Coal bed methane emerges as natural gas source

Natural gas explorers, seeking to drill their way out of a growing shortage of the fuel, are finding a new source in the coal beds they once punched through in search of the deeper reservoirs.
Coal bed methane, which can be found as close as 2,000 feet below ground -- compared with 10,000 feet or deeper for most conventional gas reservoirs -- is emerging as a new source of natural gas at a time when North America is confronting the possibility of price-raising shortages of natural gas in the foreseeable future.
"For years we drilled right through the coal beds, and now we realize that the growth in this industry might be very close to the surface," says Glenn Darden, president and CEO of Quicksilver Resources of Fort Worth.

Quicksilver has taken the lead in drilling for coal bed methane gas in Alberta. Last year Quicksilver pumped and marketed its first test methane gas and this year expects to put down 175 new wells on its 500,000-acre lease. Those wells will add up to 15 mm cf to Quicksilver's 135 mm cf of gas production from its fields in Michigan and Indiana.
Darden says he expects both the number of wells and production to increase significantly in the foreseeable future. Nationally, 8 % of US natural gas production is coal bed methane. Most of it comes from the San Juan Basin in northern New Mexico and southern Colorado, as well as fields in northern Wyoming and into Montana.

But the US Geological Survey says that up to 90 % of the undiscovered natural gas in the continental United States is likely to be in the form of methane derived from coal. Most of that gas is in western and Rocky Mountain states. Another large coal bed field lies in Alabama.
For years the methane gas trapped in coal was a liability, frequently the cause of deadly underground mine explosions. Miners typically vented the gas out of the mine shafts as a safety precaution. It was only in the past two decades that geologists, looking for new sources of natural gas, perceived that the methane in the coal could be extracted and added to the nation's natural gas supply.

Coal bed methane gas has the same fuel quality as the gas taken from deeper reservoirs. It can be put in the same pipelines, run through the same processors and burned in the same generators and home furnaces and cooking stoves as conventional gas. And because the coal beds from which the methane is taken lie anywhere from 5,000 to 10,000 feet closer to the surface, an average well costs only about $ 150,000 to drill versus the $ 1 mm or more for a well drilled to a deeper conventional reservoir.
Quicksilver's investor relations director John Gremillion says the company thinks it is sitting on as much as 2 tcf of methane gas reserves in its 175-mile long tract in western Alberta. Quicksilver is betting a substantial part of its future on coal bed methane, and investors seem to like it. J.P. Morgan analyst Shannon Nome calls Quicksilver's Canadian operation a "company maker." Another analyst, Irene Haas at Sanders Morris Harris in Houston, says that "Quicksilver is capturing the niche for unconventional gas, which will be a catalyst for the company's growth."

Haas forecasts that Quicksilver's earnings per share, which were 69 cents last year, could jump to $ 1.45 this year and $ 2.07 in 2004. Quicksilver is enjoying a good run with its Canadian leases. But expansion of coal bed methane operations in the lower 48 still awaits a significant public policy debate over drilling on public lands.
Of the 183 tcf of natural gas yet to be discovered in the United States, more than 90 % of it is so-called "unconventional" gas of the type Quicksilver is mining from coal in Canada, according to the US Geological Survey's 2002 Oil and Gas assessment. But much of that untapped gas lies under public lands in Rocky Mountain states, where drilling has been prohibited.

Darden and Quicksilver aren't getting out front on the public lands issue. But chairman Larry Nichols of Devon Energy of Oklahoma City, a major player in the San Juan Basin, saidat a special natural gas summit conducted in Washington, DC, that "we are not running out of natural gas, and we are not running out of places to explore. What we are running out of is places where we are allowed to explore for natural gas."
Opposition to drilling on the public lands is based on potential spoilage of the aesthetics of America's mountain wonderland and some environmental worries. In conventional oil and gas drilling, the oil and gas lie on top of water and the fuels can be extracted while leaving the water in place.

But coal beds generally are permeated with salt water. Extracting the salty water creates disposal problems for the fluid, which can kill plants and contaminate waterways, environmentalists contend. The Oil and Gas Account-ability Project, an alliance of 16 environmental and natural resources groups centred in Colorado, Wyoming and Montana has formed to oppose coal bed methane drilling.
In a statement, the group describes the effects of the early coal bed methane drilling: "Thousands of wells and roads have scarred vast landscapes, denuded wildlife habitat, contaminated drinking water, and methane and hydrogen sulphide seeps have forced some families from their homes. Domestic and stock wells have dried up and billions of barrels of produced water (often high in sodium, arsenic, and other contaminants) are being dumped on the surface and into rivers. Underground coal fires are the latest problem among a laundry list of devastating impacts."

Darden says the environmental question is solvable. "This is really a simple matter," he says. "The water is reinjected back into the well after drilling. The techniques are proven."
The qualms of environmentalists haven't prevented large-scale methane drilling in New Mexico, Colorado and Wyoming on lands that aren't protected. Wyoming alone has more than 5,000 coal bed wells drilled in the Powder River Basin. Another 2,200 wells have been drilled in southern Colorado around Trinidad and Durango.
Texas, with little coal reserves except for the lignite in east Texas that is mined conventionally, is not likely to be part of the methane boom. But Quicksilver is eager to expand its activities.
"I would anticipate that we will ramp up our activities in Canada and will be looking for other opportunities," said Darden.