An imminent outbreak of development drilling, triggered by long-awaited technical and exploration successes, is prompting even the most cautious forecasters into raising expectations for coalbed methane in Canada.

As drilling and field service contractors counted orders for 3,000 coal seam wells in 2005, even TransCanada PipeLines Ltd. predicted a substantial source of new gas supplies will emerge in western Canada, chiefly Alberta.

TransCanada president Hal Kvisle said he can now conceive of coalbed methane growing to equal one-tenth of current western Canadian production of about 17 Bcf/d.

Despite its conservative tone, Kvisle’s statement during a third-quarter results conference call with financial analysts and media was a notable change of tune. TransCanada has hitherto been reluctant to put any numbers on Canadian coalbed methane, saying there was too little production and too much confidentiality among its would-be developers to make even educated guesses. The nation’s top gas transporter has long classed the emerging field among speculative imponderables while making cases to the National Energy Board for rate increases to cover growing “supply risk” for its pipeline.

Coalbed methane “may be turning out to be a bigger part of the puzzle than many have thought,” Kvisle said when asked about the outlook for refilling more than 1 Bcf/d in vacant capacity that opened up on TransCanada after completion of Alliance Pipeline in 2000.

TransCanada remains cautious about predicting how far coal gas development might go towards replacing or expanding the Western Canadian Sedimentary Basin’s gas production. “To envision coalbed methane would be any more than 10% of that would be incredibly bullish,” Kvisle said.

But the outlook for maintaining and maybe even increasing western Canadian supplies is improving on the strength of more than one factor, Kvisle said. He described coalbed methane as just one part of a brightening picture generated by the durability of strong gas prices over the past three years, especially by historical Canadian standards.

The outlook is changing for a variety of potential reserves, including those requiring technological as well as geographical exploration and known generally as tight sands, that used to be regarded as utterly uneconomic in Canada.

The resources on the technical frontier are “staggeringly attractive at $6 (per Mcf),” Kvisle said. For a Canadian industry long accustomed to prices in the $1-$2 range “it’s a whole different playing field out there than what it was before.”

Western Canadian gas production appears at least to be stabilizing at the 17-Bcf/d level rather fulfilling previous forecasts of rapidly peaking then declining, the TransCanada president said. The Canadian industry appears to be able to deliver a reliable performance of at least holding steady by generating new production at an annual rate of 3 Bcf/d to replace declines in aging fields, Kvisle said.

The 2004 performance includes early results of an initial, 1,000-well foray into coalbed methane, field contractors and financial analysts say. The coal seam well count will triple to 3,000 in 2005, agreed forecasts by the Canadian Association of Oilwell Drilling Contractors (CAODC) and the Petroleum Services Association of Canada (PSAC).

The field contractors and analysts also agreed that the Canadian entry into coalbed methane is only beginning after a quarter-century of research and exploration at last came up with a relatively easy entry into the new specialty. Virtually all the wells are expected to be into a shallow, dry formation known as the Horseshoe Canyon Coals. The seams carpet a broad band of central Alberta reaching from south of the province’s industry capital of Calgary to north of the seat of government in Edmonton.

The participants in the new field are not necessarily as cautious about its outlook as TransCanada. The new branch of the Canadian industry has potential to rival the conventional shallow gas drilling that has been the key driver of field activity since the late 1990s, said PSAC chairman Murray Cobbe, president of Trican Well Services.

PSAC and CAODC both project an 8% jump in western Canadian drilling in 2005 to more than 24,000 wells, with gas accounting for 70% of the activity and coalbed methane responsible for the significant growth in the numbers. The lone exception will be a statistically less striking, 6% acceleration of drilling in British Columbia to 1,300 wells in 2005. The B.C. results will be watched closely, however, as a revival of high-cost, deep drilling on the Canadian industry’s conventional exploration “near frontier.”

Among industry analysts, FirstEnergy Capital Corp. projects Canadian investment in coalbed methane will top C$2 billion (US$1.6 billion) per year by 2010, about a five-fold increase from the initial commitments to the fledgling field this year. Annual reserve additions, currently less than 500 MMcf are forecast to top 2 Bcf by 2010.

The still cautious financial community continues to agree with Kvisle that it will take about four years to ramp up coalbed methane production to 1 Bcf/d and the total will remain below 1.7 Bcf daily for the rest of this decade. Bigger possibilities are now being ruled out, however. The technical and professional community in Alberta is continuously hearing about research efforts and potential advancements by tests and pilot projects in a variety of coal deposits, including much wetter and deeper seams than the Horseshoe Canyon.

The geology and engineering side of the industry, as opposed to money and pipeline managers, continues to point to the large potential of western Canadian coalbed methane if technical obstacles can be overcome. Potential coal gas reserves in the region are currently estimated at up to 553 Tcf, by the count of the Canadian Society for Unconventional Gas.

Recoverable reserves, taking into account the current state of technology and know-how, are estimated at up to 130 Tcf. The initial target, the Horseshoe Canyon formation, alone harbors up to 20 Tcf of gas that can be tapped with quick wells that typically cost C$250,000 (US$200,000) each and can be put into production immediately because the coal is dry and near established processing and pipeline facilities.

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