Experts push unconventional gas for future markets

Sam Fletcher
Senior Writer

HOUSTON, Dec. 29 -- With markets facing both rising costs and escalating demand for natural gas, today's unconventional gas resources "cannot remain unconventional," said Raymond C. Pilcher, president of Raven Ridge Resources Inc., Grand Junction, Colo., at a recent 2-day energy conference in Denver.

"On a worldwide basis, the use of natural gas is either increasing at a high rate or there is a desire to increase it at a high rate. Even when you look at countries that are highly dependent on coal—as an example, China—there is also a desire to develop clean-burning fuel, not only from the standpoint of developing coal resources in using clean-coal technology but also using as much gas as possible," said Pilcher at the Dec. 13 opening session of that meeting on unconventional gas resources, sponsored by Strategic Research Institute, New York.

Pilcher noted the evolution in the US from the previous permitting of "mostly coal-fired" electric power plants to "mostly gas-fired because it would be easier to comply with some of the environmental constraints." But then, he said, "What all of us had wished for in the gas business started to happen, which was that the price of gas began to rise. That has now impacted what is going to happen in terms of the type of electric power generation that is going to be put in place over the next several years in this country."

Natural gas prices have retreated in recent weeks, but industry analysts see prices escalating over the long term with the growing demand for energy in the US and around the world.

As a result, said Pilcher, "We see that what we consider now to be unconventional gas resources cannot remain unconventional. The very things that we consider to be on the fringes [of commercial production] today will probably be mainstream in the future."

He said, "What's not generally known is that, if you look at the natural gas resources and reserves in the US, about one-third of those resources are substandard gas; in other words, they are contaminated with nitrogen or CO2 [carbon dioxide]. And when you look at the amount of gas that is now being contributed by coalbed methane [CBM], it's a very significant portion, and only a few years ago, it was considered to be unconventional."

Five steps
Pilcher sees "at least five components" to the full development of unconventional gas resources. "First, of course, is market development," he said. But that is not a major concern in the US, since it has a ready market "for all of the gas we can produce foreseeably." Other components include:

-- Economic development. "That means being able to develop these resources in some manner that's consistent with the economics of the day," said Pilcher, "something that is gong to be successfully sold on the market."

-- Socio-economic development. "In this country, we don't think so much about this, but when you look at other countries, it's a very important thing. Here we have a ready-made group of experts and companies who are able to [meet] the challenge of creating and utilizing the technology to develop these resources," Pilcher said.

-- Technological development, which "takes place in many ways, in universities and other types of institutions, and within the unfortunately dwindling company-run R&D programs," he said.

-- Physical development. "That's actually getting out there in the field and drilling the holes, making wells into wells, and producing that gas, and being able to take all of the gas and use it in a way that is commiserate with the economics of the day," said Pilcher.

US production of CBM grew to 1.6 tcf in 2003 from 150 bcf in 1989 in what Pilcher described as "a meteoric rise in the development of these resources." That was possible, he said, "because we already had [natural gas market] infrastructure in place—we had pipelines; we had homes and businesses that were using natural gas." So developing CBM for this market required "no leap of faith or technological advance." However, he said, "When you look at this in other countries, this is a very large first jump because those markets just don't exist."

Pilcher acknowledged, "One of the things that spurred CBM development in the late 1970s and up through the early 1990s was, in fact, the Section 29 [US] tax credit. It had a very large impact. At the point that the tax credit peaked, we were looking at almost twice the sale price of natural gas, so if someone had that tax credit they had quite a benefit."

Moreover, he said, "It really was the Gas Research Institute that took the lead" in the socio-economic development of CBM through its research and development programs, "with a lot of contributions also from the US Department of Energy," as well as corporate leaders "like Amoco [Corp.] and Meridian [Resource Corp., Houston]." He said, "There was a very strong institutional backing to those early projects."

In its development of CBM in the US, the natural gas industry has applied technology in ways it had not been applied before. Technology is still being adapted to CBM and other unconventional gas resources, said Pilcher.

"Even in CBM, we have not reached the full physical potential. If you look at what's going on in the San Juan basin today, there are wells that have been productive that are being reentered and new technology is being applied, and more gas is being produced. There's in-fill well drilling, and now there is a lot of work in basins where there was [previously] no suspicion of there being producible natural gas," he said.

EPA methane program
Meanwhile, the US Environmental Protection Agency is working on a voluntary program to recover methane from both active and abandoned coal mines in the US and several other countries, primarily through degasification of the coal itself and catalytic oxidation of ventilation air.

Coal mine methane emissions in the US totaled 5.5 billion cu m in 2000 and is expected to increase to 5.7 bcm in 2010, said Pamela Franklin, manager of EPA's coalbed methane outreach program climate protection partnerships division. Under the EPA program, she said, 1.1 bcm has been recovered from underground mine drainage systems and generally sold to pipelines. As a result, she said, "Many new abandoned mine projects have become operative in the past few years."

Under the new US-led methane-to-markets program announced in July, EPA is helping to create a framework to advance the recovery and use of methane worldwide as a valuable source of clean energy though technology transfer and identification of cost-effective opportunities for capturing methane emissions. Among the participating countries in addition to the US are Australia, China, India, Poland, Russia, South Africa, Ukraine, and the UK.

Contact Sam Fletcher at samf@ogjonline.com

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