UK Coal-Bed Methane Production Feasible with Regulatory Support
Coal-bed methane (CBM) and shale gas are of long-term benefit to the UK market but no player has yet arrived at a point where full-scale repeatable production can be put in place, according to Composite Energy CFO Colin Bousfield, in an interviewed with ICIS Heren.
The company says it has at least 25 years worth of production available in the reserves but the most that firms such as Composite Energy have done is to put in place some small gas-to-power projects to demonstrate commercial volumes, Bousfield said.
Given that no full-scale repeatable production is in place, it is not possible to give an exact level for a break-even price, according to Bousfield. But the price element of the business already makes unconventional gas competitive, as Bousfield confirmed figures previously indicated by other players.
The Scottish-based company was founded in 2004 and holds onshore licenses in the UK and Poland. It is targeting additional licenses in Belgium and Germany this year and in 2011. The company's UK assets are based in different parts of England, Wales and Scotland.
"The next step would be to move gas directly into the UK grid once sufficient reserves are in place to improve the economy of scale of the production," said Bousfield. But volumes produced so far are not big enough to justify a compression station to pump gas into the grid, and to pay for the connection cost.
Composite Energy is about to file a new application for a gas-to-power project. The ultimate objective, to feed directly into the network, is not too far away, however, because once the gas-to-power project has been operational for six months, the company will look into feeding directly into the gas network. Discussions have already started with some local utilities.
Bousfield says unconventional gas production needs more regulatory support.
Ideally, the government should allow companies to keep the licence for longer, with a commitment to start production once the necessary preparatory work has been done.
According to Bousfield, the UK government was pragmatic in relation to the company's license in Scotland on what needed to be relinquished and in recognizing what work had been done.
The competitiveness of CBM is also supported by the small size of the acreages. Bousfield said that the limited size of some projects meant that the business will benefit from lower corporate tax because small fields developed in small clusters. This will create "economics that are at best seen as marginal by the government" [for tax purposes].
Composite Energy has decided to focus on CBM rather than shale gas, mainly for the lower capital intensiveness of the former. CBM and shale gas should also be seen as complementary resources. Further, shale resources are often close to CBM ones, as in the case of Composite's resources. Ideally, shale resources can be developed at a second stage and tied up to CBM production once the entire infrastructure is in place. This two-step approach reduces risks and costs for shale development.
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