Coal bed methane production: success depends on location

Paul Boughton
While coal bed methane has a promising future in the Far East, things look far less certain in other locations. Sean Ottewell reports.

Coal bed methane (CBM) or coal seam gas (CSG) is natural gas that is extracted from coal beds. The presence of this gas has long been known from its occurrence in underground coal mining. In the USA, CBM contributes approximately none per cent of domestic production and represents roughly four per cent of gas resources.

In recent years, CBM production has commenced in Canada, Australia, China and India. Indonesia also has significant but as yet untested CBM potential across the country. Consulting firm Advanced Resources International estimates that the country may have potential CBM resources of up to 450 trillion cubic feet. As yet there is no commercial CBM production there.

Through various heritage companies, BP has over 35 years experience and is one of the largest foreign investors in Indonesia. In addition to its ENI joint venture company VICO, BP's interests in Indonesia include the Tangguh LNG project in Papua, which exported its first cargo of LNG in July 2009, Castrol lubricant blending and marketing, and petrochemical manufacturing.

The company's latest move is a production sharing contract (PSC) with the government of Indonesia for the exploration and development of CBM resources on the Sanga-Sanga block in East Kalimantan. VICO has been producing conventional gas resources from the Sanga-Sanga block for over 40 years, and the signature of this PSC is expected to mark the first significant development of CBM in Indonesia.

Andy Inglis, BP's chief executive of exploration and production, said: "BP is committed to bringing our technology and experience to help unlock Indonesia's great coal bed methane potential. Alongside the Tangguh LNG project in Papua, this important new access to Sanga-Sanga's CBM resources will allow BP to continue to grow our LNG production in Indonesia and underlines Indonesia's continuing significance to BP."

The PSC covers an area of around 1700km2 in the Kutai Basin, East Kalimantan. Preliminary studies on the block suggest it has a CBM resource potential of at least 4 trillion cubic feet of gas - further appraisal will closer define this potential. The PSC overlays the same acreage as the existing Sanga-Sanga conventional PSC, which has extensive gas production infrastructure already in place with access to markets internationally through the Bontang LNG plant as well as to local customers (Fig.1). This existing infrastructure is expected to allow rapid and efficient development of CBM to production.

BP Indonesia President William Lin said: "Combining BP's deep CBM expertise with VICO's long experience will open a new chapter for Sanga-Sanga, translating its significant CBM potential into material levels of gas production. With VICO's existing knowledge and infrastructure, we expect production to begin rapidly - in a very few years - and its supply to Bontang will enable Indonesia to become the world's first CBM-to-LNG producer."

The Sanga-Sanga CBM PSC was awarded to a consortium comprising VICO (7.5 per cent and operatorship), BP (26.25 per cent), ENI (26.25 per cent), VIC (15.625 per cent), Opicoil (20 per cent) and Universe Gas and Oil (4.375 per cent). VICO and VIC are joint ventures owned 50:50 by BP and ENI, giving each company a total 37.8 per cent interest in the contract.

The award of the contract follows two years of joint efforts by VICO and its partners, including a joint study of the PSC area. An appraisal programme will determine the CBM production capacity of the block. The consortium will pay a signature bonus of US$4 million, and will now start work towards delivering the US$38 million work programme commitment.

Knowledge gained from more than 30 years work in San Juan will open opportunities in other CBM fields around the world that others might miss, says BP.

However, while BP foresees as bright future for CBM technology in the Far East, there is quite a different story emerging in the US. According to the US Energy Information Agency (EIA), when the final figures are available, CBM drilling in the country in 2009 is predicted to be almost half of that in 2008. Low gas prices and the continuing economic downturn are cited as the reason.

The EIA reports that US operators drilled 5129 CBM wells in 2008, 667 (12 percent) fewer than in 2007 and continuing a slowdown from a high of 7357 wells in 2006. It adds that CBM production in the US remained relatively flat in 2007 for the third straight year, with 1.754 Tcf (49.67 Bcm) of output.

High dewatering costs, caused by decreasing disposal capacity has been one of the main causes of the drilling slowdown, along with lengthened, more stringent permitting processes and low gas prices in Wyoming, the most prolific state for CBM drilling.

Most CBM producing states are experiencing reduced CBM well drilling, with the exception being Virginia, which is projected to have only a slight decline in the number of wells drilled in 2009. Most CBM well drilling in the state is associated with de-gassing coal seams before mining, which remains quite active in spite of the recession, says the organisation

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