Canary Resources Inc - Coalbed Methane

What is coalbed methane?

Coalbed methane (CBM) is natural gas or methane (CH4) which occurs in coal beds and has been generated during the conversion of plant material to coal. Although minor differences in geologic conditions alter production methods, coalbed methane is transported, sold, and used in a similar way to natural gas produced from conventional gas and petroleum fields.

Methane is the major component and the primary energy source in natural gas. Coalbed methane is found in coal seams, and typically contains 80% - 95% methane gas. Coalbed methane is generated either from a biological process as a result of microbial action or from a thermal process as a result of increasing heat with depth of the coal.

As organic material (peat) is buried, temperature and pressure increase, and methane, water, and other volatile substances are liberated. As these fluids are released, the coaly matter contracts and fractures in a distinctive manner. The fractures align themselves according to the existing stress fields in the earth. These fractures, called cleats, provide permeability pathways through which the fluids may pass. Some gas may escape the coal. If formation pressure is sufficient, however, quantities of methane are retained in the pressurized coal matrix adsorbed (attached) to the molecular structure of the coals.

Extraction of CBM is classified as production from an unconventional reservoir, mainly due to the absence of a conventional trapping mechanism. In a coalbed reservoir, coal is both the source rock and the reservoir for coalbed methane. Methane is produced by drilling into the coal and removing the pressure of the water. In conventional reservoirs, oil and gas are generally found in structural or stratigraphic traps: changing rock formations or faults act as seals for the reservoir and prevent the hydrocarbons from migrating, or leaking out.

How does coalbed methane occur in the coal?

Because coal beds serve as both the source rocks and the reservoir rocks, gas storage in coal beds is more complex than in most conventional reservoirs (e.g., carbonate and sandstone). Although coalbed methane can (and does) migrate to non-coal reservoir rocks, once the gas leaves the coal beds it is no longer considered coalbed methane. Gas reservoirs composed of coal contain unique properties for gas storage that are not present in other reservoirs.

Coalbed methane is stored in four ways: 1) as free gas within the micropores (pores with a diameter of less than .0025 inches) and cleats (sets of natural fractures in the coal); 2) as dissolved gas in water within the coal; 3) as adsorbed gas held by molecular attraction on surfaces of organic constituents that comprise the coal mass, micropores, and cleats in the coal; and 4) as absorbed gas within the molecular structure of the coal molecules. The amount of methane present within a particular volume of coal is very large: coal can store six or seven times as much gas as a conventional natural gas reservoir of equal rock volume. Coals at shallower depths with good cleat development contain significant amounts of free and dissolved gas while the percentage of adsorbed methane generally increases with increasing pressure (depth) and coal rank.

Where does coalbed methane exist?

According to the CBM Association of Alabama, 13% of the land in the lower 48 United States has coal under it, and some of this coal contains methane - either in the form we know as traditional natural gas or as CBM.

During coalification, large quantities of methane-rich gas are generated and stored within the coal on internal surfaces. Because coal has such a large internal surface area, it can store large volumes of methane-rich gas: six or seven times as much gas as a conventional natural gas reservoir of equal rock volume can hold. In addition, much of the coal, and thus much of the methane, lies at shallow depths, making wells easy to drill and inexpensive to complete. With greater depth, increased pressure closes fractures (cleats) in the coal, which reduces permeability and the ability of the gas to move through and out of the coal.

Exploration costs for coal-bed methane are low, and the wells are cost effective to drill. Methane occurs in most coals, and the location of US coal resources is already well known. Methane from coal is thus an attractive resource.

How important is CBM?

Coalbed methane now accounts for over 8% of US gas production. Large quantities of coalbed methane are presently produced from deep coals in the Black Warrior basin of Alabama and the San Juan basin of Colorado and New Mexico. According to the Energy Information Agency, CBM also comprises 10% of US gas reserves and 15% of undiscovered US gas resources. Moreover, growth in coalbed methane production from 1990 to 2000 equaled 60% of the overall increase in United States natural gas production.

Coal-bearing basins in the United States are in competition for frontier coalbed resources. Acreage position and knowledge of the best geological and engineering methods for evaluation and developing CBM resources are needed for successful exploitation.

How do the characteristics of CBM basins vary?

CBM plays vary enormously. Factors that control the occurrence and productivity of coalbed gas include, but are not limited to, thickness, heterogeneity, depth, and composition of coal, seals, gas content, gas composition, permeability, pressure regime, structural setting (folds, faults, joints, cleats), hydrology (ground-water flow and quantity and quality of water), and conventional trapping mechanisms, such as structure. In general, coalbed gas plays for potential additions to reserves extend from depths of 500 to 6,000 ft below the surface.

The San Juan, Powder River, Raton and Uinta Basins are maturing, and lessons learned in these basins are not necessarily applicable for new plays and other CBM basins.

How is methane extracted from a coal seam?

To produce the methane, wells are drilled into coal horizons and pressure is reduced by removing formation water. Pumps are generally required to dewater the formation. This allows methane to desorb (detach) and pass into its gaseous state, so that it may be produced into a pipeline. It is usually necessary to compress the gas before putting it into the collection system.

What happens to groundwater from CBM wells in the Forest City Basin?

Water disposal for CBM production is not a problem in Kansas. Water production rates are significantly less than those of coals in western states, and water from CBM wells in the Forest City Basin is saline, and is required to be re-injected into the ground.

CBM production water is commonly disposed into porous and permeable zones in the upper part of the Cambrian-Ordovician Arbuckle Dolomite. This disposal zone takes water on a vacuum, so no injection pumping is required. The experience of our partner, Osborn Energy, suggests that for the Canary Resources acreage of the Forest City Basin, one deep disposal well is required for every 25 productive CBM wells.

The salinity of the water from Forest City Basin CBM wells makes it unsuitable for less expensive alternatives such as surface discharge, impoundment, or crop irrigation which are prevalent elsewhere. Re-injection thus eliminates environmental concerns regarding disposition of marginal-quality CBM production water.

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