The Wall Street Journal-20080130-Carbon Capture Offers Way Into China-s Energy Sector

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Carbon Capture Offers Way Into China's Energy Sector

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BEIJING -- China is expected to produce more greenhouse gas than any other country over the next 20 years, but Beijing is working to develop technology that can capture carbon dioxide and store it underground.

These efforts are creating investment opportunities for foreign companies as the more common paths into China's energy sector are being closed and reserved for state enterprises.

Carbon sequestration, the removal and storage of carbon dioxide, a gas tied to global warming, is gaining more attention in China because of the country's vast coal reserves, aging oil fields and new coal- fired power stations. Burning fossil fuels such as coal produces carbon dioxide.

The U.S. and other countries are trying to develop power plants that trap carbon dioxide and stick it underground, perhaps to help recovery in aging oil fields or to use in other industrial contexts.

Carbon sequestration is still in the early phases of development, but there is increasing interest, despite the technical challenges.

The latest reminder came Friday, when energy companies from Hong Kong and Canada said they would work with China's leading producer of natural gas from coal mines.

Hong Kong-listed Enviro Energy International Holdings Ltd. and Canada's Petromin Resources Ltd. signed a deal with China United Coalbed Methane Corp. for a five-year project in the coal-rich province of Shanxi in northern China.

Supported in part by funding from the Ministry of Science and Technology, the 10 million yuan ($1.39 million) project will involve drilling wells in a coal bed that is about 3,300 feet below the surface and unsuitable for commercial mining. Canada's Alberta Research Council will provide technical expertise.

"The ultimate target for this project is to try to capture CO2 from power plants and chemical plants and then inject this C02 into the deep coal [bed] and also to enhance coal-bed methane production," said Sun Maoyuan, chairman of China United Coalbed Methane.

China wants to increase the use of methane, the explosive gas that has caused scores of deadly accidents in China's coal mines. Typically, methane is just burned off, releasing more greenhouse gases, but it can be captured and used to power turbines in power plants.

China wants the methane from coal beds to supplement natural-gas supplies. Two-thirds of China's energy needs are met by coal, which produces around three times more carbon dioxide than gas-power generators. A typical 500-megawatt power station emits more than 13,000 tons of carbon dioxide a day.

Rising electricity demand has forced China to add more than 90 gigawatts of power-generating capacity in each of the past two years. That is equivalent to the combined generating capacity of the United Kingdom and France in 2006-07.

A $9 million test project at the nearby South Qinshui Basin in Shanxi province, involving the Alberta Research Council, the Chinese Ministry of Commerce and China United Coalbed Methane, showed that methane rates nearly double when carbon dioxide is injected into the coal bed.

Kenny Chan, chairman and chief executive of Hong Kong's Enviro Energy, said the latest project is long term and faces a number of technical challenges. It would need to earn carbon credits to make the economics work, underscoring that carbon-capture and carbon-storage projects aren't eligible for the emissions-trading plan set up under the Kyoto Protocol.

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Denis McMahon in Shanghai contributed to this article.