December 18, 2008
The EU's desire to improve energy security through cutting its reliance on Russia is spurring governments to promote coal bed methane (CBM) projects that would tap natural gas to heat homes and fuel power stations.
 | Picture Gallery (click on the picture to start)Coal is the most polluting of all fossil fuels, but provides a quarter of world energy needs (Photo: Reuters) |
Europe's concerns about its growing reliance on Russia for energy supplies, heightened by the invasion of Georgia in August, has boosted interest in CBM. Over a quarter of the EU's gas is imported from Russia and this is expected to grow to around a third in coming years.
"There is a massive potential in Europe," said Richard Benmore, UK CBM Project Manager at Nexen, which also has CBM operations in North America. The latest UK licensing round attracted bids from a wide range of players including startups, international oil groups like Nexen and U.S. oil explorer Marathon Oil and British utility Centrica.
Companies are also competing fiercely for resources in Poland, Germany, Ukraine, the Czech Republic and elsewhere. "There's a bit of a land grab going on across Europe," one senior executive at a large international oil and gas group said.
Europe has recoverable CBM reserves of about 59 trillion cubic feet, according to industry consultants Wood Mackenzie—enough to supply the continent with all its gas needs for over three years. Some executives say the resources are much bigger.
Traditional gas production involves drilling into a reservoir of permeable rock to release the gas which is contained at high pressure within. CBM is more complicated.
When coal is under pressure, under the ground, it accumulates methane. If the pressure is reduced, namely by drilling into the seam and pumping out the water within, the coal cracks and releases the gas.
Disposing of the water, which is saline and so cannot be poured directly into streams or onto land, is a problem. Nexen is working to convince the local utility at its site in the U.K. the water is safe to put into sewers but for now, the water must be treated as hazardous waste. The need to store the water in two large vats that are emptied weekly by road tanker for disposal by a specialist waste company, raises costs.
Another challenge with CBM is that gas flows less freely within a coal seam than within a traditional reservoir, requiring wells to be drilled in close proximity. High well counts and webs of access roads have caused severe landscape damage in parts of Western Colorado and elsewhere that were early adopters of CBM, making U.S. environmentalists hostile to the energy source.
If the industry cannot crack this problem, CBM will not work in densely populated Europe, executives say. While CBM sites in the U.S. or Australia operate in largely uninhabited areas, factories and homes sit atop Europe's potential drilling sites.
If the technical challenges can be overcome, Europe's dense population will work in favor of CBM producers. Unlike in the U.S. or Australia, expensive pipelines or liquefied natural gas terminals will not be needed to bring the gas to market. Indeed, much of Europe's energy-intensive industry is located near coal deposits, reflecting how the continent's industrial revolution was fuelled by coal.
editor: Tom Bergin (Reuters)
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