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While BC Eyes CBM Incentives, Alberta Expects 3,000 CBM Wells in '05

While British Columbia continues to try and kickstart coalbed methane (CBM) development with royalty and tax breaks, development of these unconventional resources is accelerating in Alberta without government help.

The difference comes naturally, observed David Breakwell, gas chief in the Alberta Department of Energy, echoing corporate leaders. The industry found the right formation -- shallow, dry coal seams -- in Alberta. As a result, Breakwell said Alberta still has no plans to introduce special development incentives.

But British Columbia is stuck with deeper, wet and more remote CBM deposits and officials there say they soon plan to unveil a Canadian counterpart to tax incentives that helped launch the coalbed methane sector in the United States about two decades ago.

The initiative comes more than two years after the B.C. royalty structure was adjusted to reflect extra costs of coalbed methane production over conventional gas operations. Coal gas remains a small, slow research project at scattered sites in B.C. regardless of the government policies due to the difficulties and costs posed by the province's deeper, wetter coal deposits, say Canadian leaders in the field such as EnCana Corp.

The only Alberta incentive is for conventional gas and is in the form of reduced royalty rates, as low as 5%, for all wells producing small volumes. The provision was enacted years ago to ensure aging or small reservoirs would not be abandoned before their natural death, Breakwell said. On sliding scales reflecting gas prices as well as the age and productivity of wells, Alberta royalties can go as high as 30% and ordinarily hover in the 20% range. Coalbed methane is treated the same as all other gas.

In Alberta, "the amount of activity in this field is pretty phenomenal," said Breakwell. At least 2,500 coalbed methane wells were drilled in the province last year, he told the Economics Society of Northern Alberta. The 2004 number was about a 1,000-fold increase since 2000, when tapping Alberta's estimated 620 billion metric tons of coal deposits for gas was still only a research project by a handful of specialist geologists and engineers.

Industry groups, including the Petroleum Services Association of Canada and the Canadian Association of Oilwell Drilling Contractors, appear to be right to predict at least 3,000 coalbed methane wells will be drilled in Alberta this year, Breakwell said in an interview. EnCana alone, as Canada's biggest gas producer, has told farmers in the path of its activity that it plans to drill 6,000 coalbed methane wells over the next three years. Alberta Energy's latest estimate predicts the province's coal deposits will eventually produce about 70 Tcf of gas.

But the prediction is only a cautious guess based on experience in the U.S. Alberta industry already made strides by finding and developing technology to exploit a dry, shallow coal formation named the Horseshoe Canyon after an outcrop in a scenic area northeast of Calgary. The geological layer carpets a wide swath of central Alberta, at a depth of 200-800 metres (650-2.600 feet) beneath dry plains south of Calgary to woods north of Edmonton.

The Horseshoe Canyon formation yields gas almost pure enough to put straight into furnaces without the environmental headache of also flowing salt or fresh water. New drilling and pipeline technology speeds the coal gas harvest. Wells take less than a day. Pairs of tractors plough five feet deep but narrow trenches, unroll pipe from giant spools then put the earth back at a brisk pace.

Up to eight wells per country section of one square mile are needed because coalbed methane pressures are low. That is up to eight times the number of conventional gas wells. But directional drilling of multiple holes from single sites limits environmental effects and production equipment such as compressors may be buried, Breakwell said. Alberta's ultimate coalbed methane potential is estimated at 500 Tcf.

But much more technology and knowledge will be needed to tap it all, he said. About 70% of the coal gas is in the Manville formation, a water-logged and deeper layer than the Horseshoe Canyon. Alberta eventually faces the technical and economic issues that have stalled coalbed methane in B.C. "The real prize is to find a way we can deal with the land and water issues in the wet coal area," Breakwell said. "This will not happen in the next year."

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