Having been a previous director of Far East Energy, Tunaye Sai was able to develop his own connections in China. This led to his negotiating the Guizhou CBM concession in south central China again another enormous block of 970 square kilometers which was acquired by Canadian based AsiaCanada Energy. This became a wholly owned subsidiary of Pacific Asia China Energy, of which he serves as President and which began publicly trading on the Toronto Venture Exchange, this past January (TSX: PCE).

His concession was the first awarded to a Canadian company by the Chinese who had previously only dealt with U.S. and Australian-based companies. Since then, China has awarded concessions to three additional Canadian companies. Again, the potential gas content of these concessions is staggering. In the case of the Guizhou concession, it could conceivably host a high-case scenario of 11.2 trillion cubic feet of gas. In an interview we conducted with Eric Nuttall, CBM research analyst for Canadas Sprott Asset Management, he estimated for each trillion cubic feet of gas, a company might anticipate a market capitalization as high as $1 billion. Most CBM companies developing prospects in China, such as Far East Energy and Pacific Asia China Energy, are likely to be somewhat discounted because of country risk.

Not so for Green Dragon Gas, which this past week listed on Londons AIM market (GDG), with a market capitalization of US$525 million. It placed just under six percent of its shares to raise $22 million. Green Dragon holds five production-sharing CBM contracts covering some 1.6 million acres in Fengcheng and Shizhuang provinces. It is estimated their holdings may host 16.6 trillion cubic feet of CBM gas. It appears the European investor is savvier to Chinas prospects than those in North America. This was echoed during an interview with Pacific Asia China Energy executive vice president Steve Khan, who told us, When we visit the London fund managers, they dont have negative or a lesser view of China. They look at it as a great opportunity and theyre investing more funds there.

The nuances of investing in natural gas or CBM plays outside of North America may escape some investors. Not many realize that all gas is local. For example, natural gas sold at the wellhead in Australia or the Middle East is a fraction of the cost sold to England or in North America. While companies developing CBM resources in China carry a discount to their North American counterparts, pricing in the Chinese gas market is more stable.

We talked with Resource Opportunities editor and geologist Lawrence Roulston, who told us, I think the companies which are able to effectively exploit the CBM technology in China are going to be the pioneers in that area. To date, less than 30 concessions have been awarded to foreign-owned companies by CUCBM. There have been rumors flying that another five to ten may be awarded in the coming year. As is often the case in China, the bureaucracy moves slowly CUCBM began awarding CBM concessions in 1998 in the form of production-sharing contracts. Treated like winning lottery tickets, on average less than four per year have been handed out. CUCBM keeps between 30 and 40 percent of the production contract, and the development company pays all of the exploratory confirmation costs prior to production.

Again it is about having connections with the right people in China. Roulston explained, I could walk into the Petroleum Club in Calgary, and meet a half dozen guys and talk to them. I could build on my leads, and probably in a day be talking about a deal. When you go into China, unless you have somebody on your team that can get into the system and deal with the people, because of language issues, cultural issues and just having access to the information and knowing what sort of terms that they might be looking for. He concluded, If I was to go over to China and try to do a deal to get access to a coalbed methane property, I wouldnt have a clue about how to begin. Thats what separates the companies whove begun their CBM projects in China and why they could have outstanding long-term prospects.