This was the 22nd such contract that CUCBM has signed with a foreign company, said Sun Maoyuan, the firm's president.

Foreign companies have already invested about US$150 million in the 21 previous projects, which cover a total area of 32,853 square kilometres, Sun said.

The new contract, located in the Baotian-Qingshan area of southwestern Guizhou, covers an area of about 947 square kilometres.

It is estimated that the area contains about 160 billion cubic metres of coalbed methane, Sun said.

According to the contract, the Canadian company will shoulder risks and expenditure during a four-year exploration period.

The two companies will share production during the development and production periods, proportionate to their share of investment.

The development of coalbed methane, which can be used as both chemical raw materials and fuel, can not only help reduce the high incidence of coal mine accidents, but also has strategic significance, economists said.

Tang Min, chief economist with the Asian Development Bank's resident mission in China, said the development of the coalbed methane could help narrow the energy supply and demand gap in China.

China has rich coalbed methane reserves. It is estimated that the country has between 30 trillion and 35 trillion cubic metres of coalbed-methane resources, located no deeper than about 2,000 metres underground.

International experience suggests that with the current level of technology, 70 to 85 per cent of coalbed methane can be exploited before coal mining.

When extracted, coalbed methane can be used to generate power or be distributed through pipelines to households to meet their daily needs for gas, Tang said.

The development of coalbed methane is also beneficial for improving energy structure and reducing environmental pollution in China, he said.

To prevent gas explosions, China emits 6 to 8 billion cubic metres of methane from mines annually, seriously polluting the environment and wasting energy resources.

Conversely, natural gas only accounts for about 2 per cent of the country's energy consumption. This is far lower than the world average of 23 per cent.

CUCBM's Sun said the Chinese Government has always paid great attention to the utilization of coalbed methane.

The State Council approved the establishment of Sun's firm in 1996 to speed up the development of coalbed methane.