Far East Energy Corporation The project is to complete the exploration program, including completion of the feasibility study and Social and Environmental Impact Assessment (SEIA) documentation for coal bed methane (CBM) development and production in China.  The sponsor, Far East Energy Corporation (FEEC), has been active in China since 2002 and, through its wholly owned subsidiary, Far East Energy (Bermuda) Ltd.,  holds three concession areas with a total of 5,250 km2 in the Shanxi and Yunnan Provinces.  Its contracting partner for all the concessions is China United Coalbed Methane Co. Ltd. (CUCBM), the state-owned entity responsible for foreign CBM development in the country. China recently overtook the United States as the world's biggest producer of carbon dioxide.  The environmental and associated health impacts of a principally coal fired economy are of increasing concern, and development of local natural gas resources, including CBM, can be part of the solution to alleviate these problems.  Compared to coal-fired electricity, natural gas use produces virtually no emissions of sulfur dioxide, mercury or particulate matter, 80% less NOx, and approximately 50 percent less CO2.  Increasing the use of natural gas helps reduce acid rain, smog, regional haze, and their associated health impacts, including asthma attacks, cardiac problems and upper and lower respiratory ailments. 

China is the worlds second largest consumer of oil after the U.S. and the third largest net importer of oil after the U.S. and Japan.  The development of a local energy source can help alleviate concerns of energy security.  Furthermore, the government will reap benefits from fiscal revenues, royalties, and taxes.

The government of China is taking measures to diversify its energy supply, with the aim of increasing the proportion of clean energy in the mix.  Chinas natural gas usage is projected to increase from the current 3.2% of the nations energy mix to 8.0% by 2020.  In order to meet this target, CBM & CMM development and utilization has been identified as a priority in Chinas 11th 5-Year Development Plan.  China has considerable potential for CBM development, but as yet projects are mainly at the exploration stage and there is limited commercial production.  There are several barriers to overcome to move projects from the exploration to development and production stage, including access to advanced technology and equipment, technical expertise, necessary market access and downstream infrastructure for CBM sales, and project financing of a frontier sector in the country. 

Development benefits at the gas production stage include environmental and associated health benefits from cleaner energy, increased energy security from local energy source, employment, and fiscal revenues (royalties, taxes, and government ownership interests in CBM production).

- Fit with World Bank Group Strategy

Within the broad framework of the World Bank Groups operational strategy in China as outlined in the FY06-10 CAS, IFCs strategic priorities include: 

- improving the business environment and strengthening regulatory capacity; 
- expanding access to markets; 
- upgrading corporate practices; 
- expanding access to finance and financial sector development; 
- enhancing environmental sustainability and energy efficiency; and 
- promoting private participation in infrastructure.  

IFCs value proposition in China is to be the preferred financial partner for companies seeking to adopt international standards in governance, environmental and social practices.

The project is consistent with IFC and World Bank Group strategy for China as it supports private sector investment in one of the poor interior provinces of China and in a sector which has the potential to contribute significantly to addressing Chinas energy and environmental problems.

World Bank has been actively supporting development of Chinas natural gas market through:

- promotion of the country's energy switch from coal to gas and the use of cleaner coal technologies; and 
- providing technical assistance to the Shanxi government for CBM utilization projects.

IFC is also committed to actively support development of overall natural gas market in China, including current support of the expansion of local distribution infrastructure and expected support for future gas-fired power plants.