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China May Plan Ninefold Coal Gas Output Hike, Bernstein Says

China may increase subsidies for coal-seam gas production amid a plan to increase output ninefold by 2015, Sanford C. Bernstein & Co. said.

The world’s biggest energy user may unveil a proposal to extract natural gas from coal areas, possibly with an output target of 9 billion cubic meters by 2015 from about 1 billion cubic meters a year currently, Neil Beveridge, a Hong Kong-based analyst at Bernstein, said in an e-mailed report today. The U.S. currently produces more than 50 billion cubic meters of coal-seam gas, also known as coal-bed methane, he said.

“We expect the new coalbed methane plan to be announced shortly and a doubling of the wellhead subsidy for CBM to encourage development and production,” Beveridge said. “Rapid demand growth, significant reserves, plans to increase production by an order of magnitude over the next five years and a production cost which is below the cost of imported LNG or pipeline gas all point towards a promising outlook for China CBM.”

Supply is lagging behind demand as China’s energy consumption rises. Total domestic gas production may almost double to 170 billion cubic meters by 2015, according to a Bernstein report on July 5, as China aims to double the use of gas to 8 percent of energy use by 2015 to cut reliance on coal and oil. Consumption may increase to 250 billion by 2015 from 100 billion and surge to 400 billion by 2020, Bernstein said in today’s report.

The unit cost of coalbed production is 0.35 yuan (5 cents) per cubic meter and producers are able to sell the gas to their customers at 1.3 yuan before government subsidies, Bernstein said. End-user prices may range from 1.7 to 3.2 yuan for pipeline fuel, liquefied natural gas and compressed natural gas, according to the report. The Chinese government currently offers 0.2 yuan as a subsidy on coalbed production.

“Central Asian pipeline gas is likely to require a price of 3 yuan per cubic meter to be economic and LNG prices continue to rise with oil,” Beveridge said. “The upshot of this is that China should continue to place more emphasis on unconventional gas.”

Output of gas from shale rock, another form of unconventional gas, may climb to 3 billion cubic meters by 2015, Bernstein said on July 7.

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