DUSTIN BLEIZEFFER Star-Tribune energy reporter | Posted: Friday, April 30, 2004 12:00 am
DENVER - Companies that produce coalbed methane gas in the Powder River Basin are wondering whether the public would be willing to share some cost of treating the groundwater that comes with the gas.
So far, there's no official proposal on the table for a tax break to balance costs in areas that require extraordinary treatment to meet regulatory standards. But industry members are hinting at the need to overcome some of the expense.
Jeffrey Cline of Anadarko Petroleum said the evolving regulations for water quality poses a "substantial risk to (the) development of impoundments and treatment."
Cline was a speaker at the American Petroleum Institute's "Rocky Mountain Coalbed Natural Gas Forum: Produced Water" at the Hyatt Regency Denver Tech Center. Approximately 90 people attended, representing producers, scientists, soil and water consultants and industry regulators. The two-day forum ended Thursday.
Cline declined to discuss the idea of a tax incentive, but he did say some water treatment methods can be "cost-prohibitive" for producing coalbed methane gas. The quality of coalbed methane water varies throughout the basin and the state, and so the cost to alter the water to meet regulatory standards also varies. Much like different grades of gasoline, the more impurities that are cleaned out of the water, the more expensive the end product.
For example, under one particular water discharge permit, Anadarko is required to meet a sodium absorption ratio (SAR) of about 5. After studying various treatment and water management methods, Anadarko determined it could clean the water to an SAR of about 9. If they cleaned it any further toward the SAR 5 parameter, the whole gas project would be uneconomical for the company.
One project to test several "managed" agricultural applications of coalbed methane water resulted in a cost range between 13 cents and 17 cents per barrel, according to Fidelity Exploration and Production Co.
Just one coalbed methane gas field of 100 to 200 wells can produce 1 million barrels of water in a year.
For much of the Powder River Basin, the cost to treat and manage the water to meet regulatory standards is well within the economics of the industry - especially under the current $5 per thousand cubic feet (mcf) of gas market price. However, one of the thickest coalbed methane gas veins of the region - the Big George - is also known to produce some of the poorest quality water and at the highest volumes.
So far, only 4 percent of the basin's estimated 25 trillion cubic feet (tcf) of recoverable methane gas reserve has been developed. The largest portion of the remaining reserves belongs to the public, and the idea of leaving even a portion of those reserves untapped because of water treatment costs cuts against the grain of the federal government's intent to exploit all possible domestic natural gas.
Federal eyes on the Rockies
On Wednesday, deputy assistant secretary of oil and gas for the U.S. Department of Energy James A. Slutz addressed the API group and stressed the need to develop all possible resources.
"The Rocky Mountain Region is the quickest opportunity to bring more supply to the United States," Slutz said, speaking of all unconventional natural gas resources.
Slutz said regulatory parameters that might dictate the need for any costs of water management and treatment programs are for those local agencies to decide. But the DOE and its many research and development programs are driven by the Bush administration's prescription to develop as much domestic natural gas as possible.
"The DOE's role is to lower the cost of exploration and development," Slutz said.
A growing crop of soil and water amendment companies are finding work in the Powder River Basin to help producers meet water quality standards. Terry Olson of EMIT Water Discharge Technology in Sheridan said companies such as his are also doing all they can to lower the cost of water treatment projects.
"We run a lean operation," said Olson, who spoke to the API group Thursday. "There are costs associated (with water treatment) and I don't apologize for that."
Olson added that he doesn't believe water management and treatment should be mandated, but it should be made as economically viable as possible.
"The producer should be recognized for his efforts. There ought to be some way for you to recoup the cost."