After decades as a research project, coalbed methane shows signs of spreading north and maturing into production on an industrial scale in Canada as natural-gas producers scramble at least to maintain current supplies.

In the latest project, which imports techniques developed in the United States, more than 800 gas wells will eventually be drilled into a coal deposit 75 miles northwest of the Alberta capital of Edmonton if field trials now under way continue to pan out.

Nexen Inc. president Charlie Fischer described early results of the pioneering effort at making coalbed methane pay in northern Alberta as “quite encouraging.” He said expansion of the coal-gas pilot project is included in the company’s C$1.8-billion 2004 budget, and a decision on turning it into a commercial development will be made before the end of next year.

The target is a gas-rich coal formation near Fort Assiniboine at Corbett, where Nexen has more than 200 one-square-mile sections of leases. Fischer indicated that the trials are confirming U.S. experience that four wells typically have to be drilled per section to make coal-gas production work, quadrupling the normal drilling density in Canada.

Nexen is tapping expertise from the U.S. through a partnership with Trident Exploration Corp. of Calgary. The principal shareholder of Trident is a Colorado firm that specializes in coal gas, Red Willow Production Co., with production of about 140 MMcf/d plus a gathering system in the San Juan Basin.

Nexen aims to prove the northern field can not only be made economic on a large scale but also demonstrated to be environmentally acceptable by Canadian standards. Smaller projects by Quicksilver Resources subsidiary MGV Energy and EnCana Corp. have already ignited keen interest and early resistance among conservationists, farmers and rural landowners north of the border, with protesters reciting unhappy experiences in the early stages of coalbed methane development in the U.S.

The Corbett trials have proved that the coal deposit will release trapped gas and let it flow to the surface if multiple wells are drilled to relieve inhibiting underground pressure, Fischer said.

The experiments have also shown the price of gas will have to fall “a lot lower than it is today,” Fischer said. The Nexen project also contends with the worst environmental headache and source of conflict with communities faced by Canadian coalbed methane developers near water.

Fischer said the Corbett coal seams lie well below surface water bodies and flows, and their quality is being monitored. Water that comes to the surface with the gas production is being reinjected by disposal wells into geological zones beneath the coal, he said.

Nexen estimates its northern Alberta coal property has gas reserves of about 5 Bcf per section or a total exceeding 1 Tcf, a deposit equal to nearly 2% of the total Canadian inventory of 59 Tcf.

“We see real opportunities in coalbed methane,” Fischer said. He disclosed that Nexen is also examining other coal-gas prospects in the Edmonton region near Camrose and Judy Creek, as well as near Calgary at Balzac.

A report released earlier this month by the National Energy Board predicted production from coal seams will reach 202 MMcf/d by year-end 2005, up 34-fold from 6 MMcf/d in December of 2002. The increased activity will be driven by tight gas markets, high prices and a scarcity of large targets for conventional drilling as established production fields age, the NEB said.

The official forecast is echoed by FirstEnergy Capital Corp., a Calgary investment house that makes a specialty of tracking gas production capacity as a leading indicator of commodity and share prices.

The financial firm’s analysts say western Canadian gas deliverability looks likely to wind up this year down by 2.7% or 500 MMcf/d despite high levels of conventional drilling activity. “Our preliminary results suggest that a similar decline may be in store for 2004. A drilling and gas-well completion effort at or exceeding 2003 efforts may be able to prevent such a decline but only flat production appears to be the best outcome of such an effort.”

FirstEnergy predicts that Canadian coalbed methane production could improve the deliverability outlook by 100 MMcf/d in 2004 and looks likely to keep on growing in 2005. While not enough to compensate fully for the emerging decline in conventional production, coal gas “may be enough to provide some stabilization and future potential in western Canada.”

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