Ken Silverstein EnergyBiz Insider Editor-in-Chief

Coal-bed methane is a natural gas-like fuel associated with coal fields. But, production of it is accompanied by significant challenges that include the prevention of unintended loss of methane to the atmosphere during underground mining and the disposal of large quantities of water, sometimes saline, that are unavoidably produced with the gas.

The Bush administration wants to increase natural gas production over the next 15 years by 40 percent. Coal-bed methane would comprise about a quarter of that increase. In fact, the United States now consumes about 20 trillion cubic feet (tcf) annually and the Energy Information Administration expects that to rise to 30 tcf by 2025, if natural gas is more moderately priced. Given that many areas are now off-limits to production, the goal seems a bit lofty -- unless producers can make use of coal-bed methane.

Coal-bed methane now accounts for about 7.5 percent of U.S. natural gas production, the U.S. Geological Survey says. Recent U.S. estimates indicate more than 700 tcf of coal-bed methane gas in place. But, only 100 tcf is now economically recoverable, which represents a 5-year supply at present rates of consumption. Further, coal stores six to seven times more gas than the equivalent “rock volume” of a conventional gas reservoir, the geological agency says.

But future growth is now under threat. Water pressure prevents the methane trapped under the coal seams from escaping. To develop the resource, the water must be removed so that the gas can be harnessed. But the subsequent salt water must be disposed of and that usually occurs in surface waters. And that, of course, directly affects the farmers and ranchers who earn their livings from the land.

The matter has reached a boiling point in Montana, which could have consequences for the rest of the nation. There, the Northern Plains Resource Council filed suit against the Fidelity Exploration and Development Co. The environmental group wants the developer to get an environmental permit to dispose of the water.

The case was initially dismissed but was appealed to the U.S. Ninth Circuit Court of Appeals where the plaintiffs won. Unlike the lower court, justices there said that such water is a pollutant regulated under the Clean Water Act. Now the case has been taken to the U.S. Supreme Court, which may hear the case but in the meantime has granted a stay, essentially prohibiting the development of those methane resources unless the water can be disposed of in an environmentally suitable manner.

Advances Possible

In the meantime, the environmental council and the developer have reached a tentative agreement -- with the consent of a federal magistrate -- to allow production on 86 existing wells. But, the deal still forbids any development unless landowners request it. Still, the U.S. Supreme Court could alter the entire landscape. If it hears the case and decides to uphold the appeals court decision, then coal-bed methane developers nationally would have to go back to the drawing board.

That’s profound: Many of the almost 6,100 permits granted to drill for oil and gas on federal lands in 2004 were coal-bed methane projects. Furthermore, the U.S. Department of the Interior expects more than 66,000 new coal-bed methane wells in Wyoming’s Powder River Basin alone in the coming years. Even the Bureau of Land Management (BLM) says that the extraction process in just one state -- Wyoming -- would result in the discharge of 700 million gallons of potentially contaminated groundwater per day.

“We believe that responsible development of coal-bed methane resources in ways that are sensitive to the environment and community concerns are in the best long-term interests of our country, natural gas companies, and their shareholders,” says a letter written by shareholder activists to the Independent Petroleum Association of America. The investors, which include the Calvert Group, Trillium Asset Management and U.S. Bancorp Piper Jaffray, recommend that developers consult with landowners, use best-available technologies and protect the wildlife and environment.

Needless-to-say, no one wants to lose sight of the potential environmental benefits of coal-bed methane. If the methane is captured and used as an energy form, particularly from the underground coal mines in the Appalachian basin that accounts for about two-thirds of the emissions in the United States, it may make a mark on global emissions. Nearly 10 percent of atmospheric methane resulting from human activity is derived from coal mining.

Regulators are sensitive to all concerns. Nationally, the parties agree that if more sites are permitted then better monitoring is essential. The BLM, for example, says that it can require developers to modify their designs by regulating the rate of drilling in certain areas. At the same time, it can reduce the need for new roads by necessitating the use of modern technology that keeps tabs on how well the drilling equipment is working. And, finally, all land under the jurisdiction of the BLM must be reclaimed. Such steps can go a long way to preserve wildlife and the environment, it says.

New Technologies

Meantime, new technologies to treat contaminated water show promise. Wyoming-based Drake Engineering is about to complete a demonstration project with Marathon Oil Corp. in Sheridan, Wyo. The process the two are using seeks to expedite the removal of salt and bicarbonate at a reasonable cost. The engineering firm says that the price of treating the contaminated water is about 20 cents per barrel, or 42 gallons.

Developers in Oklahoma say that they are already getting rid of unwanted salt water in an environmentally safe manner. El Paso Corp. is partnering with Chesapeake Energy Corp. there in an endeavor that has already drilled about 330 coal-bed methane wells. Harken Energy, meantime, is participating in joint partnership in Indiana to find coal-bed methane. The Dallas-based company says that the venture holds potential, noting that it is extracted before the coal is mined. That provides both environmental and safety benefits.

“Over the short-term, coal-bed methane can be developed more economically and more quickly than other deep reservoir onshore gas or deepwater offshore gas,” says Rebecca Watson, assistant secretary for Land & Minerals Management at the U.S. Department of the Interior.

Rising natural gas prices are giving developers new incentives to find alternative energy sources. Coal-bed methane is one of those alternatives. Already, consumers are seeing the benefits of this fuel source. But, if it is to be fully developed, then it is imperative that the environmental consequences associated with drilling those wells be properly addressed.

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