Gazprom Moves to Methane Output

Gazprom started coal-bed methane production in Russia after U.S. success in developing unconventional fuel reserves spurred global interest.

Gazprom plans to produce 1.5 billion cubic meters of the gas a year in 2012 at the Taldinskoye field in Siberia’s coal-rich Kuzbass area, the Kremlin press service said Friday in a statement distributed to reporters during President Dmitry Medvedev’s visit to the region.

Successful extraction of shale gas, another unconventional fuel, has led to what International Energy Agency chief economist Fatih Birol called “a silent revolution” in the United States. The world’s biggest energy consumer, the United States may become self-sufficient in gas through its shale-gas developments. Unconventional fuels had been too complex to develop until new technologies made extraction feasible.

Russia, which holds the largest gas reserves, may have as much as 87 trillion cubic meters of coal-bed methane, according to Gazprom chief executive Alexei Miller.

“It’s two Gazproms,” Medvedev said in Omsk, where he met with businesses to discuss innovation in the energy industry, which he said accounts for as much as one third of the country’s gross domestic product.

Coal-bed methane, shale gas and tight gas are the most common unconventional sources of the fuel and currently account for about half of U.S. production, said Valery Nesterov, an analyst with Troika Dialog. Unconventional gas won’t make up more than 0.5 percent of output in Russia in the long term, he said.  

“It is more about technology, so as not to fall behind" as we did with liquefied natural gas, he said.

Russia last year started liquefying gas, more than a decade after Qatar, the world’s biggest LNG producer.

The world may see an “acute glut” of gas because unconventional fuel output worldwide is set to rise 71 percent between 2007 and 2030, the IEA said in November.

Unconventional gas competes with coal in thermal power generation and will be displacing the commodity from global markets, Vekselberg said.

Russia may produce as much as 21 billion cubic meters a year of coal-bed methane at Kuzbass, Gazprom said Friday.

“We have made an important step on the path toward a new subindustry in Russia’s fuel and energy complex,” Gazprom’s Miller said in an e-mailed statement.

The company plans to drill 30 wells at Taldinskoye this year, and 28 a year starting in 2011, the Kremlin said.  

Russian coal-bed methane resources make up one-third of the country’s potential gas resources, Gazprom said in an e-mailed statement. The Kuzbass area of the Kemerovo region may hold 13 trillion cubic meters of the unconventional gas, the Kremlin said.

The United State’s success in extracting gas from shale has spurred global interest, while also displacing some LNG supplies and lowering spot prices in Europe.

Europe and China are playing catch-up, which could increase competition for LNG, Mark Greenwood, a Sydney-based analyst with JPMorgan Chase, said in a Feb. 9 note.

“U.S. shale gas could grow by 2015 to a similar scale as the entire global LNG market currently,” Greenwood said. “A land-grab has occurred in Europe over the last two years” as international companies such as Exxon Mobil, ConocoPhillips, Chevron Corp. and Statoil seek resources.

Shale developments, where rock formations are fractured and injected with water and sand to release trapped fuel, account for about 15 percent of U.S. gas output, according to Oklahoma City-based Chesapeake Energy.