CBM and CMM development in Mongolia

Felicia Ruiz and Raymond C. Pilcher

Even as reduced coal consumption is reflected in adjustments to coal pricing throughout Asian energy markets, Mongolia continues on a path to encourage production of coal mine methane (CMM) and coalbed methane (CBM). Although Mongolia has abundant coal supply, the government of Mongolia is keen to diversify its energy mix. The potential for developing coal-associated gas resources was first publicly recognized by Chimmidorj in 1995.¹ In 2004 a small publicly traded US oil and gas exploration firm, Storm Cat, negotiated a production sharing contract with the Petroleum Authority, the implementing agency of the Ministry of Mining (MOM). Storm Cat drilled several exploratory boreholes in a number of promising basins, but determined that infrastructure was an impediment that they could not tackle and ceded its licenses without developing any of the prospects.² This work did, however, bring the potential for developing indigenous gas resources to the attention of the Mongolian government and, with it, the hope of developing valuable resources that could provide an affordable, cleaner energy supply.

Like many countries with abundant coal and methane resources, Mongolian authorities were confronted with questions that arose over gas ownership and the lack of experience dealing with the technical aspects of assessing, evaluating and producing gas from coal seams. With its desire to develop CMM and CBM resources, the Mongolian government has endeavored to adapt existing laws to regulate unconventional gas resource development. The Petroleum Law passed by the Mongolian Parliament in 1991 regulates exploration and development of hydrocarbons, but the original law focused on exploration and development of conventional oil and gas resources and did not contemplate the occurrence of oil and gas deposits associated with coal seams or organic-rich shale.

In 2008, Mongolia became the 24^th country partner of the Global Methane Initiative (GMI; formerly, the Methane to Markets Partnership), an international public-private initiative that advances cost effective, near-term methane abatement and recovery and use of methane as a clean energy source. Joining the GMI indicated the Mongolian government's awareness of the need to reduce fugitive methane emissions liberated during coal mining. The Ministry’s interest in co-development of the coal and coal mine methane resources created an opportunity for the US Environmental Protection Agency (EPA) to collaborate under the auspices of GMI.

In 2009, the EPA began working with the Mongolia Nature and Environmental Consortium, a non-governmental organisation in Ulaanbaatar, to help identify and assess potential CMM recovery and use projects at active coal mines with targeted CMM pre-feasibility studies, technical and financial workshops, and via a country-wide CMM resource assessment.³ As part of this process, EPA met with government officials, who were determining how to promote the development of this unconventional gas resource. EPA evaluated the results of policies employed in various countries to encourage development of CMM. In 2014, the Mongolian government hosted a formal workshop in Ulaanbaatar and published these findings as a policy paper titled 'Legal and Regulatory Status of CMM Ownership in Key Countries: An Overview Provided for Decision Makers in Mongolia'.⁴

The Mongolian Government passed an amendment to the Petroleum Law in 2014, defining unconventional petroleum resources to include those found as natural bitumen, oil shale, tar sand, gas-rich shale, gas sand and CBM. During the same parliamentary session, an amendment to the Mining Law was passed, but it was silent on methane associated with coal. Passage of the Petroleum Law amendment marked the culmination of an open debate between the MOM and Ministry of Energy (MOE). Before the passage of the 2014 amendment to the Petroleum Law, there were overlapping requirements by the two ministries. Leasing coalbed or coal mine resources would be controlled by the MOM, but the MOE claimed that any research or exploration for methane associated with coal must also be permitted through its system.

In 2014, the GOM re-organized the ministries and clarified responsibilities. Accordingly, the MOE will only be involved in CMM or CBM to the extent that it is used to generate power. The MOM’s subordinate agencies, the Petroleum Authority and the Mineral Resources Authority, are charged with the responsibility of implementing laws and regulation and enabling licensing and permitting to promote the beneficial development of mineral and petroleum resources. The Mongolian parliament passed a resolution in 2015 that further clarifies procedures for obtaining a permit to explore and exploit coal-associated gas. This resolution was crafted as a way of avoiding conflict between operators that presently have production sharing agreements for conventional oil and gas and entities seeking to apply for unconventional petroleum exploration and exploitation permits. The resolution also requires that the Petroleum Authority notify a coal mine operator holding mining licenses granted by the Mineral Resources Authority of any application to explore for CMM/CBM within the mining license block. Further, the mine operator has the opportunity to apply for a CMM exploration and exploitation license covering its license block if notified, and the obligation to formally refuse the opportunity if it does not wish to develop the resource. With these recent governmental reorganization and legislative actions, companies interested in developing CMM or CBM can follow a relatively clear procedure from discovery through to production. Nevertheless, further regulation is being contemplated to remove remaining uncertainty in the process.

GMI continues to support stakeholder engagement with the Mongolian government to encourage capture and use of methane associated with coal deposits in Mongolia. The GMI held a Global Methane Forum from 29 - 30 March this year in Washington DC to provide opportunities for networking and discussion with methane experts in the public and private sectors from around the world. Technical, finance and policy sessions covered issues relevant to capturing and using CMM. During a session on policy governing CMM project development, a representative from Mongolia reported that the Ministry of Mining will continue to work with stakeholders and recommend additional legislation to parliament, to further define procedures for exploring and developing CMM and CBM resources.⁵

References

1. Chimiddorj (1995): Coal Resources in Mongolia and Some Probably Potential Areas for Coalbed Methane, presented by Ayurzana Chimiddorj, International Conference on Coalbed Methane Development and Utilization, Proceedings – Beijing, China, October 17-21, 1995: United Nations Development Programme and PRC Ministry of Coal and Industry, Volume B, Paper B102.
2. SEC (2005): Storm Cat Energy Form 6-K Report of Foreign Issuer Pursuant to Rule 13a-16 and 15d-16 Under the Securities Exchange Act of 1934, United States Securities and Exchange Commission, July 2005.
3. MNEC (2014): Coal Mine Methane (CMM) Resource Assessment and Emissions Inventory Development in Mongolia, Mongolian Nature and Environment Consortium, 2014.
4. EPA (2014): Legal and Regulatory Status of CMM Ownership in Key Countries: An Overview Provided for Decision Makers in Mongolia, United States Environmental Protection Agency, 2014.
5. Badarch, M. (2016, April). CBM and CMM Development in Mongolia–New Policies to Stimulate Clean Energy Projects. Global Methane Forum, Washington DC.

About the authors: Felicia Ruiz works with the Coalbed Methane Outreach Program at the US Environmental Protection Agency. Raymond C. Pilcher is President of Raven Ridge Resources Inc.

Read the article online at: https://www.worldcoal.com/cbm/18052016/cbm-and-cmm-development-in-mongolia-2016-805/