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Financial Post (Canada):Another giant in the making: Coal bed methane has done in a few years what took decades for oilsands boosters: Attract the big money

Apr 03, 2006
When talk turns to big-money spending these days, the conversation usually begins and ends with the oilsands. And with good reason. Over a 20-year stretch, spending on oilsands projects is expected to reach around $100-billion. That's 11 zeros, enough to make even Bill Gates jealous. Enviable, yes. Alone at the top? Not quite.
In the world of big round numbers, oilsands may be the headliner, but it's not without a hungry understudy. Quietly, the amount of spending on coal bed methane programs, though not single projects in the classic sense, can already go head-to-head with the dollars being put into the oilsands.
“The resource and total capital is similar in scale,” said Stephen Paget, an analyst at FirstEnergy Capital in Calgary.
Take EnCana Corp., which plans to spend $4.5-billion drilling coal bed methane wells in the next five years.
That puts it in the same ballpark as the Long Lake oilsands project being built by partners Nexen Inc. and OPTI Canada Inc., and not far behind Suncor Energy Inc.'s next 100,000 barrel-a-day expansion.
Ranked against other projects in Alberta, EnCana's coal bed methane program comes in a respectable fifth, according to a list compiled by FirstEnergy using data from the province.
“To me, the interesting thing is how quickly … coal bed methane has gone from something that was seen by visionaries to something that is now very much an economic resource,” Mr. Paget said. “The oilsands took 50 years to get that first economic production, coal bed methane was much more rapid.”
Over the last five years, parallels between the emergence of the oilsands and coal bed methane abound.
Both are considered unconventional resources, a term that means industry needs to use different methods to extract the hydrocarbons than the techniques it typically uses.
In the oilpatch, which thrives on cutting costs through repetition, having to stray from the norm nearly always equates to extra costs. As with oilsands, that's the case for coal bed methane, which can be twice as expensive as producing conventional reserves.
For years, that meant each stayed on the fringes of industry thinking.
Then, around the beginning of this decade, the energy world started to transform. Surging global demand caught supplies of oil and gas flat-footed. Instead of oil at US$20 a barrel and gas at US$2 per gigajoule, prices leapt to their current levels around US$60 a barrel and US$7 a gigajoule.
“Just as the world oil market has become limited in supply, the North American natural gas market has become limited at close to the same time,” said Mr. Paget. “Generally, energy … supply is much closer to demand than it has been in the past.”
With commodity prices tripling, the break-even costs for each play became a memory, moving oilsands and coal bed methane from marginally profitable experiments to veritable cash cows.
Where the resemblance really hits home for industry is in the size of the respective resources.
Oilsands reserves are now tabbed at 175 billion barrels, dwarfing estimates for Canada's conventional reserves of four billion barrels.
While the powers that be haven't yet agreed upon an estimate for recoverable coal bed methane reserves, a looser projection for total gas-in-place puts them at more than 500 trillion cubic feet, about double that of conventional gas.
“The resource is there to spend the money on,” said Kin Chow, chairman of the Canadian Society for Unconventional Gas.
The simple fact that the gas is there to tap is a comforting thought for an industry that, fundamentally, is based on always having fresh prospects.
Virtually nowhere only a few years ago, the emerging significance of coal bed methane can be found in the numbers.
When the current drilling programs from Apache Corp., MGV Energy Inc., Conoco Phillips, Compton Petroleum Corp., CDX Canada, Trident Exploration Corp. and others are added up, the tally comes to $9.1-billion over the next five years, according to FirstEnergy.
Company Project cost ($billions)
1. Syncrude Canada expansion $8.3
2. Canadian Natural Project Horizon $6.8
3. Imperial/ExxonMobil Kearl Lake oilsands mine $6.5
4. Suncor Energy expansion $5.9
5. EnCana coal bed methane $4.5
6. OPTI Canada/Nexen Long Lake project $3.5
7. Synenco Northern Lights bitumen upgrader $2.8
8. Shell Canada Scotford upgrader expansion $2.7
9. Albian Sands Energy. Muskeg River mine expnsn. $2.5
Source: FirstEnergy Capital Infrastructure Survey, Alberta Economic Development

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