Dongwu Securities: Deep coalbed methane has entered the large-scale development stage, focusing on mastering core block development and diversified gas source layout targets

The Zhitong Finance App learned that Dongwu Securities released a research report stating that with a combination of policies, resources, and technology, deep coalbed methane has entered the large-scale development stage. In 2025, China's coalbed methane production is about 18 billion square meters (13.8 billion square meters of shallow coal plus 4.2 billion square meters of deep coal). The bank expects China's coalbed methane production to exceed 26 billion square meters in 2030 (deep coal is expected to exceed 16 billion square meters). The bank expects the recovery of new supply and damaged supply from 2026-2027 to be limited, and international gas prices are still in tight balance. High international gas prices are gradually being transmitted domestically, and domestic gas sources benefit from gas price flexibility. Focus on mastering the goals of deep coalbed methane core block development and diversified gas source layout.

The main views of Dongwu Securities are as follows:

Combining policies, resources and technology, deep coalbed methane has entered the stage of large-scale development

1) Policy support: In terms of top-level design, unconventional natural gas (coalbed methane, compact gas, shale gas, etc.) has been integrated into the national energy security system as a whole. In July 2026, the National Energy Administration unified the definition of “deep coalbed methane” and raised the gas source status to the main focus of increasing storage and production during the “15th Five-Year Plan” period. At the subsidy level, subsidies have changed from fixed subsidies to incentives to increase production; coalbed methane is the only source of gas that has increased in weight. Coalbed methane blocks with increased production are expected to receive a higher percentage of subsidy support. 2) Abundant resources: The total amount of deep coalbed methane resources in China is about 50 trillion cubic meters, accounting for 70% of the country's coalbed methane resources. Deep coalbed methane is the absolute main body of coalbed methane resources. 3) Technological breakthroughs: The deep coalbed methane development chain has been completed during the “14th Five-Year Plan” period, and the core deep coalbed methane block has achieved large-scale production breakthroughs. Advances in development technology such as changing the shape of the well, breakthroughs in volumetric fracturing technology, and maturity in precise pressure control have driven deep coalbed methane to large-scale development. In 2025, China's coalbed methane production is about 18 billion square meters (13.8 billion square meters of shallow coal plus 4.2 billion square meters of deep coal). The bank expects China's coalbed methane production to exceed 26 billion square meters in 2030 (deep coal is expected to exceed 16 billion square meters).

Self-produced natural gas guarantees China's energy security, and deep coalbed methane has both the flexibility to increase production and the elasticity of gas prices

From 2019 to 2025, China's apparent consumption of natural gas increased from 304.3 billion square meters to 433.2 billion square meters. In 2025, the external dependence on natural gas fell to 40.6%, and the proportion of self-generated gas increased. Looking at the gas production structure, the share of unconventional natural gas in the country's natural gas production has increased from 35% in 2015 to 45% in 2024. Unconventional natural gas has become an important increase in protecting China's natural gas energy security. Deep coalbed methane will be the biggest increase during the “15th Five-Year Plan” period (looking at the “15th Five-Year Plan” increase, the bank expects 3.7 billion square meters of dense gas, 7 billion square meters of shale gas, and more than 10 billion square meters of deep coalbed methane). The US-Iran conflict changed the global LNG supply structure, new production in the Middle East was delayed, and it will still take time to repair damaged facilities. The bank expects the recovery of new supply and damaged supply from 2026-2027 to be limited, and international gas prices are still in tight balance. High international gas prices are gradually being transmitted domestically, and domestic gas sources benefit from gas price flexibility.

Costs are declining, the competitiveness of deep coalbed methane is improving, and the return on investment of a single well is rising

Compared with shallow coalbed methane, the volume of deep coalbed methane climbs rapidly, the release is concentrated in the early stages of the entire life cycle, and the pace of cost recovery is faster. Based on the calculation model, the IRR of a single well can reach 28% +, based on an investment of 29 million yuan and a single well of EUR 55 million square meters. With reference to the neutral gas price of 1.8 yuan/square meter, the IRR of a single well can reach 28% +. Whether from a unilateral cost (which is already very close to the cost of conventional natural gas extraction in China) or from the perspective of project yield, the economy of deep coalbed methane is outstanding. Economy drives the accelerated development of deep coalbed methane, and the value of high-quality deep coalbed methane blocks continues to increase.

Risk warning: gas volume growth falls short of expectations, policy support falls short of expectations, natural gas price fluctuations, cost reduction progress falls short of expectations, etc.