1. Coalbed Methane as Unconventional Gas

Importance of Unconventional Hydrocarbon ResourcesWorldwide Coalbed Methane Potential

Have We Been Successful?

UNCONVENTIONAL OIL AND GAS

UNCONVENTIONAL OILExtra-heavy oilConventional heavy oilBitumenShale oilSyncrude

>3.00.5-3.0<0.5Sulfur (% wt)

>10,000100-10,000100-10,000Viscosity (cp)

<10<1010-20Gravity (API)

Bitumen(tar)

Extra-Heavy Crude

HeavyCrude

UNCONVENTIONAL GASLow quality gasCoalbed gasTight sand gasDevonian shale gasHigh pressure aquifersGas hydrates

World Oil Endowment9 - 13 trillion barrels

Conventional Oil3 - 4 trillion barrels

Heavy Oil1.5 - 2 trillion barrels

Extra Heavy and Bitumen4.5 - 7 trillion barrels

Light crude oil

Heavy crude oil

Bitumen High quality gas

Low quality gas

Coalbed gas

Tight sand gas

Devonian shale gas

Gas hydrates

RESOURCE BASE FOR OIL AND GAS:

RESOURCE TRIANGLE (after S. Holditch)

Rate of conversion Accessibility, Technology, Price, Motivation

ARE UNCONVENTIONAL OIL RESOURCES ECONOMICALLY RECOVERABLE?

•Most unconventional oil resources, like oil hales, are not currently economically recoverable. The most probableexceptions to this statement are Canadian tar sands and Venezuelan extra-heavy oil.

•If these unconventional oil resources are recognized as established reserves at some point in the future, overallestimates of globally recoverable oil would increase substantially. If Canada's classification of 174 billion barrelsof oil sands is considered as establishes reserves and Canada will become the second largest oil-reserve holdingnation in the world after Saudi Arabia. Similarly if the 225 billion barrels of extra-heavy oil of Venezuela is considered as recoverable then Venezuela would be credited with the largest oil reserves in the world.

•These changes in the classification would tilt the balance of global oil reserves away from the Middle East, though neither of these unconventional oil producing regions is likely to displace the Middle-East as the lowest-cost or highest volume supplier of oil to world markets anytime soon.

The energy required and environmental impacts incurred in extracting and utilizing unconventional, extra-heavyand bitumen based oils are generally greater than in the case of conventional oil. Tar sands require substantialamount of energy mining and separating of for heating underground reservoirs. Similarly, extra heavy oil requiressignificant effort to bring to the surface and transport for processing.

Besides their greater upstream energy requirements, producing extra-heavy oil and bitumen may entail greater environmental impacts than conventional oil production. large amounts o water are necessary to separate bitumen from the tar sand and solids. Similarly the production of extra-heavy oil in Venezuela will yield high sulfurat the surface

THE ROLE OF TECHNOLOGY IN UNCONVENTIONAL HYDROCARBON RECOVERY:

In the 1990’s extraordinary technology improvements in exploration, drilling and production contributed to the near record low energy prices. There is every reason to believe that technology advances will continue unabated. The following are a few examples of technologies on the verge of breakthrough (if not yetcommercial), that will affect the development of traditional as well as unconventional oil and gas resources.

•Cross-borehole seismic tomography and the associated miniature (0.5 inch) geophone tools permittingimproved reservoir characterization on the interwell scale

•Through-casing resistivity logging that locates bypassed pays old, steel-cased wells•Recent advances in the design of downhole-or subsea-installed water separators which will allow removal of produced water from oil in the wellbore with subsequent reinjection of the same in a different formation within the same well.

•Gas-to-liquids (GTL) technology that converts natural gas into synthetic liquid fuels.•The improvements in the horizontal well technology.•The development of laser drilling provides an example of a really high-tech approach which will result in

increased rate of penetration, reduced or eliminated rig dayrates, enhanced well control, and perforating and side tracking. Rate of penetration through a sand-shale sequence is expected to be around 450 ft/hr.

•A wave of business-to-business (BzB) electronic commerce, smart well technology.•3D and 4D seismic technology.•Fuel cell technology.

WHICH UNCONVENTIONAL OIL AND GAS OPTIONS?WHEN? HOW MUCH? WHAT PRICE?

Answering these questions, even in a qualitative sense, is no less difficult than predicting today’s desktopcomputing power 20 years ago. In order to approach to a correct set of answers one must consider:

the rate of technology developmentthe world’s economic activityclimate change scenariospopulation growthpolitics

However, in general there is agreement that the world’s supply of conventional crude oil will peak between2020 and 2030. Most experts do not consider he contribution of unconventional oil and gas of the kinddiscussed in this lecture, because it seems too speculative. However, it is reasonable to state that anyassumption related to decline in oil production will result in increase in oil price is necessarily not correct asoil supply from conventional sources will be replaced by oil production from unconventional resources. Thisobervation implies that global peak oil production will probably be not achieved probably for another 50 years.

UNCONVENTIONAL OIL RESOURCES:•Unconventional oil is an umbrella term for oil resources that are typically more challenging to extractthan conventional oil. While many unconventional oil resources cannot be economically producedat the present time, two exceptions are extra-heavy oil from Venezuela’s Orinoco oil belt region andbitumen – a tar-like hydrocarbon that is abundant in Canada's tar sands. these resources are alreadybeing economically produced and are likely, in coming years, to become increasingly more importantto global oil supplies.

•Both of these Canadian and Venezuelan unconventional oils are characterized by the fact that they are nearly as dense as, or denser than, water. Venezuelan extra-heavy crude is significantly more viscous thanconventional crude, while Canadian bitumen is even more so. The high densities and viscosities of these hydrocarbons pose significant challenges for extraction and transport while their high levels of sulfur and other characteristics can make them challenging and energy intensive to refine.

•Today, Canada and Venezuela both produce approximately 3 million barrels per day of oil. As of 2000, theyproduced approximately 600,000 STB/D and 300,000 STB/D, respectively of this total from unconventionaloil. By 2015, government forecasts project that Canada and Venezuela combined will produce nearly 3.5million barrels per day of extra-heavy oil or diluted bitumen and syncrude.

Unconventional Gas

Source: Energy Information Administration - Annual Energy Outlook 2002

1190.62Total Natural Gas

167.41Proved Reserves

1023.21Total U.S. Unproved

32.32Alaska

990.89Total Lower 48 Unproved

140.89Associated-Dissolved Gas

60.35Coalbed Methane

55.42Shale Gas

253.83Tight Gas

369.59Unconventional Gas Recovery

39.96Shallow

7.72Deep

47.68Offshore

183.03Onshore

232.7Inferred Reserves

44.52Shallow

81.56Deep

126.1Offshore

121.61Onshore

247.71Undiscovered

Nonassociated Gas

As of January 1, 2000Natural Gas Resource Category(Trillion Cubic Feet)

Natural Gas Technically Recoverable Resources

Source: National Petroleum Council - Meeting the Challenges of the Nation's Growing Natural Gas Demand, 1999

17791475Total U.S. Remaining Resources

313180Total Remaining Resources

5757Nonconventional

21484New Fields

3230Old Fields (Reserve Appreciation)

303171Assessed AdditonalResources

109Proved Reserves

Alaskan Resources

14661295Total Remaining Resources

371406Nonconventional

633493New Fields

305236Old Fields (Reserve Appreciation)

13091135Assessed Additional Resources

157160Proved Reserves

Lower 48 Resources

As of Jan 1, 1998As of Jan 1, 1991

1999 NPCStudy

1992 NPCStudy

U.S. Natural Gas Resources(Trillion Cubic Feet)

Source: Potential Gas Committee - Potential Supply of Natural Gas in the United States, 2000

1090.997Total United States

155.180Coalbed Methane

935.817Total Traditional

193.831Total Alaska

99.366Offshore

94.432Onshore

369.59Alaska

740.584Total Lower 48

168.631Offshore

574.381Onshore

Lower 48 States

Traditional Resources

Total Potential Resource

Potential Natural Gas Resources of the U.S.As of December 31, 2000(Trillion Cubic Feet)