Unconventional Forms of Natural Gas

The unconventional forms of natural gas, with one exception, are only unconventional in respect to where they’re found. The exception is the methane hydrate subcategory.

Unconventional natural gas resources include coal bed methane, tight gas, shale gas, marsh gas, gas in geopressurized zones, and methane hydrates. Only the first three have been exploited to any extent to date.

Coal Bed Methane

Coal is formed from the slow decomposition of biomass over the span of aeons. The process begins with the formation of peat, and proceeds to lignite coal, bituminous coal, and finally to anthracite. Anthracite is almost pure carbon, but the substances formed in the preceding stages are all hydrocarbons.

Throughout the process of coal formation beginning with peat, which is properly a precursor and not an actual form of coal, methane gas is continually generated, and methane, of course, is the principal constituent of natural gas. Methane production, incidentally, reaches a peak in the bituminous stage. The metabolic activities of anaerobic bacteria residing in the coal bed are believed to be chiefly responsible for the production of methane.

In order for methane to accumulate in commercially attractive quantities, the coal bed must be covered by impermeable rock or soil or else the gas will simply seep out. If the coal bed is sizable, enormous quantities of methane may be present within the coal deposits.

Coal bed methane resources have been imperfectly mapped, and estimates as to the size of the total resource are necessarily somewhat imprecise. Most geologists who have studied the matter believe, however, that this single unconventional resource may surpass all conventional gas fields in extent.

Unfortunately, coal bed methane is not low hanging fruit. Coal itself is relatively impermeable, and the gas tends to reside in isolated pockets which do not communicate with one another, necessitating costly recovery techniques where the coal is fractured by the injection of high pressure liquids and gases. Coal itself, on the other hand, is low hanging fruit, and the tendency of mine operators in the past was to regard trapped methane as a hazardous substance that must be vented whenever possible to diminish the possibility of fires and explosions in the mine shafts.

Coal bed methane is beginning to be harvested on a modest scale in the U.S., and pilot projects are underway in large coal producing countries such as India, China, the U.K., Russia, and Germany. The question remains, however, as to whether it is easier and cheaper simply to convert the coal itself into syngas rather than to implement expensive procedures for harvesting the trapped methane. Much of the usage of natural gas involves the chemical industry rather than public utilities, and, in most cases, the methane itself is converted to syngas as a necessary first step in the manufacture of ammonia, methanol, and hydrogen. The technology for coal to gas conversion is fairly well proven and presents a potent challenge to the growth of the coal bed methane industry.

Another problem facing those who would exploit coal bed methane resources is the environmental destruction that has been associated with the practice in the past, particularly ground water contamination, and the resulting NIMBY in communities located adjacent to resources.

Shale Gas

Most geologists believe that the bulk of the natural gas existing on earth today is produced within relatively impermeable shale beds—and here we mean true shale rather than the marl rock which has been misdesignated as oil shale. Subsequently, the gas may migrate to adjacent beds of more porous sedimentary rock such as sandstone or limestone where it is easily tapped in conventional drilling operations, but in many cases the gas stays right where it was formed in the shale deposits. Such gas is known, appropriately enough, as shale gas.

Shale gas is not believed to be as abundant as coal bed methane, but is unquestionably plentiful, and could become a major natural gas resource in the future. A significant amount of shale gas is already being extracted in the U.S., and much more will be in the future.

Shale gas generally requires the use of costly rock fracturing techniques and/or horizontal drilling. Such techniques are still evolving and their effectiveness is increasing, but they will always be more costly than conventional drilling.

Shale gas fields have the further disadvantage of having relatively low production rates relative to the size of the reserve and thus they don’t provide a rapid return on investment. On the other hand, the fields tend to produce for fairly long periods of time, and thirty year life spans are not uncommon.

Shale gas has been extracted at a modest rate for many, many decades, going back to the early nineteenth century, but, because of its rather poor economics, has never constituted a large portion of total natural gas output anywhere in the world. Now with the decline of conventional reservoirs that is likely to change.

Tight Gas or Tight Sand

Tight gas, as it’s known, is generally found in impermeable sandy strata mixed with shale. As in the case of the first two categories, it is difficult and expensive to extract. With U.S. tight gas reserves probably exceeding those of conventional gas fields now, it is becoming increasingly attractive, however.

Tight gas is already more widely exploited than are either shale gas or coal bed methane, and approximately 19% of all gas produced in the U.S. now comes from tight gas wells. Almost inevitably that percentage is going to increase.

Tight gas normally occupies a multitude of small cavities that do not communicate with one another, and in the past a great many wells had to be drilled in a field in order to access much of the gas—obviously a costly procedure. Over the course of the last three decades three techniques have been developed to permit cheaper extraction, fracturing, horizontal drilling, and cluster wells.

Fracturing, or “fracing” as it’s known in the industry, is the process of injecting gas or liquid under extremely high pressure into a non-producing well. The fluid is normally mixed with proppant, small, hard spheres which serve to keep the fractures from closing.

Horizontal drilling, which has been used in oil drilling for decades, takes advantage of the fact that the drill string, that is, the succession of interlinked pipes between the drill engine and the drill bit at the bottom of the bore, can flex to the extent that the drill can make an initial vertical descent and then proceed horizontally across a gas bearing stratum, reaching one pocket after another.

Horizontal well are entirely synergistic with fracturing because they allow a succession fracturing events to take place along the horizontal bore hole as the well progresses.

Well clusters consist of very closely spaced wells that begin in the same small area on the surface of the ground and then diverge along separate horizontal path across the gas bearing stratum, potentially reaching most of gas cavities. Clustering is highly synergistic with the other two techniques.

Each of these techniques has been subject to continuous improvement, while, at the same, time magnetic resonance and seismic imaging techniques have greatly increased the precision with which gas deposits may be located. A very recent refinement, incorporating advanced imaging with horizontal drilling is “geo steering” where sensors on the drill bit itself enable it to change course and target specific gas deposits.

Because of recent and ongoing advances in recovery technologies, the cost of extraction is likely to decline progressively over the course of the next several years. Nevertheless, tight gas will always be expensive to harvest relative to conventional natural gas resources.

Deep Gas

Deep gas refers to deposits of natural gas located at depths of greater than fifteen thousand feet. In order to be recoverable such gas must be situated within permeable rock strata since horizontal drilling is currently infeasible at such depths.

The precise extent of deep gas resources is not known, but geologists believe that it is considerable. How much of it is ultimately recoverable is another matter. Much deep gas is located in undersea reservoirs at great depths, so not only must the well itself extend down over fifteen thousand feet, the drill string must also pass through hundreds or thousands of feet of seawater.

Deep gas is already being exploited, and the rate of exploitation is certain to increase, but the process of excavation promises always to be expensive, and no conceivable technical advances could significantly mitigate the expense of drilling deeper wells.

Peat Methane

Many peat bogs produce appreciable quantities of marsh gas (mostly methane), and total resources have been estimated at over a trillion tons worldwide. Rather than being trapped in sizable reservoirs as is the case with coal beds, natural gas found in peat deposits tends to pervade the whole enormous mass of decomposing biomass. Commercial exploitation has been utterly negligible because no one has devised a way to harvest this very diffuse resource economically. We do not anticipate peat methane figuring prominently in future natural gas projects.

Geopressurized Zones

Geopressurized zones are deposits of natural gas under unusually high pressure, and occupying layers of sand or silt located at depths of between fifteen and twenty-five thousand feet. These zones may be found either under dry land or beneath sea beds. Such zones are particularly abundant along the Gulf Coast. Total global resources of geopressurized gas are believed to exceed all other conventional and unconventional gas resources put together with the exception of methane hydrates.

Given the size of the resource and the continued ascent of natural gas prices, we believe that geopressurized zones will be exploited in time, but the time is not yet. No commercially feasible extraction technique has been developed to date, and only exploratory drillings have been made. There are no commercially producing wells today.

Methane Hydrates

Methane hydrates were only discovered in the late twentieth century, and thus constitute the last unconventional gas resource to appear. They are also, very probably, the largest resource, and, along with geopressurized zone gas, the best means of prolonging the carbohydrate age of energy. Methane hydrates, also known as clathrates or gas hydrates, are potentially a huge resource, which by the most generous estimates stores thermal energy equivalent to that of 100 trillion barrels of oil.

Methane hydrates are unstable compounds formed from water and methane in which the water molecules form a sort of cage or lattice around the methane molecules and the two establish weak chemical bonds with one another. Clathrates only appear under conditions of intense pressure and extreme cold and are found in arctic permafrost and in the depths of the sea. Interestingly, submarine clathrates are not confined to regions of cold surface waters, but are quite abundant in the Gulf of Mexico, and presumably elsewhere in warm regions of the globe. This may be explained by the fact that the temperature of abyssal waters is normally just above freezing at all latitudes.

Methane hydrates look like chunks of ice, although frequently they are shot through with bursts of iridescent colors representing minor impurities. Upon being exposed to normal atmospheric pressures they revert very rapidly to their constituents, methane and water.

A number of techniques have been proposed for harvesting methane hydrates, and at least a couple have been attempted on an experimental basis. Whatever technique is utilized, the gas has to be released in situ, at or immediately adjacent to the area where the methane hydrate deposit occurs. If one attempts to bring the clathrates up from the sea floor or from an excavation in the permafrost, most of the methane will be lost in transit.

The economics of methane hydrates are uncertain today, and no one expects major projects to be undertaken in the near term. Indeed, some authorities believe that the difficulties and dangers involved in extraction are insurmountable, but we disagree. Methane hydrate mining appears to represent a fairly straightforward engineering problem or set of problems, nothing involving fundamental technological breakthroughs. When other sources of natural gas prove insufficient for the world’s needs, methane hydrates will almost certainly come to the fore.

A Possible Spoiler

The world has embraced methane to a remarkable degree. The gas heats homes and businesses, provides a major portion of the energy used in electrical generation, and is used in an enormous number of industrial processes both as a feedstock and as a source of thermal energy and motive power. Indeed, so pervasive has the use of natural gas become that is difficult to remember that only a little more than a half century ago gas heat meant something other than a methane flame.

But in fact natural gas was relatively little used until the nineteen thirties, and was utilized on a grand scale only in the late twentieth century. Prior to that synthesis gas or syngas, also known as town gas or city gas, was the principal gaseous energy source for industrial and domestic heating applications.

Syngas, which was almost always produced from coal, was used for cooking, heating, illumination, firing boilers, as a fuel for internal combustion engines, and as an intermediate in a variety of chemical manufacturing processes from the early nineteenth through the early twentieth century. Then, at mid-century, as cheap, energy dense and much safer natural gas came onto the market, syngas as an energy source rapidly faded, although its use as a chemical intermediate continued unabated. Interestingly, most of the syngas used by the chemical industry has come from natural gas and not from coal for at least the past several decades.

Today, however, syngas produced from coal is poised for a comeback in the manufacturing sector and possibly the energy sector as well, and its acceptance or lack thereof will have a considerable bearing on how quickly the production of unconventional natural gas accelerates.

Currently coal-based syngas is at a rough parity with syngas from natural gas in pricing, and our anticipation is that the coal based product will enjoy a price advantage within two or three years, barring major changes in the natural gas industry which are exceedingly unlikely to occur within that brief time frame. Only if natural gas prices stabilize in the midterm—a rather unlikely occurrence—will coal- based syngas fail to find a wide market.

Should the technology of extracting unconventional natural gas resources become much more cost effective, then coal could lose the advantage it seems likely to gain, but we don’t see unconventional resources coming into production quickly enough to impede the advance of coal in the midterm.

One should also bear in mind that electrical utilities utilizing coal are under unrelenting pressure to reduce noxious emissions, and the best means of meeting that objective is to gasify the coal at the point of usage and run the turbines powering the generators off the resulting syngas. If a move to syngas occurs in the electrical utility industry, and we believe it is a question of when and not if that will occur, then tremendous economies of scale in syngas production become possible, further jeopardizing the purveyors of unconventionally sourced natural gas.

There is another aspect of this issue which should not be ignored, however. Natural gas combustors have become ubiquitous, and syngas is by no means a straight substitute for natural gas. It is inconceivable that gas heaters and stoves in residences could be quickly replaced by modern updates of the old Victorian town gas appliances, and the cost of modifying a natural gas turbine in a electrical power plant to run on syngas has to be considerable, though we have seen no reliable estimates since that change has yet to occur.

Thus this whole issue of which gaseous fuel will ultimately assume pre-eminence is extremely difficult to call at present. We think that coal based natural gas has something of an edge, but an investment firm would be unwise to bet too heavily on such an outcome.