If coal bed methane (CBM) is really to take off then a set of commercial, technical and regulatory challenges still have to be overcome.

“Asia-Pacific is a major natural gas market, with the potential to become the largest gas market in the world in the future. The existence of substantial coal reserves, particularly in Australia, China, and India, provides opportunities for companies to undertake CBM exploration and development activities,” according to analysts GlobalData.

Strong Reserves

Asia-Pacific has the world’s second largest CBM reserves after North America, and if individual governments can set up the right conditions, the huge domestic markets can offer plenty of ready customers.

The main known reserves are currently found in China, Australia, and Indonesia. According to consultants IHS, Australia holds 90 Tcf of CBM reserves, while China has 1,200 Tcf and Indonesia boasts 453.3 Tcf.

Of these, Australia has the most developed sector, with Queensland the hub for the Bowen basin and the emerging Surat basin.

Also Australia’s CBM-LNG business is a promising road to venture down, as long as the current tight economics can be mastered.

China’s National Energy Administration (NEA) said in December that the Chinese government would focus its developmental activity in two areas – the Qinshui basin and the Ordos basin. The NEA projected that the production capacity of CBM in the Qinshui basin and the Eastern Ordos basin should reach 16 Bcf by 2015.

The Ordos basin is the second largest sedimentary basin in China, and the NEA said the basin offers competitive well costs in comparison to its large resource potential and recoverability.

Chinese state-owned operators have been keen to acquire the technology and know-how of international contractors to help build the country’s CBM sector. Also, tax incentives and breaks on foreign companies pursuing CBM developments, including tax breaks on importing equipment and production, are expected to help advance CBM production in China.

One factor that has held up the country’s CBM production growth is the lack of infrastructure to transport the reserves to key markets. However, some localized CBM pipelines are being built by provinces to move the gas to market.

The Indonesian government says it has 11 major CBM basins, with the regions of Sumatra and Kalimantan holding the majority of reserves. The South Sumatra basin holds 185 Tcf and the Central Sumatra basin holds 52.2 Tcf. In Kalimantan, the Barito basin contains 101.6 Tcf and the Kutei basin has 80.4 Tcf.

India’s reserves are estimated at between 92 Tcf and168 Tcf, depending on the source, but it is keen to fast-track the CBM blocks it has already awarded by offering incentives to foreign investors.

Consumption Fuels Demand

“Some of the most highly industrialized countries in the world are located in the Asia-Pacific region, such as Japan, South Korea, and China, along with some of the most highly populated countries with high consumption rates, such as India and China. This incredible growth of natural gas consumption across Asia has made the development of unconventional gas sources vital to the region’s economy,” according to a recent report by GlobalData.

“Australia has already had major success in CBM developments, but China is now also aggressively developing its CBM resources, while other Asian countries such as India, Indonesia, and Vietnam begin to seek out similar opportunities. The urgent need to develop CBM as a secure gas source is being supported by favorable fiscal policies and government regulations in a number of Asian countries,” it stated.

Queensland in Australia has introduced a gas scheme that mandates the increased usage of natural gas for power generation, and China has provided CBM operators exemption from value-added tax, and exemption from import duty for machinery used for CBM extraction.

India has also announced a tax holiday for CBM operations, even though it is only for the blocks offered in the last four CBM exploration rounds.

“In order to establish a superior export base for natural gas, Australia is undertaking the construction of several liquefaction plants to convert CBM to LNG, which are expected to be operational within the next few years.

Geographical proximity to energy-hungry South Asia will provide a good market for Australian LNG exports,” added GlobalData.

The analyst forecasts that CBM production in Asia is expected to reach about 3.46 Tcf by 2020, with Australia contributing more than 60% of the total, and China and India representing the next major contributors.

To produce CBM, large volumes of water have to be removed. Similar to shale gas extraction, fracturing can be required, as well as a high number of wells.

Extraction is often low pressure and from shallower drilling depths. Most CBM reserves are found at depths of 152 m to 1,067 m (500 ft to 3,500 ft).

Challenges To Growth

“CBM may become as important for Asia and Australia, as shale gas has become for North America. This requires that the CBM industry manages to overcome critical commercial, technical, and regulatory challenges,” said independent risk analysts DNV.

“Almost 40 % of all global CBM reserves are located in China, Australia, India, and Indonesia. Estimated reserves of 2,800 Tcf are about three times the proven natural gas reserves of Qatar. With Australia leading the industrial development of CBM and with promising growth emerging in Asia, efficient measures to reduce project costs while preserving the environment are necessary,” DNV stated.

Hans Kristian Danielsen, head of DNV Cleaner Energy in Australia, commented, “DNV is engaged in several mega LNG projects in Australia, including CBM projects. DNV sees an opportunity to reduce project construction risks by establishing and aligning best practices through third party monitoring of project performance.”

He concluded, “More effective and robust regulatory frameworks on environmental, social and economic aspects of CBM are needed in many countries in order to speed a safe and economically sound scaling of CBM projects.”

Steven Hamlen, Special to E&P