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Bright future for coalbed methane industry

World Coal,

New research suggests that the global coalbed methane (CBM) market is set for substantial gains over the next six years to 2020.

A recently released report, “Global coal bed methane (CBM) market analysis size and segment forecasts to 2020” says that depleting conventional natural gas reserves raise questions on its sustainable status, which will likely lead to increased focus towards the use of unconventional gas sources such as CBM, shale gas and tight gas.

The report says that recoverable unconventional sources of gas, including CBM are much larger than the conventional natural gas resources, and this will help drive the industry to become a multi billion dollar market in the next few years.

The CBM market will reach “US$ 17.31 billion by 2020, growing at a CAGR of 5.9% from 2014 – 2020”, the report says.

“Exploration and commercialisation of unconventional hydrocarbon energy sources is seen as a critical step by energy agencies, to stabilise the energy supply-demand gap in the coming years. With CBM being a pure natural gas form, producers and consumers also have the opportunity to obtain much needed carbon credits and tax incentives,” the report continues.

In 2013, global CBM production stood at just short of 3 billion ft3 – this figure is expected to reach 4,667.4 billion ft3 by 2020 – growing 7% CAGR from 2014 – 2020.

64% of CBM is currently used for power generation and industrial applications. 35.3% of global CBM volumes were used for power generation and this sector will see the fastest growth in demand for CBM until 2020, growing at an estimated CAGR of 8.5%, according to the report.

Key regions

The US currently dominates CBM production, accounting for 61.8% of total CBM produced globally in 2013. Canada follows in the global market, accounting for 11.5% of total production in 2013. The growth of North American market is primarily driven by the growing demand for sustainable fuel in the country and in order to reduce reliance on conventional sources of natural gas.

However, the Asia Pacific – on account of growing drilling activities mainly in coal rich countries, such as China, India, Indonesia and Australia  – is expected to be the fastest growing CBM market at an estimated CAGR of 14.9% from 2014 – 2020. The region is currently seeing GDP growth rates due to growing disposable income of consumers is growing at rapid pace. Growing GDP is leading to growing demand for energy in the region. The growth of Asia Pacific energy is mainly driven by China, India and Indonesia. Along with being a large demand centre, Asia Pacific is also emerging as a large supply centre for unconventional gas resources including CBM. China, India and Indonesia contains huge amount of unproven reserves for CBM, which in turn has been attracting companies to invest in the region.

The Chinese Ministry of Land and Resources has already announced plans to produce 16 billion m3 of coal bed methane by 2015, while Indonesia has already audited 1000 billion ft3 net resources and has production target of over 15,000 billion ft3 by 2020.

Industry challenges

The report, which features reports on CBM operations owned by companies including Arrow Energy, Dart Energy, Santos, PetroChina and Petronas, says that firms operating in the CBM market will, like their counterparts in other resource markets, face a number of key challenges during this period of growth.

“The strict framework designed for extraction by various environmental agencies coupled with the highly capital intensive process is expected to be a key challenge for industry participants over the next six years,” the report notes.

The report also noted that competition in the market between companies will be rife – with the winners standing to gain significant rewards, should the CBM market grow as the report suggests. Two companies – Arrow Energy and BG Group – currently account for half of the global CBM market, while the rest of the market sees stiff competition between companies such as Santos, Origin Energy, PetroChina, Great Eastern Energy and Dart Energy – which is currently subject to a takeover deal by iGas.

Drilling costs

The most significant outlay for a CBM extraction operation is drilling cost, the report notes. Drilling cost is estimated to account for approximately 74.3% of the total cost for the production of one cubic meter of CBM gas. Electricity accounts for the next biggest segment sharing 8.1% of the total cost for producing CBM gas by the means of vertical drilling. Maintenance cost for machinery and equipments used for the production of CBM accounts for 6.8% of the total cost. Operational expenses shares approximately 5.4% of the total cost and other cost incurred for the production of CBM accounts for 5.4% of the cost.

Fastest growing energy market

Natural gas is one of the fastest growing energy forms and has been gaining market share significantly in the global energy mix. Its lower carbon emissions have seen it challenge coal, as its supporters tout its ability to run below carbon emissions regulation imposed in countries such as the US and Australia.

As natural gas reserves run dry, however, companies will increasingly turn to unconventional sources of the fuel. Much has been heard of the shale gas revolution in the US, but CBM stands to claim its fair share of financial rewards over the coming years. If the predictions in the report turn out to be true, the CBM market is not one to bet against. 

Written by Sam Dodson

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