Coal Bed Methane

Similar to the process of conversion of organic matter to natural gas, the natural conversion of organic materials to coal also generates large amounts of methane. Methane is stored within the coal beds in much larger quantities per volume of rock than conventional gas reservoirs.

Much of coal, and thus much of the methane contained within the seams, occurs close to the surface. This allows cheaper exploration and production from less-expensive, but less-productive (because of lower reservoir pressure), shallow wells. Methane produced from coal seams is called coal bed methane (CBM), coal seam methane, or coal seam natural gas. Other than usually having a lower heat value because of the lack of heavier gas compounds, it is similar to gas produced from conventional gas reservoirs. Once it is produced, it is transported and marketed like conventional natural gas.

In conventional hydrocarbon reservoirs, gas overlies oil, both of which overlie adjacent water aquifers. Perforations are selectively placed to maximize production of hydrocarbons and reduce the production of water. In contrast, water permeates coal seams, and water pressure traps any CBM present. Producing CBM requires first removing water to decrease pressure on the coal matrix, allowing free gas to flow into the well bore. The water is usually saline, and disposing of it can add significant costs to CBM production. Water production is especially a problem in the early stages of production, when large amounts of water are produced to decrease trapping pressure on the methane. A general rule of thumb is that conventional gas is relatively difficult to find but easy to produce, while unconventional gas, such as CBM, is easy to find but relatively difficult to produce.

The United States has estimated CBM reserves exceeding 700 tcf, of which 100 tcf are thought to be economically recoverable. About 8% of total natural gas production in the United States is produced from coal beds. Large CBM reserves are also found in Canada, China, India and Australia. There is undeveloped CBM potential in Europe, Pakistan, and Africa.

Australia has become a leader in developing its CBM (called Coal Seam Methane – CSM) reserves. There are now over four projects to produce the methane from CSM reserves in the interior of Queensland, transport the gas to the coastline, and convert the methane into LNG for export. This concept would have been unthinkable a few years ago, but as LNG prices have risen and CSM exploitation has become more sophisticated (using horizontal wells and complex field modeling), these project are now apparently economic. However, promoters may be underestimating the cost of water disposal and LNG project capex, and overestimating the LNG prices based on recent spot market transactions. It is important to note that a large portion of LNG project profits come from LPG and Condensates; both which are not present in CBM gas. It remains to be seen whether the bubble in CBM asset prices will translate into true profits for the promoters of these ventures.