Prospects for strong long-term gas demand are spurring renewed interest in coalbed methane (CBM) in western Canada.
There has been minimal CBM activity the past 5 years, but several Alberta companies are expected to begin pilot projects this year to test the economics of CBM leases.
More than 100 CBM wells were drilled in western Canada during 1989-95 before activity dropped off.
Analyst Jill Angevine of First Energy Capital Corp., Calgary, expects CBM to provide a significant percentage of western Canada gas output in 5-10 years.
Angevine says that various geological, technical, and mechanical problems or a lack of commitment by the exploration company plagued most of the previous wells drilled. An abundance of cheaper-to-produce conventional shallow gas prospects may also have been a factor in CBM production decline. One estimate says that Canadian producers would require $2.30/Mcf for CBM production to be economical.
Angevine said drilling and production technologies have improved, and companies have noted the success of CBM projects in the San Juan and Powder River basins of the US.
A Gas Technology Institute report projects that Canadian CBM production will reach 1.6 bcfd, or 267,000 boe/d, by 2015. Angevine said that would be only 19% less than Alberta's 1999 synthetic crude production. It would require companies to spend $8 billion (Can.)/year by 2015.
The Canadian Gas Potential Committee, which in 1997 estimated CBM at 273 tcf, is now taking a more cautious approach. In a report in mid-September, CGPC did not book a figure for CBM reserves.
The committee said nonconventional gas resources may provide important gas supplies, but success will require extensive research into production methods.
Richard Procter, a senior CGPC analyst, said the committee believes its initial estimate for CBM is no longer reliable. He noted that production levels are low and many wells will be required for commercial projects.
He added that CBM has problems of permeability and of economics because production levels are low, and that commercial projects will require many wells.
Companies with CMB leases and projects in the prospective Foothills region include Conoco Inc., Petro-Canada, Alberta Energy Co., and units of ExxonMobil Corp., BP PLC, and Anadarko Canada Ltd. In addition, Suncor Inc., Husky Energy Ltd., and Burlington Resources Co. have CBM interests that are not yet at the testing stage.
Companies preparing to test CBM potential in Alberta include Nexen Inc. (see article, p. 36), PanCanadian Petroleum Ltd., and Penn West Petroleum Ltd., all of Calgary.
Nexen CEO Charlie Fischer said, "One thing that has given CBM a boost in Canada is additional pipeline capacity and an integrated market in North America and prices in western Canada which reflect that market."
Fischer said that, with the change in pricing dynamics, the full-cycle cost of CBM is very competitive with shallow gas.
Nexen plans two CMB pilot projects costing $10 million at undisclosed locations in Alberta. One will begin by yearend and the other next spring.
Penn West Petroleum also is testing a CBM project in the Pembina region of Central Alberta, where it has extensive conventional oil production.
"We believe there are significant deposits of CBM, and our existing infrastructure will significantly decrease the economic threshold for development," said Don Rae, senior vice-president, exploration. "Another benefit is that the area has one of the thicker coal beds in western Canada, and it is at the right depth."
The company has spent $1 million to date and expects to spend $2-3 million this year on four wells. Depending on results, Penn West hopes to launch a 20-40 well pilot project next year.
Rae said the economics of CBM projects are site-specific. "There will be no broad-brush economics for CBM. It's stand alone, project-by-project," he said.
PanCanadian Petroleum and partner MGV Energy Inc. plan a $30 million (Can.), 50-well project on the 1 million acre Palliser block in southern Alberta. Work is due to begin this fall.
Project manager Kin Chow said PanCanadian is evaluating an extremely large resource base, and there is strong potential for a commercial operation.