety, and reduce greenhouse gas emissions, China has made a strong development plan to recover and utilize coalbed methane (CBM) and coalmine methane (CMM) since 2006. However, at the end of the 11th Five-Year plan in 2010, the output of CBM/CMM fell short of the planned targets. The disputes over the mining rights of CBM/CMM between local coal groups, central state-owned oil and gas companies, local governments and central governments significantly impeded development. This case study looks into these disputes and tries to unfold the complex relations between central and local actors in China’s energy governance. This report begins by introducing the background behind CBM/CMM recovery disputes and the central ministries

involved in regulating or promoting CBM/CMM development. It then analyzes the historical and legal causes of disputes in Shanxi province, the attempted efforts to resolve the disputes, and the impact of the conflict on local environment and energy use. The report then discusses proposed solutions and finally gives further analysis on issues of China’s energy governance. In order to achieve its 12th Five-Year plan target in clean energy development, energy efficiency and greenhouse reduction, China should strengthen its energy and environment governance system to ensure targets will be met. Realizing a strategic policy requires serious consideration of the dynamic relations among powerful actors and the interests of local governments and the state-owned companies. It also requires new tools to improve the ability for regulators in Beijing to regulate and coordinate action on CBM/CMM.


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It is an undeniable fact that the economic development in China relies on coal to a large extent. Coal accounts for 63% of China’s total energy supply (including the bio-fuel), which goes far beyond the global average.1 Although China has been making great efforts to develop renewable energy, water power, nuclear power, the energy structure with coal playing the dominant role can hardly change in the short term. China has become the largest emitter of CO2 and is facing unprecedented pressure from the rest of the world to reduce its greenhouse gas emissions. Chinese

What is CBM / CMM? “Methane is the second most important greenhouse gas after CO2. It is over 20 times more potent than carbon dioxide on a mass basis over a 100 year time period. Methane is found in coal and coal mines. Coalbed methane, found in coal seams, is formed during coalification, a process by which plant material is transformed into coal. Coalbed methane, also known as virgin coal seam methane or coal seam gas, is considered an “unconventional” source of natural gas. According to the United States Environmental Protection Agency (USEPA), CBM accounts for about 10% of total U.S. natural gas production annually. Coal mine methane refers to methane released from the coal and surrounding rock strata due to mining activities. In underground mines, it can create an explosive hazard to coal miners, so it is removed through ventilation systems. In abandoned mines and surface mines, methane might also escape to the atmosphere through natural fissures or other diffuse sources. Like CBM, coal mine methane is a subset of the methane found in coal seams, but it refers specifically to the methane found within mining areas.”2 Chinese laws and plans do not differentiate CBM and CMM in legal term, but view them as the same resource and list them as CBM (CMM) or just CBM in official documents. In general, from the technical perspective, methane recovered through surface drainage is CBM and methane recovered through underground capture is CMM.

government is aware that its relative advantage based on the environmental deterioration is not sustainable. It has proposed a scientific development strategy and has adopted a series of measures to initiate changes to its economic development pattern, hence the on-going five-year plans which provide a framework for sustainable development. The 12th Five-Year Plan (2011-2015) passed in March 2011 sets forth a target to reduce carbon intensity by 17 % by 2015, compared with that of 2010. To realize the targets, China is making great efforts to develop cleaner coal technology. CBM/CMM recovery and utilization are one of the techniques to promote cleaner coal in China. Natural gas takes up a fraction of 4% of the total energy use in China, which is well below the global average of 23.5%.3 Compared with coal, natural gas is cleaner. China expects that natural gas can become more significant in energy use and the recovery and utilization of CBM/ CMM can effectively make up for the lack of conventional gas supply and ensure energy safety. China is rich in CBM resources. According to the latest evaluation of the CBM resources in China by the Ministry of Land and Resources (MLR) in August 2008, the total amount of CBM as geological resources buried 2,000 meters underground or below is 36. 8 trillion cubic meters, the equivalence of the total of conventional natural gas as geological resources, which amounts to 35 trillion m3. China is the third country with the largest reserves of CBM after Russia and Canada.4 China has made a very clear stance to strengthen the development of CBM. According to its 11th Five-Year Plan regarding the recovery and utilization of CBM/ CMM stipulated by National Development and Reform Commission (NDRC) in 2006, by the year of 2010, the CBM/CMM output should reach 10 billion m3, among which half was to be drained from surface wells, with the utilization rate of 100% and the other half from underground mines, with the utilization rate at above 60%. The 12th Five-Year Plan stipulated by NDRC for 20112015 provides that by the end of 2015, the total output of CBM/CMM should reach 20-24 billion m3, with 10-11 billion m3 to come from surface wells and 11-13 billion m3 from underground mining.5 However, in sharp contrast, as Figure 1 shows, the total amount of CBM/CMM recovery in 2010 was 8.8 billion m3, with only 1.45 billion m3 from surface wells and 7.35 billion m3 from underground mines. Only 3.6 billion m3 of the total was utilized, a figure falling short of the planned target.6


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Figure 1: CBM/CMM drainage output from 1993-2010

The challenges for China’s CBM development include the lack of technology, financing, and pipeline construction. However, people within the industry hold that the most crucial factor is the separation of mining rights for CBM/CMM and coal resources. In China, the mining rights of CBM/CMM mainly belong to state-owned enterprises under direct leadership of the central government, and the coal resource mining rights mainly belong to state-owned enterprises at the provincial level. The conflicts between central government enterprises and local enterprises as well as the local government and central government in terms of their respective interests present huge obstacles for the development of CBM industry. This case study analyzes the disputes over mining rights of CBM/CMM between the central government, central state-owned enterprises and the local governments and local coal groups centering on the recovery and utilization of CBM/CMM in Shanxi province. The disputes will shed light on the complex and dynamic relations between central institutions and local institutions in China’s energy governance.

After the founding of the People’s Republic of China in 1949, a planned economy was established. Chinese government has taken coal as an important strategic resource and has taken strictly central control of its investment, production, pricing, transportation and the structure of state-owned coal mines.7 However, in the era of planned economy, the production of coal had never met the need. Especially in the end of 1970s, the reform and opening up introduced the market mechanism and the planned coal production could not keep the pace with the demand of high-speed economic development, and the central government had to reform the coal industry. The reform includes: (1) to introduce the market mechanism; (2) to transfer the administrative rights of centrally-controlled state-owned large coal mine bureaus and the approval rights of middle and small coal mines to local authorities.8 After the reform, especially the dissolution of the Coal Ministry, all state-owned and centrally-managed coal mines, except the Shenhua Group established in


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1985, were to be managed by local authorities. After the restructuring, key state-owned coal mine bureaus became limited liability companies and were called coal mine groups and most of them were publicly listed. Coal mine groups transformed to company structure, but it did not mean that they were independent of local government control. In fact, local authorities had great influence on the market performance of coal mine groups. Local authorities and these coal mines formed alliances in some degree since local authorities needed these mines to promote local economic development and tax revenue. For example, in Shanxi Province, which has a big coal yield, some of the groups formed after the restructuring include provincially-controlled Jincheng Anthracite Coal Mining Group, Yangquan Mine Industry Group, Lu’an Mine Industry Group, Datong Mine Industry Group, Xishan Coal Mine Company, Huozhou Coal Mine Company, Fenxi Coal Mine Company. Although China’s petroleum and gas industry also experienced market reform and restructuring, but the central government did not transfer the management power to local levels as in the coal industry.9 It created centrallycontrolled companies with vertical integration. In 1981, the China National Offshore Oil Corporation (CNOOC) was established to be responsible for all offshore oil businesses. China Petro-Chemical Corporation (SinoPec) set up in 1983 is responsible for most of the oil refining business and the production of petrochemicals with oil as raw materials. In 1988, the Petroleum Ministry was dissolved and the Ministry of Energy established. At the same time, China National Petroleum Corporation (CNPC) was established to govern most of China’s continental oil excavation and exploration. From 1988 on, central government began to reform on industrial structure and centrally-controlled state-owned enterprises (SOEs), including: regroup the assets of national oil and gas industry, making CNPC and SinoPec; spin off the core business of CNPC and SinoPec from their non-core business and social services to establish new incorporation entities, i.e., the PetroChina Company Limited and the China Petroleum and Chemical Corporation and the their successful IPOs in overseas capital market. CNOOC successfully listed too in 2001. The primary development of CBM field followed the thought of building a new petro-gas industry. In March 1996, the State Council approved the establishment of China United Coalbed Methane Co., Ltd (CUCM). Co-invested by the former Ministry of Coal Industry, the Ministry of Geology and Mineral Resources and CNPC, the company is a national certified class one enterprise

engaging in CBM excavation, exploration, production, delivery, selling and utilization. It also has the exclusive rights to excavate, explore and produce CBM with foreign cooperation and enjoys independent decisionmaking rights in attracting foreign investment. In China, methane found in the mines, called 瓦斯气 (Wasi Gas), is known as “the first killer in coal mines.” When gas concentration reaches 5% to 16%, it explodes in the presence of an ignition source and forms a shockwave with high temperature and high pressure and yields a mass of carbon monoxide. A gas explosion causes a lot of casualties. In China, mines of high gas concentration and explosive accidents account for one third of the national total coal mine accidents. Since 1949, of the 23 coal mine accidents that had more than 100 casualties, 21 were caused by gas explosions. In 2010 alone, 135 coal mine gas accidents occurred with 593 people dead.10 To ensure the safety of coal mining, in the four decades from 1950s to late 1990s, China implemented ventilation systems to capture CMM and lower the gas concentration in the mines. Prior to the 1990s, China’s concern with respect to CBM/ CMM was focused on coal mine safety. It did not realize the potential to recover and use CBM/CMM as an energy resource until late 1990s when the drilling technology United States adopted in commercial exploration of coalbed methane was introduced in China. In 1996, China officially pronounced that it would develop CBM industry. As an unconventional natural gas, CBM/CMM was gradually integrated into China’s natural gas development plan after the development of a special plan on CBM/CMM in the 11th Five-Year Plan. In February 2005, China’s State Council set up an InterMinisterial Coordination Leading Group on Coal Mine Gas Prevention and Treatment. With Premier Wen Jiabao as its head, the group was organized by the National Development and Reform Commission (NDRC) and joined by 12 ministries and commissions. The latest arrangement of the group on August 12, 2011 made Liu Tienan, Vice Director of the NDRC and Director of National Energy Bureau its new leader. Other members are vice ministers of 11 ministries and commissions, including: Coal Mine Safety Supervision Bureau of the State Administration of Work Safety (SAWS), Ministry of Science and Technology (MST), MLR, Ministry of Environmental Protection (MEP), People’s Bank of China, Bank of China, State-owned Assets Supervision and Administration Commission of the State Council (SASAC), Financial Ministry, Ministry of Human Resources and


Social Security, National Development Bank and Coal Industry Association. NDRC is the most powerful department in Chinese government. It has the right to set economic development target, industrial reform plan and pricing. Energy Bureau at present is promoting the large scale adoption of CBM drainage and exploration in key coal mine regions. The SAWS recently decided to apply the safety supervision of coal mine enterprises to all CBM exploration enterprises.11 MEP issued CBM /CMM emission standard in 2008 to promote CBM/CMM utilization. MLR is responsible for the issuance of CBM mining right. Despite the involvement of all these ministries and a leading group, most of the specific CBM policies appear in forms of notification documents of the State Council or its ministries. According to China’s Legislation Law, these documents are neither administrative regulations, nor ministerial regulations, but only regulative documents of the State Council or its ministries. Because the reform relating to the CBM/CMM development arose out of coal mine safety concerns and later the desire to capture it as an energy source, the development of the CBM/CMM industry did not fully belong to the traditional petroleum and gas industry, or to the coal industry, and the legal reform potentially planted a seed for conflicts among local and central enterprises and governments over CBM/CMM mining rights. Given the number of ministries involved in the regulation of the CBM/CMM industry and the lack of laws or regulations governing the industry, no clear official legal avenues exist to help solve the conflicts.

Overlapping of Coal and CBM mining rights In China, mineral resources are state-owned under the control of the State Council. The first Mineral Resources Law was passed in 1986, which ascertain the licensing policy for using mineral resources, namely license for mineral exploration right and mining right. The term for exploration right is generally 3 years (as opposed to 7 years for oil and natural gas exploration). On discovering the potential economic benefit, explorers may submit an application to extend the exploration right while applying for mining right. The term for mining right is based on the scale of the mines, ranging from 10 years to 30 years. While the law permits licenses to mine, it prohibits the transfer of the mining rights without the prior approval. In 1986 when the law came into effect, CBM was not independently listed as a mineral resource.

An amendment was made in 1996 to allow the transfer of mineral resources. The amended Mineral Resources Law clarifies that CBM is one of the 34 mineral resources, with a top-level administration department as the sole department to issue exploration right and mining right, which here are generally known as mining rights. In the same year, the Ministry of Coal Industry was repealed and MLR was formed. According to the amended Mineral Resources Law and its complementary regulations, all the exploration or mining subjects are required to register at the MLR or the provincial land and resources bureaus (LRBs) to obtain exploration or mining rights. The exploration and mining of CBM should be registered in the same way as oil and natural gas, which is under top-level administration. Hence, only MLR can register and issue licenses. Senior employees from local coal enterprises told the author in the field study that many coal enterprises failed to consider coal and CBM as separate mineral resources when they register for mining. Instead, they believed that the two were interwoven resources, i.e., coal mining would naturally involve CBM/ CMM draining and the ownership of mining rights for coal certainly includes the ownership of mining rights of CBM. Some may know of the difference but fail to see the hidden profit of CBM and never bothered to apply for the right to explore it. “When MLR made a new order to re-register CBM, opinions had been solicited in various provinces, including Shanxi, ”He Hui, deputy director of the Department of Coal Mine Methane Gas Industry of Jincheng Coal Industry Group recalled, “we simply thought it would be great to have someone help us drain CBM.”12 On the contrary, the oil and natural gas enterprises had been taking active measures. Since 1998, three enterprises directly under the central government, namely, CUCM, CNPC and CPCC registered for exploration right of approximately 65,000 m2 of CBM blocks, which amounted to more than half of the total CBM blocks. On the other hand, with the development of Chinese economy, the demand of coal and production become unprecedented and coal mine development becomes more extensive in the areas rich in CBM/CMM. As stated earlier, the Chinese government authorized the local government the management right of coal production. The review of application for mining right for coal also takes place at two levels, one by MLR and the other by the provincial LRBs. If the exploration block is 30 m2 or larger, MLR issues exploration licenses. If coal mines have reserves of 100 million tons or more or coking coal mines have reserves of 50 million tons or more, the MLR would issue the mining licenses. Otherwise, LRBs of the

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provincial people’s governments would issue the exploration or mining licenses.13 As a result, there occurs some overlapping between the central and local government as the mining right for coal could be granted by the provincial LRBs, with the local coal groups or other coal enterprises as the coal

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exploration right owners, while the exploration right for CBM is granted by MLRs, with the central government enterprises as the main CBM mining rights owners. Overlapping of Coal and CBM mining rights in Shanxi According to the data provided by the interviewees, by the end of 2008, the total of CBM mining rights

Name of Block

Coal Field

Area (km2)

Prospector

1

North Ningwu

Ningwu

345.62

CNPC

2

Middle Ningwu

Ningwu

588.8

CNPC

3

South Ningwu

Ningwu

403.11

CNPC

4

Hequ

Hedong

559.73

CUCM

5

Baode

Hedong

518.35

CUCM

6

Linxian-Xingxian

Hedong

3323.16

CUCM

7

North Sanjiao

Hedong

1123.41

CUCM

8

Sanjiao

Hedong

461.74

CUCM

9

Liulin

Hedong

199.88

CUCM

10

Yangjiaping

Hedong

13.81

SinoPec

11

Shilou

Hedong

3600.67

CUCM

12

Jixian

Hedong

5281.8

CNPC

13

Xiangning

Hedong

2386.94

CNPC

14

Gujiao

Xishan

1045.59

CUCM

15

Baibiguan

--

242.57

CUCM

16

Shouyang

Qinshui

1951.89

CUCM

17

Heshun

Qinshui

1057.29

SinoPec

18

Xiahuangyan

Qinshui

185.45

Zhongmei Dadi

19

Qinyuan

Qinshui

3663.3

CUCM

20

Wangcun-Xiazhuang

Qinshui

175.86

Xiangyuan Datong

21

Anze-Dunliu

Qinshui

5232.24

CUCM

22

Zhangzi

Qinshui

137.33

Dongbao

23

Zhengzhuang

Qinshui

982.27

CNPC

24

Fanzhuang

Qinshui

107.33

CNPC

25

Chengzhuang

Qinshui

67.06

CUCM

26

Panzhuang

Qinshui

150.76

CUCM

Figure 1: CBM Prospecting Blocks and Mining Rights Holders in Shanxi Province


throughout the country was 113, with a total area of 65,520 km2. By the end of 2007, 86 out of the total of 98 CBM mining rights had the issue of overlapping of mining rights, 86 CBM mining rights overlapped with 1406 coal mining rights, covering an area of 12,534 km2.14 Shanxi, the main contributor of China’s coal resources, is the province with the most obvious overlapping issue of mineral resources mining rights. In the year of 2010 alone, the total coal output of Shanxi was 741 million tons, accounting for a quarter of the total output of the country. The reserve of the CBM in Shanxi is about 996 million m3, accounting for 1/4 of the total in the whole country, which is mainly distributed over major gas basins in Shanxi, namely, Datong, Ningwu, Hedong and Qinshui. The last two have 87.9% of the total reserve of CBM in Shanxi.15 At present, the main CBM production blocks are located in the south of Qinshui gas basin, which are the only coalbed methane blocks with commercialized development. Therefore, the conflict between coal and CBM mining rights in the area is the most intense. As the Table 1 below illustrates, by the end of 2009, there were a total of 26 CBM blocks under development in Shanxi. CUCM owned CBM/CMM exploration rights of

14 blocks, SinoPec owned CBM/CMM mining rights of 7 blocks and CPCC owned CBM/CMM exploration rights of 2 blocks. Enterprises under the central government own 99.68% of mineral resources mining rights registered in Shanxi so far.16 In contrast, the main coal enterprises in the areas which happen to contain CBM, including Jincheng Coal Group, Yangquan Coal Group, Lu’an Coal Group only own coal mining rights before 2010. Regardless of ownership of CBM mining rights, the coal enterprises in Shanxi have carried on developing and utilizing CBM by taking advantage of their edge in possessing local resources, especially Qinshui Lanyan CBM Co. Ltd., a subsidiary of the Jincheng Coal Group, which has surpassed the three enterprises (CNPC, CUCM, and SinoPec) under central government in its pace of development. Qinshui Lanyan CBM Co. Ltd., established in 2003, made many efforts to drill experimental wells and expand ways of utilization in the mining area. By the end of 2003, it tried to supply gas to over 100 residents in Gushuyuan ming area. On October 7, 2005, Qinshui Lanyan CBM officially launched its gas drainage project in Chengzhuang, followed by Pan I block, Pan II block, Chengzhuang Block, Hudi Block, Zhengzhuang Block. By the end of 2006, the company has drilled 450 wells, 146 of which are still

Figure 2: Jincheng Coal Group’s CBM Well in Qingshui County

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Figure 3: Office Building of Jincheng Coal Group’s Qinshui Lanyan CBM Co. Ltd in Qingshui County

in operation. The daily output of gas reached 500,000 cubic meters and the annual output was approximately 180 million. As Table 1 shows, it is clear that the CUCM and SinoPec own the right to drain CBM within Qinshui Lanyan well-drilling blocks. By the end of 2010, Lanyan CBM Company had established 2,500 surface CBM draining well groups. A total of 1.573 billion m3 of CBM/CMM had been drained and surface drainage volume (which is CBM) reached 9.08 billion m3, accounting for 57.9% of the national total of surface drainage.17 As a Chinese proverb goes, “the river dragon can’t beat the local snake.” In spite of their almost exclusive ownership of CBM mining rights, CUCM and SinoPec progressed slowly in comparison with Qinshui Lanyan. By the end of 2007, CUCM had only drilled 150 wells in Qinnan area, with 44 in operation and a daily output of 140,000 m3 on average.18 By the end of 2009, SinoPec had drilled 900 wells (850 vertical wells and 50 horizontal wells) and has an annual output of 80 million m3.19 The central enterprises attribute their slow progress to the local coal enterprises that conduct illegal drainage and rob them of the resources. As early as 2003, SinoPec filed a complaint with the MLR against Jincheng Coal Group. After

many complaints by SinoPec and CUCM, a cross-ministry joint session investigation team was formed. After a series of field investigation, the team concluded that Jincheng Coal Group conducted “illegal gas drainage.”20 Of course, the local coal groups like Jincheng Coal Group deemed this “unfair,” claiming that according to the Coal Law, coalbed methane gas must be dealt with in order to ensure safety of mining. The guidelines of the Coal Law are “Gas first, then the coal” and “CBM recovery and Coal Mining integration.” Jincheng Coal Group has to realize the comprehensive utilization of gas and coal. The local coal group relied on the provision of Article 2 of Chapter 35 of the Coal Law of China, which stipulates that “the State encourages coal enterprises to …comprehensively utilize CBM, gangue, coal clay and slurry.” In addition, on February 23, 2005, the State Council Standing Committee Conference proposed seven measures to prevent and tackle coal mine gas. In June, 2006, the State Council issued A Few Opinions on how to Speed up CBM Prospecting and Utilization (State Council General Office [2006]No. 47), which provided for adherence to the “combination of gas drainage and coal mining,” apparently addressing the overlapping


issue between the exploration right of CBM and coal. In case of new mineral resources prospecting right, CBM, coal resources must be prospected, evaluated and their reserves must be determined. If the density of gas per ton in the coalbed surpasses that of the regulated standard and suffices to be developed, a CBM and coal development plan must be composed; ground surface CBM drainage is preferred. With this as their ground, Jincheng Coal Group filed a report to the Coordination Leadership Team of the Development and Reform Committee of Shanxi Province, the State Development and Reform Commission, and the People’s Congress of various levels and other departments, suggesting that as the parties authorized to implement the “integrated CBM recovery and coal mining,” the coal enterprises have the right to recover and utilize CBM/CMM.21 In 2006, the investigation team concluded that Jincheng Coal Group conducted “illegal gas drainage.” However, no sanction was actually made. Instead, it attempted to address the disputes through negotiation. In April, 2007, MLR published a Notice on Strengthening Coal and CBM Comprehensive Prospecting and Mining Management (MLR [2006]96). The Notice provides three means to

address the issue over overlapping mining rights of coal and CBM/CMM: 1) it requires the MLR and local land and recourse bureaus to carry out a thorough survey of CBM exploration and mining rights within its jurisdiction, submit a report of the blocks failing to meet the minimum prospecting investment, then MLR decides whether to reduce the amount by legal means or repeal the right; 2) the coal mining right owners who have coal mining licenses should try to apply for a CBM draining license later if they drain the CBM by means of ground surface drainage within its mining area; but no CBM draining license is required for recycling the underground gas, which is the CMM. This is the first time the MLR made a distinction between CBM and CMM; 3) in case there is overlapping of mining rights which fails to end with a co-operation agreement, the two parties should try to negotiate ways of co-operation or sign safe production agreement. Based on the principle “CBM drainage first, coal mining second,” conducting comprehensive prospecting and mining of coal and CBM; if both parties fail to reach any agreement 6 months after the notice is issued, the MLR will conduct a mediation. If both parties agree to mediation, the overlapping part excluded, one party will make compensations to the other for its investment in the excluded part. In case mediation fails, the land and natural resources bureau will act in accordance with

Figure 4: Office Building of CUCM’s Panzhuang CBM Co. in Qingshui County

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Figure 5: Operation Pipes of CUCM’s Panzhuang CBM Co. in Qingshui County

‘the principle of integrated gas drainage and coal mining, supporting the comprehensive prospecting and mining of CBM resources by the coal production enterprises in the project area’ This notice is beneficial to enterprises owning coal mining rights. Firstly, they will not be punished for what the oil and gas enterprises deem as illegal activities, instead they are given the opportunities to conduct equal negotiation with CBM mining right owners; Secondly, the notice implies that MLR or LBRs will intervene if negotiation does not get anywhere in 6 months and even when mediation fails, the LBRs or Ministry may support the coal production companies to drain CMM resources; Besides, the Ministry clarifies that there is no requirement to obtain CMM mining right license since the coal mining right owners naturally owns the right to recycle the coal mine gas, which distinguishes the forms of ownership of CBM and CMM and helps the coal enterprises to further assert the mining right arrangement of ‘gas with the coal’. However, the orders by the central ministries and commissions do not suffice to tackle all the overlapping problems. Wang Zhilin, a lawyer with former Xietiancheng

Law Firm of Shanxi, participated in the negotiation. He told the author that in spite of the orders, no one wanted to back out. And the prerequisite of negotiations is to have one back out first and the other make compensations for its investment in the overlapping area. If negotiation fails, MLR will make a decision to support the coal enterprises comprehensively explore and mine CBM resources. But the Ministry cannot deprive the owners of the CBM exploration right, who obtained the right by legal means. Therefore, there is no mechanism allowing for legal back-out. The orders only emphasize mutual communication for a win-win situation. This remains a fine wish as neither the central enterprises nor the local ones are willing to make any compromise. No agreement had been reached by the end of 2008 as to the right over the CBM blocks and the conflict became increasingly intense. For example, CBM enterprises and coal enterprises tried to claim more territory by drilling more wells; thereby creating a disorder and forcing various departments conduct joint execution against CBM enterprises by the end of 2008. Deputy director of Shanxi Administration of Work Safety said that it was found out during the enforcement that Qinshui Lanyan took the liberty to investigating, draining CBM in Qinshui County, drilling 1,400 wells, among which 600 were in


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Figure 6: Illustration of the “Qinshui-Jincheng-Changzhi” high-concentration CBM transmission pipeline on Jincheng Map

operation. A proposal was made to the local government to clamp down on the company. 22 Apparently, the local government of Jincheng has not clamped down on Qinshui Lanyan. In August, 2011, when I went to Qinshui for the field research, nearly all of CBM drainage wells belong to this company. The local residents also told me that their cooking gas and gas used for their automobiles are supplied by the company. Qinshui Lanyan’s annual output of surface CBM drainage reached 908 million in 2010, accounting for 57.9% of the national total and surpassing the CBM companies subordinated to CUCM and SinoPec.

Local residents have access to CBM Notwithstanding the findings by both the MLR’s and the local goverrnment’s investigation that Jincheng Coal Group was illegally recovering and utilizing CBM and CMM, Jincheng Municipal government did not shut down Qinshui Lanyan. On the contrary, it propelled the use of methane fuel that Qinshui Lanyan recovered.

Understanding that CBM/CMM exploration and utilization can contribute to the economic development of the city, the CPC Jincheng Municipal Committee and Jincheng Municipal Government have relied heavily on CBM as an ideal substitute for coal. From 2008 to June 2011, the local government invested 670 million yuans in constructing transmission pipelines and distribution networks to transmit CBM/CMM to city residents and businesses. By 2011, over 70,000 households, about 200,000 people in rural areas of Jincheng are using CBM and the total gas consumption has reached 70 million cubic meters. Jincheng Coal Group not only supplies CBM, but also is responsible for the establishment of the 137.4 km “Qinshui-Jincheng-Changzhi” highconcentration CBM transmission pipeline (See Figure 7) with the designed annual transmission volume of up to 1 billion cubic meters, and the 34.8 km “Gaozhuang, Qinshui-Zhangling, Jincheng” low concentration gas transmission pipe. The CBM/CMM was widely used in Jincheng city. Even a taxi that the author rode in was fueled by CBM. The driver told the author that the price for CBM/CMM fuel was much cheaper than regular gasoline. The price for CBM fuel for vehicles was approximately 3.4 yuans per


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Figure 7: CBM pipes connected to households in Chen Village at Qingshui Country

cubic meter, 40% cheaper than gasoline (gasoline price was approximately 7.46 yuans per liter.) Usually, a full tank of 10 cubic meters of CBM will fuel a taxi for 100 kilometers. If a taxi runs 100,000 km a year, CBM alone will save the taxi driver 40,000 yuans of operation cost. Given the support from the local government, Jincheng Coal Industry Group continues to explore and recover CBM in Jincheng city, especially in Jincheng’s Qinshui County, which has approximately 500 billion cubic meters of CBM geologic resources according to the latest geological survey. The CBM resources accounted for approximately 12.7% of Qinshui’s coal mine CBM resources, 91.132 billion cubic meters of which are recoverable reserves. Jincheng Coal Industry Group owns national key coal mining region Sihe Mine in Qinshui County, which oil and gas has 10.263 billion cubic meters of CBM reserves. Because of the large CBM reserves in this county, the disputes over the recovery rights of CBM between the Jincheng Coal Industry Group and the centrally controlled oil and gas companies that have CBM mining rights registered with the MLR are particularly contentious. Many villagers believe that Lanyan started drilling

first, followed by centrally-controlled enterprises, such as CUCM and PetroChina Huabei Oilfield Company, joined by foreign-funded enterprises such as the Ganghua CBM Liquefaction Program and Shuntai CBM Liquefaction. However, most people in Qinshui County are unaware that Qingshui Lanyan did not have the rights to recover the CBM from coal seams. According to a villager surnamed Jia, “most of the wells drilled in the mountain belong to Lanyan. Three years after these wells appear, our village had access to coalbed methane and we don’t have to pick up coal balls like before. Life is much more convenient.” She also believed that Jincheng Coal Industry Group had helped her village install CBM transmission pipes, provided CBM fuel to the residents free of charge in the beginning, and later provided it for a small fee, which the the village committee paid. The CBM recovery industry has now taken up a big presence in Qinshui County. Many villagers no longer engaged in agriculture but have become employees of these enterprises. Some villagers found that the CBM industry had some negative impact on the small coal mines the village supported, many of which closed, causing the villagers to lose the bonus from these small coals mines. However,


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Figure 8: Sihe CBM Power Plant in Qingshui County (claimed to be the world’s largest)

generally, many villagers found that CBM exploration does done more good than harm and they have benefited from it. In Qinshui County’s official report, the county has risen in rank from 499 to 100 in the national county economy appraisal was skyrocketed to 100 from the original 499 in 2010. Environmental impacts The arrangement between the local government and the Jincheng Coal Industry Group has had positive impacts on the environment. By recovering CBM/CMM from the coal mines, Jincheng Coal Industry Group was able to make use of a natural gas that would have been otherwise emitted during mining operations and turn that cleaner burning resource into energy. In 2008, Jincheng Coal Industry Group established Sihe CBM Power Plant at Sihe Mining area. Claimed to be the world’s largest, the power plant has an installed capacity of 120 megawatts and was incorporated into Jincheng Power Grid of Shanxi Provincial Power Company. Sihe CBM Power Plant is also one of China’s first Clean Development Mechanism (CDM) projects. In 2011, Sihe CBM Power Plant made use of 226 million cubic meters of CBM and CMM. Compared with coal-fired power-generation, CBM power generation saves energy resource equal to

323,000 tons of standard coal and reduces methane emission of approximately 18.15 million cubic meters of and approximately 1,617 tons of carbon dioxide emission every year. Jincheng Municipal Government also pronounced that with the promotion and application of CBM, Jincheng has separated itself from coal-related “black image” and its environment has greatly improved. The number of days at Grade II (good) was increased from 258 days in 2005 to 354 days in 2010, and among which 104 days met the standard of Grade I (excellent) . The city’s plan to recover and utilize CBM won an award from the Ministry of Environmental Protection for being “a model city for the environment.” It also won the United Nation’s “Dubai International Award for Best Practices to Improve the Living Environment.” Jincheng Coal Industry Group and the local government have used these positive results of their arrangement to persuade the central government that CBM should be excavated by coal enterprises. In fact, the current mining rights arrangement offers coal enterprises two options, both illegal: the first option is to act like Jincheng Coal Industry Group, though without CBM right, it recovers


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Figure 9: One of the “sky lights” (a 30-meter-long tube) to burn away coalmine methane for nothing

and utilizes CBM/CMM disregarding the barrier of overlapping mining rights and at the same time put into efforts to open up new markets. Doing so will violate the Mineral Resources Law, and will be complained by central enterprises, but it has better economic, environmental and social benefits. The second option is that enterprise does not retrieve and use CBM/CMM in advance, but directly emit coalmine gas to exploit coal. Though it does not directly violate the Mineral Resources Law, it causes resource waste and environmental pollution, and violates the CBM/CMM emission standard and national policy of extracting gas first, exploiting coal second. According to Wang Zhilin, a lawyer participated in the research of Shanxi’s exploration and utilization of CBM, many coal mines had to choose the second option owning to technology and funding problem. When conducting the research, they often saw that some coal mines connect the seam with “sky lights” (a 30-meter-long tube) to burn away coal mine methane. The development of CBM industry From central ministerial officials, local government officials, senior executives of central enterprises to senior managers of local coal enterprises, all hold that China’s CBM industry develops slowly and did not reach

the goal of the 11th Five-Year Plan. The major reason is the separation of coal mining right and CBM mining right and the lack of a governance system to determine those rights. Chen Xianda, Deputy Direct General of the Department of Geological Exploration of the Ministry of Land and Resources pointed out “the multiple mining rights of CBM and coal resources have detrimental effects on the exploration of the two energies and the development of both industries.” 23 Tan Chuanrong, Chairman of Shanxi Tongyu Coalbed Methane Distribution Company, which is the investor of Duanshi-Jincheng-Boai CBM pipeline, mentioned that the pipeline is on the list of the nation’s key CBM exploration and utilization projects. It is China’s first inter-provincial pipeline, and the gas supplier is CUCM. But owning to the multiple mining rights, CUCM can only supply 300 million cubic meters of gas, which is far less than 2 billion cubic meters, which is the capacity of the pipeline. According to Tan Chuanrong,“the CBM supplied by CUCM has always been insufficient to meet the demand of the gas pipeline transmission capacity. The root lies in the fact that those enterprises which own


CBM mining rights lack local resources while the areas with coal mines lack CBM mining rights. As a matter of fact, the conflict is deep-rooted and lasting, with the coal mining rights and CBM mining rights being independent of each other.”24 Wang Qingxian, Mayor of Jincheng City, Shanxi Province told CCTV reporters frankly in May 2011, “We cannot make a plan of coalbed methane industry because of the split of the two rights, and CBM industry cannot expand scale and carry out big-scale commercial operations either.”

Shanxi’s “gas with coal” comprehensive reform plan The Qinshui Lanyan CBM Co. of Jincheng Coal Group gives local coal groups and local governments a model demonstrating that CBM/CMM recovery and utilization could be conducted along with coal mining operations successfully and coordination among the coal groups and oil and gas groups could achieve the profitable recovery and use of CBM/CMM, promote the use of a clean energy source, and reduce greenhouse gas emissions. As China will continue to depend heavily on coal as its main energy for a long time, Shanxi’s “coal mining and gas recovery integration” mode is regarded as the most compatible way to the coordinated development of CBM and coal industries in China.25 The coal mining and CBM/CMM recovery integration mode emphasizes multiple methods to retrieve methane in a shaft: pre-recovery of CBM before coal mining (surface pre-recovery), drilling CMM during mining, (drainage during mining) and drilling CMM after coal is extracted and mine abandoned (post-mining). The methods address safety concerns and efficient capture of the gas for utilization as well as reduction in greenhouse gas emissions by reducing and capturing methane gases in the coal seams and which could be released during mining operations. As mentioned above, except for the MLR No. 96 document, other laws of China do not differentiate between CBM and CMM. In terms of law, CBM mining right holder has rights for methane pre-draining, during mining and post-mining, but in reality, CBM companies—usually non-coal enterprises, with the target to acquire CBM resource through surface CBM extraction, rarely consider future coal mining. Thus, the “integration of coal

mining and gas recovery” mode is hard to accomplish with these CBM companies. For mining districts not intend to exploit coal for a long period, there is no difference between CBM recovery and conventional natural gas drainage. However, for mining districts that have already established coal mining rights and are prepared to excavate coal mines in 5 to 10 years, the “coal mining and gas recovery integration” method is necessary to coordinate the overlapping rights, ensure safety of mining operations, prevent waste of resources, and reduce the greenhouse gas emissions. However, as described in a Chinese proverb, “one mountain cannot have two tigers,” coordination between a coal mining company and gas and oil company in this coal mining and gas recovery integrated system is difficult. Since China began to develop coal industry, each coal mine district is independent jurisdiction with only one master – the coal mining company. If the coal mining rights holder and the CBM mining rights holder each proclaims that he is the decision maker for the district, the competing interests may derail the coal mining and gas recovery integration method. With its successful practice, Qinshui Lanyan CBM Company, acted as a special CBM drainage company and cooperated with other coal groups in Shanxi and Gansu Provinces to conduct surface CBM recovery. Since then it has drilled over 600 wells outside the mining regions of Jincheng Coal Industry Group and supplied local residents with coalbed methane. Taking the successful experience of Jincheng Coal Industry Group and with the belief that coal mining right holders are in a better position to “implement the coal mining and gas recovery integration,” Shanxi Provincial Government submitted to the State Council in 2010 a request to set up a “Comprehensive Supporting Reform Pilot Area for the Transformation of Resource-Based Economy” and one of the reform proposals was that CBM exploration should be “gas with coal and integration of the two mining rights.” Shanxi Provincial Government desires to “act and experiment first” the arrangement of CBM mining right. The government proposed that in regions with multiple CBM and coal mining rights, CBM mining rights holders transfer their CBM mining rights in the region to coal enterprises and that for small CBM mining regions, Shanxi provincial land and resources authority is given the right to issue CBM mining rights. On December 13, 2010, the State Council approved the establishment of the pilot in Shanxi Province. However, it is uncertain whether the local governments would be given the authority to issue CBM mining rights and whether coal mining companies would be given CBM mining rights

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“Sanjiao Mode” The State Council’s approval of Shanxi Province Government’s proposed pilot project demonstrates that some of the central government leaders are in support of a more comprehensive and coordinated approach to coal mining and CBM/CMM recovery and utilization. The centrally-controlled enterprises such as CUCM and PetroChina argue, however, that the “gas with coal” mining rights arrangements violate the current Mineral Resources Law, and are a typical local protectionism measure. They further argue that their present CBM mining rights are legally acquired and should not be deprived because of local interest. Despite the strength of their legal positions, the centrally-controlled gas and oil companies with CBM mining rights have not been as successful as some of the locallycontrolled coal mining companies in drilling for CBM/ CMM. Part of the reason, as demonstrated above, is that the coal mining companies have the support of the local government and the local communities because of their success in utilizing the CBM/CMM and contributing some of the benefits back to the local communities. Realizing this, at least one centrally-controlled gas company, PetroChina, has changed its position and now vigorously seeks cooperation with coal mining groups. It began an initiative in Sanjiao, Shanxi Province, to gain the support of the local government and cooperation of the coal mining companies. Sanjiao is one of the regions in Shanxi that has the most significant overlap of CBM and coal mining rights. PetroChina’s CBM field covers an area of 462 square kilometers, 77% of which (i.e., 350 square kilometers) overlap with coal mining fields subject to coal mining rights. PetroChina proposes to cooperate with 9 coal enterprises on 12 mining fields with mining rights coverage of 361 square kilometers. The cooperation is built on three conditions: (1) each party recognizes and acknowledges each other’s mining rights and agrees to share information about its plans, (2) the parties cooperate closely to achieve win-win result, and (3) the parties manufacture mixed commercial gas to guarantee local energy needs.26 Figure 10 and the following explanation explain the way how the Sanjiao initiative would work: (1) During the first five years of the cooperation, PetroChina will exercise their CBM mining rights without any interference from the coal mining groups having coal mining licenses in the region.

(2) Starting the sixth year until end of the eighth year, PetroChina agrees to coordinate with the coal mining companies on the recovery of CBM/CMM. Each party may conduct surveys in the overlapping mining rights region and may survey the same coal seam underground with emphasis on the different targets. (3) During the sixth year through the eighth year, the parties will coordinate on pre-recovery CBM before coal mining (surface pre-recovery), drilling CMM during mining, (drainage during mining) and drilling CMM after coal is extracted and mine abandoned (drainage post-mining). (4) PetroChina agrees to make full use of the gas emitted by coal mine to manufacture a mixed commercial product. In Sanjiao region, the concentration of the surface recovered coalbed methane is 95%, while the methane concentration from the underground drilling is only 12% to 30%. According to national regulations, gas with methane concentration lower than 30% cannot be utilized. To improve the quality of the gas recovered from underground drilling, the parties could mix the methane gas to render a product with a concentration of 41% or higher for commercial purposes. With this proposal, PetroChina made a concession to consider the interest of coal enterprises and permitted the coal mining companies to drill for CBM during the first 8 years of the agreement. The agreement also permits PetroChina to serve as a contractor for coal enterprises in the drilling of the CBM. This arrangement is particular attractive to coal mining companies that do not have the technology of funding to recover CBM. In this cooperation, Linxian, the government in Sanjiao region played an important role. Linxian Government signed the cooperation framework with PetroChina, and set up a working group led by the chief county leaders to coordinate the cooperative relationship involving coal mines and straighten out the conflict of mining rights. This arrangement also benefited the local government directly. Linxian Government requested and PetroChina CBM Company agreed to increase its supply of methane gas to the city to support local economic development.27 PetroChina’s change in position and its proposed arrangement to cooperated with the local governments and the coal mines demonstrate that even with inaction from the central government, China’s CBM and coal mining right issue may be resolved in the next five years. In general, the author concludes that the following scenarios:


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Figure 10: Illustration of the comprehensive resource utilization mode of “coal mining and gas recovery integration”

1. In national key coal mine regions and regions with established coal mining rights, coal enterprises will become the main entity in the development of CBM recovery. They likely will be able to acquire CBM/ CMM mining rights in the end. In addition, they may cooperate with CBM Companies to increase the scale of exploration of CBM/CMM. 2. In coal mining regions where a central gas and oil company has acquired CBM mining rights and has made investments to explore and recover CBM and where coal mining rights are established, the central and local governments will most likely ask the central company to cooperate with local coal enterprises in a way similar to PetroChina’s Sanjiao initiative. On the contrary, if central company has not made any substantial investment, it is likely that the local government will push for establishing CBM surface recovery right for coal enterprises. 3. It is most likely that the central government will amend the Mineral Resources Law to reflect the distinction between CBM mining rights and CMM mining rights. Coal mining right holders will most likely obtain the right of underground CMM drilling. 4. For CBM exploration right already granted and not overlapped with coal mining right, local land and resources authority cannot set coal mining right. It is written in the MLR No.96 Document. Similarly, for

regions without any coal or CBM mining rights, MLR will “comprehensively consider the CBM and coal hosting feature and coal mining right plan and allocate and make to public designated CBM survey and exploration region in regions rich in CBM. Coal mining right will not be given away until CBM survey and exploration is accomplished. The Ministry will invite bid to sell CBM exploration right, and choose proper mining right owners according to the qualification, achievement and survey implementation plan and in accordance with law provisions. According to current documents issued by MLR, central government is not willing to transfer the CBM surface recovery mining right to local enterprises. However, whether Shanxi Province is able to break the constraint with the policy of “act and experiment first” is hard to predict. In unexplored regions, central government most likely will not transfer the review and approval right to issue CBM license to local authorities in order to avoid the chaotic development of small coal mines after the coal mining license approval right is transferred to local government. The MLR especially issued a notice to the land and resources administration agencies in the provinces, autonomous regions and municipalities in January 2011, demanding that new coal exploration right application be suspended nationwide before December 31, 2013. The reason of coal mining right control, according to the speaker of MLR, is to prevent overcapacity caused by overinvestment in coal resource excavation, because


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the annual coal production capacity of the mining licenses China already issued is over 3.8 billion tons. Production capacity of mines that have completed survey and applied for mining license is above 600 million tons. Coal production is much more than the need. The demand to transfer the CBM mining license review and approval right to local will be against the current central policy to tighten up coal mining right approval and is hard to gain support.

The emergence, development, and the proposed resolution of the CBM mining rights in Shanxi Province demonstrate that “energy policy in China today is a battleground of negotiation among powerful actors with conflicting interests that are evident everywhere.”28 Powerful actors with conflicting interests During the exploration process of CBM, five actors with different targets and interests have been formed in Shanxi Province; they are the central government, Shanxi provincial government, city or county government with the coal and CBM resources (such as Jincheng City, Qingshui County), central petroleum and gas enterprises and local coal companies. With conflicting interests, the five actors were the major stakeholders of CBM mining rights, and have dominated China’s energy development. The CBM case of Shanxi Province revealed the inconsistency of CBM exploration related laws and policies issued by different departments and commissions of the central government. First, The Mineral Resources Law defines CBM a new mine differentiating from coal, but the Coal Law regards CBM an associated mineral resource and the coal miner has the right to develop it comprehensively. Second, the Investigation Group of the 2006 InterMinisterial Conference on the Comprehensive Treatment of Public Order on State Oil and Gas Fields asserted that Jincheng Coal Industry Group was “illegally exploring gas,” while MLR issued a document in 2007 demanding that coal groups and petroleum gas companies must negotiate on the mining issue in areas with multiple mining rights. If no results come out from negotiation, MLR would intervene and if there is still no conciliation made, MLR would “support coal mining enterprises in state-planning coal mine regions to explore and excavate CBM resource comprehensively as per the principle of integration of coal mining and gas recovery to explore both resources.” In 2008, the National Energy Bureau

asked national key coal mine regions to work out scaled CBM recovery and exploration plan, which de facto supported coal mining right holders to conduct comprehensive CBM recovery. Compared with the inconsistency of policies made by various agencies in the central government, the conflicting interests of local government and central government on CBM exploration and regulation are much more obvious. The comprehensive reform plan submitted by Shanxi Province which asking “gas with coal” and the initial distribution right of CBM mining license to be transferred to Shanxi Province gives ample evidence to the point. CBM is regarded as an unconventional natural gas and the mining right is allocated and managed as per the pattern of petroleum and natural gas. In China, the central government controls and governs property right and the distribution of initial mining right of petroleum and gas. For historical reasons, enterprises directly under the leadership of central government have acquired most of the CBM mining licenses. In financial distribution system, China started a reform in 1994 to introduce the tax sharing system with which the central and local governments collect different taxes on the basis of revenue division. Hence, on the one hand, local government with resources, in a rational way, would concern more about local interests such as increasing employment and local fiscal revenue, and would tend to favor local enterprises who had bigger tax contribution, especially local state owned enterprises; on the other hand, since energy resources are nonrenewable, the low-level resource tax central enterprise paid could not compensate the environmental pollution it caused during the mining process, and would cause unavoidable conflict between central enterprise and local government. CBM is a clean energy and its exploration is the new economic growth point of Shanxi provincial and local governments. They hoped to use their natural resources to propel local economic development and at the same time address the serious air pollution caused by coal mining. Since 1960s, Shanxi has excavated about 12 billion tons of coal of which three fourth have been supplied to all over China. The long-lasting intensive coal mining operation have made many major cities in Shanxi Province, such as Taiyuan City, Datong City, Yangquan City, Linfen City and Changzhi City the most-serious airpolluted cities in China. The energy consumption per unit GDP is two times above the national average. Fifty percent of the province’s surface water is heavily polluted. Shanxi was regarded as a “single coal dominant” province and has a single industrial structure. The four


major industries of coal, coke, power and ore extraction account for 85% of Shanxi’s industries, which are all using coal resource. Shanxi local government is seeking to transform its economic development mode and one of the strategic targets is to “gasify Shanxi” and promote the use of four gases (CBM, natural gas, coke oven gas and coal gas) in Shanxi. To achieve this goal, Shanxi Provincial Government wishes to get the initial distribution right so it can decide the CBM mining license by its own. Especially under the circumstance that central government has suspended the right of land and resources authorities at all levels to issue coal mining license, local governments hope to regain the initiative to explore nonconventional energy. On the other hand, in the late 1980s, the reform of “separation of government functions from enterprise management” created a lot of lawfully independent energy companies, which had great powers and capacities to develop by their own and would often ignore the guidance of central government supervisors. These energy companies were established as a solution to the energy resource distribution between central and local governments, and at the same time to attract foreign investment and technology. For example, Huaneng Group, one of China’s five power groups, CNOOC and CUCM in this case, were set up to attract foreign technology, energy investment and promote foreign trade. On the local level, the decentralization reform in coal industry has created local coal groups who had close relationship with local governments. Jincheng Anthracite Coal Mining Group, Datong Mine Industry Group, Yangquan Coal Industry Group and Lu’an Mine Industry Group are five coal giants directly under the leadership of Shanxi Province. These semi-public, semi-private SOEs can not only sway government policies, but also the real enactor of many energy policies in China. Inadequate central government supervision China is a unitary state, theoretically local governments and enterprises must obey central government rules. However, the central government itself is a collection of multi-functionary departments, besides, local governments and energy enterprises are powerful actors, and then inadequate central supervision in energy treatment field became an issue of concern. The rise of Chinese energy enterprises, local-government-dominated development and the emancipation of central management on energy was happening simultaneously.29 The number of public servants, fund and agencies in central government were decreased in the key reform period. In the 1998 government agency reform, central government cut its

departments and commissions from 40 to 29, and many public servants were transferred to SOEs, research institutes and institutional units. Apart from that, central government no longer sent personnel or provided resource to guide the energy investment of energy companies. As the CBM case shows, since the conflict of local coal enterprises and central petroleum and gas enterprises became intensive in 2006, MLR, SEA and Coal Mine Safety Supervision Bureau all tried to meditate and settle the conflict. MLR specially issued No.96 document to guide the resolution of multiple mining rights problem. However, the conflict between the two sides was not fully resolved. Shanxi Bureau of Work Safety even asked Jincheng Municipal Government to ban the Qingshui Lanyan Company, but Jincheng Government refused the suggestion and the issue was dismissed again. Now Shanxi Provincial Government asked “gas with coal” and “transfer power to local government;” PetroChina was able to coordinate with coal enterprises to achieve integrated gas recovery and coal exploration with the support of local Linxian county government; all these showed that without local governments’ support, central government decrees can hardly be implemented and carried out. In CBM exploration field, central government decrees were not fully carried out to resolve CBM mining right issue and did not address the safety and environmental issues involved. Take the experience of the United States for reference, the reason of the rapid development of American CBM industry in the 1980s and 1990s was closely related to the special law on CBM exploration enacted by CBM-rich state such as Alabama. The controversial CBM mining right would be submitted to the court to rule according to laws such as the Mineral Resource Law, but the law also regulated that potential mining righter could have “force pooling”, so CBM could still be explored during the process of conflict solving and all the exploration revenue would be put into an escrow account and be distributed among mine right holders as per the court verdict or negotiation results, which reduced CBM exploration barriers and propelled its development. Besides, Alabama state laws also regulated that the distribution of CBM shafts must not affect the normal operation of nearby coalmines to safeguard coalmine safety; the vertical and horizontal shafts mining must not affect local rivers, wetland and underground water.30 On the contrary, Chinese central and local governments did not enact any laws and regulations specifically directed at CBM exploration supervision; rather they only asked the CBM and coal enterprises to achieve

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Figure 11: the nearly dried-up Qinghe River in Qingshui County where there are the most CBM wells in Shanxi Province

“integrated coal exploration and gas recovery” in principle. The General Office of the State Administration of Work Safety did not decide that coal safety supervision authority was responsible for safety supervision of CBM recovery enterprises until 2010. The Ministry of Environmental Protection did not issue any environmental protection regulations and standard directing at CBM recovery enterprises. A simplified edition of the environmental impact assessment of the CBM Resource Exploration Project of Panzhuang District, Jincheng City, Shanxi Province showed that the surface and underground water in the CBM mining region were polluted, with the level of oil found in the water one to five times above the limit. The assessment also found that if the waste from the drilling was not properly treated, it would further aggravate local surface and underground water pollution. However, the environmental impact assessment only asked to adopt simple chemical precipitation method to treat drilling waste. It is difficult for local environmental administration authority to ask CBM exploration enterprises to adopt higher environmental protection standard because of the lacking of specific environmental regulations. During CBM exploration, a large amount of clean water is needed, while the assessment simply wrote that “a single vertical fracture well

needs 600m3 of clean water, which can be sent by tank trucks”, and did not tell where to get the water. Local residents in Qinshui County told the author that the well drilling caused a depression of water table and the local Qinhe River was nearly dried up. Compared with a decade ago, its water table dropped by 10 meters or so.

China’s soaring appetite for energy and increasing greenhouse gas emissions are a concern for the rest of the world. Although China central leadership has set up ambitious energy efficiency, clean energy and pollution reduction targets in its 12th Five-Year Plan to transform the country to a low carbon economy, whether China’s energy governance system is effective to realize the goals remains a question. As the case of disputes over mining rights of CBM/CMM show, the planned targets for CBM/CMM production have not been achieved under the 11th Five-Year Plan (2005-2010), despite the fact that China is in urgent need to develop clean coal and supply natural gas. The


core reason for the slow development is the overlapping of coal and CBM/CMM mining rights, with the local coal groups having the coal mining rights on the one hand and the central-owned oil and gas companies holding the CBM mining rights on the other in the same resource regions. The lack of a governance system that has fueled the local-central conflicts caused illegal, unsustainable, unsystematic or wasteful way of CBM/CMM drainage and use. In addition to conflicting laws and rules, the governance system also lack legal, administrative or other authoritative and transparent channels through which the parties could seek clarification of their rights and resolve disputes. Central regulatory ministries issued normative document to address the problem but did not get lead to any resolution; local governments have their own interests in CBM/CMM development and only show lip service to the central policy. The different parties are left to their own devices in protecting their own interest and resolving conflicts. Shanxi provincial government proposes the solution- “gas with the coal”- asking for the CBM/CMM mining rights to be issued to local coal groups and by local governments. PetroChina on its own developed a collaborative model to accommodate local interests while at the same time maintaining its CBM/ CMM mining rights. With each party looking out for their own interests and a lack of governance system to regulate these conflicts, the central and local governments are not playing their role in supervising safety and environmental issues in CBM exploration. “Energy policy in China today is a battleground of negotiation among powerful actors with conflicting interests”, as Edward A. Cunningham put it, is evident here in this case. This report does not aim to conduct a comprehensive assessment on whether the current China’s energy governance system is adequate to guide or regulate this “battleground”, but try to shed some light on how complex the dynamics are between such powerful actors in the energy upstream field and challenges facing China’s leaders both governing energy companies and local governments. Through this case study, it is obvious that China cannot just rely on central government’s decree to accomplish the five year plans. Further research should consider how to strengthen China’s energy governance through rule of law, transparency and public participation to bring public oversight into the system. While challenges remains, case of CBM/CMM mining rights dispute also shows there will be solutions. The more the policy makers consider the heterogeneous relations in the country’s energy governance, the better the solutions will be.

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1. IEA, Cleaner Coal in China, 2009; 17. 2.

U.S. EPA’s Coalbed Methane Outreach Program Frequent Questions, http://www.epa.gov/cmop/faq.html

21. Zhu Xiaoming, Wang Zhiling and Wang Lingwen, “Coal Mining and Gas Recovery Integration Mode” Legal Issue Research, Law Press, October, 2008

3. BP Statistical Review of World Energy, 2010

22. Xinhua News (Journalist Peng Yang): Shanxi Stops Illegal Exploration of Coalbed Methane, January, 22, 2009

4. IEA CCC 2005

23. See Reference number 14

5. National Energy Bureau: Analysis on the 12th five-year plan Regarding CBM/CMM Development and Utilization, 2011

24. See Reference number 17.

6. Huang Shengchu (President of China Coal Information Institute): Current situation of CBM/CMM Recovery and Utilization and Preferential Policies, 2009 and Guo Lifang:CBM/CMM Production Reaches 8.8 billion m3 in 2010, China Energy News, January 10, 2010, available at http://paper.people.com.cn/zgnyb/html/2011-01/10/ content_719599.htm 7. Nolan,P., and H. Rui. Industrial Policy and Global Big Business Revolution: The Case of the Chinese Coal Industry. Journal of Chinese Economic and Business Studies 2(2):97-113, 2004 8. Wuyang, Peng. The Evolution of China’s Coal Institutions, Program on Energy and Sustainable Development Working papers series #86 August 2009 9. Consolidated Joint Report of the World Bank and the Institute of Economic System and Management: Modernizing China’s Oil And Gas Sector: Structure Reform and Regulation, November, 2000, 10. National Energy Bureau Data of 2010, available at http:// nyj.nrdc.gov.cn/dault.htm 11. Notification of State Administration of Work Safety General Office on Clarify the Supervision Responsibility of Work Safety at CBM Recovery and Utilization Enterprises, March 2, 2010 12. The War of Coal Mine Methane Gas, China Economic Weekly, May 17, 2011 13. MLR’s Notification of Further Regulating Authority to Review and Issue Mining Rights, October, 14, 2005 14. Chen Xianda, Presentation on Analyzing Policies Related to CBM Development, Sept. 3, 2009. 15. Wu Jianwen: Shanxi CBM Current Development and Outlook, Shanxi Fenwei Energy Consulting Co., Ltd, April 2010 16. CCTV 2: Economic Half-an-Hour-Coalbed Methane and Coal in Dispute , May 7, 2011 17. See Reference number 16 18. CUCM: The Main Force for China’s CBM Industry , November 1, 2008 19. Wang Feng: Technology and Prospect of PetroChina’s CBM Exploration & Development, Presentation at the Ninth Sino-US Oil and Gas Industry Forum 20. See Reference number 12

25. Zhang Sui’an: Theory and Practice of Integrated Coal Mining and Gas Extraction, China Coalbed Methane, Nov. 2006 26. Zhu-Cheng Xu, Yan-Xiang Li: Harmonious Development of Gas and Coal co-exploitation: A Sanjiao Mode, Natural Gas Journal Volume 30 Issue 6 (2010/06/25) 27. Linxian Government Office, MLR Coalbad Methane and Coal Development Cooperation Mode Symposium and Press Release Conference in Taiyuan, July 26, 2011 28. Edward Cunningham: China’s Energy Governance: Perception and Reality, MIT Center for International Studies Audit of the Conventional Wisdom, 07-04 (March 2007). 29. Id. 30. U.S. Environmental Protection Agency’s White Paper: White Paper: Coalbed Methane Legislation and Recovery in Alabama, Pennsylvania, Virginia, and West Virginia, November, 1997


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The authors are appreciative to the Centre on Asia and Globalisation and the Lee Kuan Yew School of Public Policy for some of the financial assistance needed to conduct the research interviews, field research, and travel for this project. The authors are also extremely grateful to the National University of Singapore for Faculty Start-up Grant 09-273 as well as the MacArthur Foundation for Asia Security Initiative Grant 08-92777-000-GSS, which have supported elements of the work reported here. Any opinions, findings, and conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of the Centre on Asia and Globalisation, Lee Kuan Yew School of Public Policy, National University of Singapore, or MacArthur Foundation. Also, the views of the author(s) expressed in this study do not necessarily reflect the views of the United States Agency for International Development or the United States Government.

Ms. Lin Yanmei is currently an assistant director at the U.S.-China Partnership for Environmental Law at Vermont Law School. Before she joined Vermont Law School in October 2010, Ms. Lin was a program officer for American Bar Association Rule of Law Initiative’s China program for more than 3 years, managing and implementing projects in the areas of environmental law, open government information and civil society development in China. Prior to that, she was a lecturer and researcher for China Institute of Environment and Resources Protection in Minority Areas at the Central University for Nationalities. She holds a B.A. and Master of Laws from Fudan University and an LL.M. from New York University School of Law. Her email address is ylin@vermontlaw.edu


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An abandoned coalmine coalmine methane drainage


Energy Governance Case Studies Series 1. Lighting Laos: The governance implications of the Laos rural electrification program 2. Gers just want to have fun: Evaluating the renewable energy and rural electricity access project (REAP) in Mongolia 3. Living up to energy governance benchmarks: The Xeketam hydropower project in Laos 4. Settling the score: The implications of the Sarawak Corridor of Renewable Energy (SCORE) in Malaysia 5. What went wrong? Examining the Teacher’s Solar Lighting Project in Papua New Guinea 6. Summoning the sun: Evaluating China’s Renewable Energy Development Project (REDP) 7. Rural energy development on the “Roof of the World”: Lessons from microhydro village electrification in Nepal 8. The radiance of Soura Shakti: Installing two million solar home systems in Bangladesh 9. Untapped potential: The difficulties of the Small Renewable Energy Power (SREP) Programme in Malaysia 10. Harvesting the elements: The achievements of Sri Lanka’s Energy Services Delivery Project 11. Commercializing solar energy: Lessons from the Indonesia Solar Home Systems Project 12. Towards household energy security: The Village Energy Security Program in India 13. Public participation in China’s energy governance: The non-case of Chongqing Green Volunteers v. Guodian Yangzonghai Power Company 14. China’s evolving energy governance: A case study of mining rights disputes

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Strategic partners

The Lee Kuan Yew School of Public Policy is an autonomous, professional graduate school of the National University of Singapore. Its mission is to help educate and train the next generation of Asian policymakers and leaders, with the objective of raising the standards of governance throughout the region, improving the lives of its people and, in so doing, contribute to the transformation of Asia. For more details on the LKY School, please visit www.lkyspp.nus.edu.sg


Energy Governance Case Study #14