CHINA OVERVIEW


Over the past 20 years, China’s economy has grown 500% and personal incomes have quadrupled.China is now a member of the World Trade Organization and has a vested interest in abiding by business rules and the contract law of all major industrialized countries. China’s largest trading partner is the U.S. and imports from China are annualizing $124 billion this year. China exports five times more to the U.S. than they import, contributing to the largest trade imbalance ever recorded between two countries. Trade is growing so far this year by 32%. The U.S. is the most important customer to China. The U.S. imports about as much from China as they do from Germany, France and Italy combined.  It is important to emphasize that China and the U.S. are now commercially linked major partners in the world economy. Because of the above, "Country risk" is now most likely not at all applicable to China. Also, more foreign investment went to China last year from all over the world than the U.S. and the U.K. combined. The business of China is now business.

China is energy deficient and coalbed methane may play a big part in China’s energy future. Natural gas consumption in China is rising rapidly, fueled by an unprecedented economic boom. China’s State Council is pushing for a four fold increase in natural gas usage by 2010, and has mandated that natural gas replace coal as the major source for electricity by the 2008 Olympics in Beijing. According to the New York Times, if China in the future uses as much energy per capita as the U.S., it will amount to more energy than is currently produced worldwide (Nicholas Kristoff NY Times, June 3, 2003).

Chevron-Texaco, and BP Amoco have CBM joint ventures ongoing in China.

Far East Energy has accumulated a substantial land package in China with China United Coalbed Methane Co. (China United) and ConocoPhillips to exploit total gas-in-place estimated by ConocoPhillips and Yunnan Provincial Coal Geology Bureau to be potentially 18.3 to 24.9 trillion cubic feet (Tcf). Using a very conservative recovery rate of 50%, recoverable CBM resources are potentially 9.2 Tcf to 12.5 Tcf (FEEC’s share is 4.8 Tcf to 6.9 Tcf depending upon CUCBM and ConocoPhillips participation).

The following summary underscores the scope of the company’s China projects:

• Shanxi 6.55 – 9.8 Tcf of recoverable CBM resources
• Enhong 1.10 Tcf of recoverable CBM resources
• Laochang 1.55 Tcf of recoverable CBM resources