UNCONVENTIONAL- RESOURCES

Coalbed methane activity cools off

North American CBM production has leveled out, and drilling is expected to drop over 22% in 2007.

David Michael Cohen, Production Engineering Editor

A weak commodities market, increasing production costs, slow permit turnaround and rising natural gas inventories have contributed to a slowdown of North American coalbed methane activity during the past 12 months, continuing a trend seen last year. Production stayed level in 2006, and CBM drilling is predicted to drop for the first time in 2007.

This slowdown of activity occurs as reserves figures rose in 2006 with the addition of the Alaskan North Slope to the US Geological Survey’s CBM recoverable reserves estimate, increasing the figure 27% to 85 Tcf from 67 Tcf. The San Juan basin retained the greatest part of these reserves with 24.24 Tcf, followed by the Alaskan North Slope with 18.06 Tcf, the Powder River basin with 14.26 Tcf and the Appalachian basin with 8.40 Tcf. The US Department of Energy’s proved reserves rose considerably less, to 19.89 Tcf from 18.39 Tcf. This proved reserves number includes data through 2005. It does not include the Alaskan North Slope because there is no gas pipeline in place for transport from there.

Estimates for total North American in situ CBM resources range from 1,000 to 3,000 Tcf, with about 700 Tcf commonly cited for the US. Worldwide CBM figures are even more uncertain, because few CBM resources are as well developed as North America’s, but in situ estimates of 3,500 to 7,500 have been made.

The Canadian Gas Potential Committee (CGPC) last year estimated Canada’s in situ CBM resources at 496 Tcf. Of that number, 346 Tcf is in the Alberta and Saskatchewan plains-including about 167 Tcf in the Horseshoe Canyon basin and 123 Tcf in the Mannfield coals. The remaining 150 Tcf is concentrated in British Columbia. CGPC estimates recoverable CBM to be between 11 and 45 Tcf, with a “reference case” value of 26 Tcf. In the reference case, 85% of recoverable CBM is contained in the Ardley, Horseshoe Canyon and Mannville coal zones at depths less than 4,000 ft.

US CBM activity. Coalbed methane drilling continued upward in 2006, rising almost 10% to 7,307 wells from a revised 2005 figure of 6,668, according to data reported to World Oil by officials in CBM-producing states, Table 1. However, permits during the same time took an uncharacteristic downturn to 11,357 from 12,153, and drilling is expected to drop over 22% in 2007 to 5,672. In first-half 2007, 1,889 wells were drilled, just over half the number reported in first-half 2006, Fig. 1. Permits, too, are expected to fall 16% to 9,557.

Fig. 1. A typical CBM drilling site at a study targeting coal from the Wilcox formation in Zavala County, Texas. Courtesy of the US Geological Survey.

TABLE 1. US coalbed methane wells and permits1

It must be noted that CBM statistics continue to be quite difficult to pin down. Factors include conversion of conventional gas wells to CBM wells and vice versa, long time lags in reporting and inconsistent state reporting of CBM permits and drilling. Some state agencies, in fact, do not break out CBM wells from overall gas wells.

Wyoming still leads the US in CBM drilling, with over twice as many wells drilled in 2006 as Kansas, which had the second-highest number. However, Wyoming’s drilling was already down in 2006 despite a general US increase, and it is forecast to fall over 20% in 2007 to 2,380 wells. Only 22 drilling rigs were operating in CBM plays in the state in first-half 2007, compared with 42 in first-half 2006, according to Don Likwartz, director of the Wyoming Oil and Gas Conservation Commission.

Likwartz said the slowdown is largely due to permitting delays at the US Bureau of Land Management, which controls most of the minerals in the state. He said the agency was about 30% behind in issuing permits in the Powder River basin compared with last year. He said state-controlled permitting is also slow, as the Wyoming Department of Environmental Quality is taking about six months to issue permits for water quality, due in part to challenges by environmental groups. Another factor Likwartz cited was local gas price, which he said has been $3-$5 less than the Henry Hub price due to a lack of pipeline capacity. The Rockies Express pipeline, which will carry gas from Cheyenne, Wyoming, to the Clarington Hub, Ohio, and likely raise the value of Wyoming’s CBM, is not due for completion until mid-2009.

One factor that Likwartz said has not affected Wyoming CBM is a 2006 regulation in neighboring Montana setting numeric anti-degradation standards to protect water quality. Those standards, and 2003 numeric standards for salinity and sodicity in Montana, have embroiled the two states, Wyoming CBM producers and the US EPA-which approved the rules-in a number of lawsuits, with Wyoming and the producers saying the rules are excessively restrictive. The producers say the standards are aimed at Wyoming operators, whose discharge water flows into the Powder River and north into Montana.

Kansas’s drilling in 2006 almost doubled to 1,301 from 671 in 2005, more than making up for shortfalls across several other states including Wyoming. This year, drilling is expected to fall back to 660, with only 210 wells drilled in the first half.

Steve Bond of the Kansas Corporation Commission blamed the steep downturn largely on rising dewatering costs. “CBM in eastern Kansas has really cooled off,” Bond said. “They’re finding that they’ve got to move a lot of water to get to the pressure sink to move the gas.” He said severe flooding from rain in first-half 2007 had also slowed drilling.

The EIA reported only a 12-Bcf (0.7%) increase in US CBM production in 2005, to 1.732 Tcf, Fig. 2. While flat and even down CBM production years have occurred before, they have not accompanied such meager drilling predictions. Although EIA has yet to report a 2006 figure, World Oil estimates 2006 output essentially flat at 1.730 Tcf.

Fig. 2. US coalbed methane production.

The leading US CBM-producing region is the San Juan basin of Colorado and New Mexico. Together, these states contribute about 60% of US CBM output, which the EIA said was 2.82 Bcfd in 2005, down slightly from 2004. EIA’s 2005 proved reserve estimate for the two states was 12.02 Tcf, up almost 10% from 2004.

The next largest production area is Wyoming and Montana’s Powder River basin. In Wyoming, where the majority of production from this basin is, output was up 5% in 2005 to 921 MMcfd from 877 MMcfd in 2004, and reserves rose 17% in 2005 to 2.446 Tcf from 2.085 Tcf the previous year. Separate figures for Montana were not available.

Disposal or treatment of water produced from CBM wells continues to pose a significant environmental challenge. CBM-produced water tends to be both highly saline and high sodic. The latter means that it has a high level of sodium relative to calcium and magnesium levels, and is expressed as Sodium Absorption Ratio (SAR). Highly sodic irrigation water can damage soil’s ability to absorb water.

One solution developed by Montana-based Drake Engineering uses a fluid-bed resin exchange treatment to remove sodium from CBM-produced water. The Drake process was patented and is now being used commercially.

Another process being developed by the New Mexico Institute of Mining and Technology involves synthesizing zeolyte membranes very specifically designed to filter salt from water found at specific CBM wells at high efficiency and low cost. New Mexico Tech has applied for a patent and lab demonstrations have been conducted, but so far no field research has been done for this process.

Another project being conducted by BLM and state agencies in Wyoming and Montana uses gypsum and other soil amendments to lower the effect of highly sodic CBM-produced irrigation water. Meanwhile, the EPA is considering revising its industrial wastewater regulations for oil and gas extraction to include CBM extraction as a new subcategory. Currently there are no federal numeric standards on CBM-produced water quality.

Canadian CBM. Canadian investment in CBM reached $1.5 billion with more than 8,500 wells by late 2006, according to one estimate. Coalbed methane activity has focused on the Western Canadian Sedimentary basin, primarily in Alberta, with exploration ongoing in British Columbia.

In Alberta, the provincial Energy and Utilities Board (EUB) reported established CBM reserves of 872 Bcf (24.7 Bcm) at the end of 2006, an 18% increase from 738 Bcf (20.9 Bcm) the previous year.

Commodity price declines in late 2006 contributed to a slowdown of Alberta CBM activity. EUB reported a 5.5% increase in wells connected for CBM production in 2006 to 2,434 from 2,307 in 2005, far less than the 54% jump seen the previous year. These wells are mostly concentrated in central Alberta (PSAC Area 5) and southeastern Alberta (PSAC Area 3), representing 47% and 42% of all well connections in the province, respectively. An EUB official said CBM drilling was down 40% in the first half of 2007, and connections this year are expected to continue their downward trend to 1,900, with 2,400 well connections expected in both 2008 and 2009.

Alberta’s total production from CBM wells was 165 Bcf (4.7 Bcm) in 2006, equal to 452 MMcfd and up 62% from 2005. Production that year was 102 Bcf (2.9 Bcm), or 279 MMcfd.

However, these numbers include commingled flow from wells that produce from conventional gas reservoirs as wells as coal seams. New regulations implemented in October 2006 allow the agency to more accurately track the production split from these wells. The EUB estimates that actual CBM produced in 2006 was 42.4 Bcf (1.2 Bcm), or 116 MMcfd, slightly more than 25% of the commingled flow from CBM wells.

Total (commingled) production from CBM wells in Alberta is expected to grow 25% to 208 Bcf (5.9 Bcm) in 2007, and to 593 Bcf (16.8 Bcm) in 2016.

In British Columbia, authorities estimate about 90 Tcf of in situ resource, while the CGPC estimates about 150 Tcf. Estimates of economically recoverable reserves range from 18 to 50 Tcf. Exploration has expanded rapidly in the province, with over 100 exploration wells drilled. Although no commercial production yet exists, Canada Energy Partners Inc. and Houston-based GeoMet Inc. announced plans in July to drill 25 production wells in their Peace River CBM project in northeastern British Columbia. Canada Energy Partners’ estimate of reserves at the development rose to 2.3 Tcf from 1.7 Tcf last year, due to land acquisitions and new discoveries.

New regulations may slow further CBM development. The provincial government in February announced that CBM producers will not be allowed to discharge produced water at surface. CBM-produced water must be reinjected far below any domestic aquifer.