Tax Credit Has Gas Men Drilling METHANE FROM COAL SEAMS

Article excerpt

FOR 40 years natural gas companies have been drilling wells - 18,000 of them - in New Mexico's San Juan Basin.

For all those years and all those wells they drilled right through 3,000-foot-deep coal seams that contained methane, the main constituent of natural gas, to get at conventional gas-bearing formations below.

Now gas men are working those coal seams, thanks to a hefty tax credit that Washington will give those who move fast to develop coal seam gas. Wells have to be drilled by this year to qualify.

"This is a tremendous resource. It's only now dawning on the industry and the financial analysts how significant it is," says Warfield Hobbs IV of Ammonite Resources, a geological consulting firm in New Canaan, Conn.

Because development of this resource is new, evaluating its size is difficult. The industry generally accepts 90 trillion cubic feet (TCF) as an estimate of recoverable gas. But that's thought to be very conservative and doesn't include methane in several large coal basins. Even so, it already equals almost 60 percent of the proven conventional gas reserves of 157 TCF in the United States.

"Here is a resource that was considered unconventional 10 years ago," says Bob Kalisch, the director of gas supply and statistics for the American Gas Association (AGA). "Something big is happening in the gas industry."

This "something big" involves a lot of money. Mr. Hobbs calculates natural gas companies will spend well over $1 billion this year to drill 4,700 coal-bed methane wells. By year's end, 7,000 wells will be in place, located either in the San Juan Basin or Alabama's Black Warrior Basin, where the coal yields high volumes of gas and pipelines have already been built.

By the end of 1991, Hobbs expects total production from these wells to produce 1 TCF a year - 6 percent of annual US natural gas consumption of 18 TCF.

"With the deliverability of other gas supplies declining, coal-bed methane is going to play an important role in meeting any increases in demand over the long haul," says David Newman, vice president of Amoco Production Company in Denver.

All this from a gas that at best used to be considered waste, at worst, deadly.

Ever since coal started to be mined, likely by monks near Newcastle-upon-Tyne in 13th-century England, coal-bed methane has caused mine explosions.

Methane molecules bonded to the coal while it was forming millions of years ago. Water held them in place. Removing the water to mine the coal releases the poisonous gas.

Initially, drilling for coal-bed methane aimed only at improving mine safety, and the gas was simply vented into the atmosphere. But Amoco realized it could be commercial and sank its first coal-bed methane well in New Mexico in 1977.

Two years later, as it battled the energy crisis, Congress introduced a tax credit to subsidize development of nonconventional energy sources. …

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