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Coalbed Methane

Following busy year, Wyoming tries to cope with coalbed growing pains 

MIKE STARK / The Billings Gazette 7jan04

BUFFALO, Wyo. - Stroll through the office where Paul Beels works and it's easy to see the effect of coalbed methane development in Wyoming's Powder River Basin.

In the last four years, the Bureau of Land Management office here has expanded three times. The staff has jumped from 25 employees to 76. The Forest Service, which shared the office with the BLM for years, has been squeezed out.

"We've beefed up knowing that the onslaught is coming," said Beels, project manager for oil and gas in the BLM's Buffalo office.

Natural gas in underground coal seams was recognized in the late 1990s as a huge, untapped energy resource. By pumping out groundwater that holds the gas under pressure, previously inaccessible supplies of clean-burning methane can be tapped.

As the century turned, an energy boom in the Powder River Basin of Montana and Wyoming loomed as did serious environmental concerns, mostly having to do with the quality and volume of water pumped to the surface.

The two states lie over different parts of the basin, and development has proceeded at different paces, on different paths. After several years of exploration and environmental study and litigation in Montana, and large-scale production in Wyoming, where does the promise of coalbed methane stand now?

For five days, The Gazette examines the status of an industry that has been identified as a key part of Bush administration plans to expand domestic energy supplies, and has become a major battleground for conservation issues in the West.

The signs are obvious in places like the Lower Prairie Dog Creek drainage, just outside Sheridan. Older pickup trucks steered by ranchers are giving way to new pickups driven by gas company officials and tractor trailers hauling pipes and equipment.

The rolling ranchland is still a bucolic setting, but increasingly is home to giant compressors, underground pipes, new roads and scores of squat beige boxes that house coalbed methane wells.

"This road never used to be open this time of year," said Gillian Malone, a coordinator with the Powder River Basin Resource Council, as she drove past a collection of trucks and equipment. "Now this whole area looks like an industrial zone."

About 15,000 wells have been developed since coalbed methane was shown to be a money maker in the late 1990s. Some see vast untapped potential still lying dormant in the underground coal seams.

Under a long-awaited study completed earlier this year by the BLM, another 35,000 wells could be developed in the Powder River Basin. Industry officials, eager to take advantage of relatively high natural gas prices, are hoping to get more drilling permits approved soon.

"We have a world-class supply of gas in the Powder River Basin," said Bruce Hinchey, president of the Petroleum Association of Wyoming.

Some figured that the completion of the environmental study would open the floodgates for drilling in 2003, but the BLM office in Buffalo approved only 438 drilling applications during the year.

More telling, though, is that there are another 1,500 applications pending and a recent push from the Bush administration to make sure the Buffalo office is ready to expedite 3,000 applications a year.

Hinchey and others, though, still aren't convinced that the floodgates are on the verge of opening, especially because there is a legal challenge to the environmental study and concern that relatively high gas prices may slip lower.

"I don't think we're going to see a real mad rush to drill because there's not many permits. I think it's just going to be a steady period of development," Hinchey said.

Don Likwartz, supervisor for the Wyoming Oil and Gas Conservation Commission, has a more muted prediction - at least for 2004 - as the legal battle continues.

Likwartz, part of a nine-member state board that provides a yearly economic forecast for the Legislature and governor, said Wyoming, for the first time in 19 years, should not expect to see a rise in gas production in 2004.

"Because of all this uncertainty, we didn't know what to say," Likwartz said. "We forecast no increase in gas production next year."

Environmental groups are still concerned that Wyoming's eagerness to accommodate coalbed methane development, along with the Bush administration's emphasis on tapping domestic gas supplies, will lead to decreased water quality, more air pollution and other problems.

"It's not that we're against developing resources," said Steve Jones, an attorney with the Wyoming Outdoor Council, one of the groups that challenged the BLM's environmental impact statement for the Powder River Basin. "But we think that, especially given the price of natural gas, there is plenty of extra profit to do the job right."

There's no doubt coalbed methane is bringing money into the state - one estimate stated that $1 billion has been invested in the Powder River Basin - but some worry that regulators aren't doing enough to protect landowners and natural resources.

"The state is not upholding its end and the federal government is not upholding its end," said Kevin Lind, director of the Powder River Basin Resource Council.

Growing pains

The Powder River Basin straddles Wyoming and Montana, and the two states have taken different approaches to developing the clean-burning gas that's trapped in coal seams.

Wyoming has been more aggressive, pushing to gain access to the gas and, in turn, provide revenue for the state and local communities.

Industry and other coalbed methane watchers eagerly anticipated the environmental impact statement by the BLM, which was released in January 2003 after three years of work.

The document outlined the possibility of up to 51,000 wells over 10 years and examined the impact of that development on water, air, roads and the economy. Environmental groups quickly sued, claiming the government didn't examine the issues closely enough.

"We think there are significant environmental impacts that were downplayed," Jones said, adding that air and water quality issues weren't evaluated properly.

Beels, who helped shepherd the study toward completion, disagreed.

"I think the science of what went into the EIS was sound science," Beels said.

Lawsuits challenging the study were filed in U.S. District Court in Montana, which is in the 9th U.S. Circuit Court of Appeals. Patrick Crank, Wyoming's attorney general, argued Dec.18 in Billings that the case should be moved to Wyoming, where the air and water discharges from methane development will be regulated. Environmental groups argued that the case should stay in Montana because water in the basin flows from Wyoming into Montana.

A decision in that change-of-venue request has not been issued.

Meanwhile, another case is pending before the 10th Circuit Court of Appeals over whether the BLM adequately analyzed the impacts of leases that were granted to Pennaco Energy Inc.

Despite the legal wrangling, companies and regulators are trying to gear up for a potential swell of business on the rough landscape of the Powder River Basin. One problem is that rules for development continue to evolve.

"The Powder River Basin is still a fairly new development in terms of coalbed and understanding the impacts of surface discharge," said Todd Ennenga, senior government relations specialist with Devon Energy, one of the top producers in the basin. "It's probably natural to see a learning curve."

Some gas producers are frustrated because there are now more hoops to jump through in order to get a drilling permit approved, including additional measures to make sure wildlife isn't harmed.

A 30-page booklet with instructions on how to submit an application now runs about 300 pages, Likwartz said.

In the last few years, the number of companies operating in the basin has dropped from about 150 to 70, but those who are sticking it out are banking on the benefits once the dust settles.

"Our approach is defined by what state and federal regulatory agencies will allow," Ennenga said. "It does make it a little more difficult when the rules change but the key is to make sure you're engaged with the state and federal agencies to make sure you're not blindsided by anything."

Faster response

In the past, there have been grumblings, too, about how long it takes to get a permit through the system. The Bush administration is trying to change that.

The Interior Department has said that Wyoming, and the BLM's Buffalo office in particular, should provide a faster response to permit applications. The memo, delivered to BLM offices in December, essentially gives the agency 45 days to review a permit application. The Buffalo BLM office also was told to prepare to handle about 3,000 permits a year.

Beels, at the BLM office, said his staff has been expanded and will be able to cope with that workload if need be.

"We may not see that many per year," Beels said.

The memo echoes the sentiment from an executive order from President Bush in May 2001 calling for agencies to "expedite projects that will increase the production, transmission or conservation of energy."

Shortening the deadline for the review of permit applications provides some extra security for operators but environmental groups worry that the government won't have time to conduct an adequate review of projects.

"There's definitely a bias toward developing energy," Jones said.

But Hinchey, of the state Petroleum Association, said the energy companies need to know the rules of the game and the timetable before they make an investment in Wyoming. Too much uncertainty could reduce investment, which could mean less revenue for the state, Hinchey said.

"Certainly the longer it takes to develop, the more companies look at other areas," he said. "Companies have a set number of dollars for exploration and development. If they don't feel like they can spend their dollars and get a return on their investment, they're going to spend their money elsewhere."

Regulators

Even as the rules shake out, there remains a question whether there will be enough people to enforce some of them.

The Wyoming Department of Environmental Quality, which is in charge of overseeing compliance with federal water discharge permits, has just one person assigned to sample discharged water in the Powder River Basin. Unless there are particular problems that warrant more attention, the inspector may get to personally sample water at a discharge point only once in the life of a five-year permit.

"That of course is a problem," said John Warner, administrator of DEQ's Water Quality Division. "There's a lot of activity up there, so that person is stretched pretty thin."

Between 1975 and 1997, about 200 discharge permits were issued each year in Wyoming. But since the arrival of coalbed methane extraction, that number has jumped to 600 a year and is expected to reach about 1,000 in 2004, according to Warner.

A state task force recently suggested that the Legislature fund an additional three positions to monitor water quality. If that happens, Warner said, the new staffers could be ready to start by summer. If the money doesn't come through, monitoring the quality of discharge will suffer with the expected rise in the number of wells.

"It'll get poorer and poorer and poorer," Warner said.

Larger picture

Monitoring the water is just one of the issues unresolved in Wyoming. Those involved with the industry are reluctant to predict what will happen in 2004 with the overall development of the basin. Aside from the pending lawsuits, there remain significant questions about how to deal with the discharge of water, pipeline and gas distribution and the problems of landowners who have coalbed methane operations on their property.

Devon Energy plans to continue a "pretty measured pace of activity" and, like most everyone else, keep an eye on the court cases, Ennenga said.

Jones, at the Wyoming Outdoor Council, worries that development could be "rampant" in the near future "unless we can turn things around."

"I don't think industry is going to want to do any more environmental compliance than they have to," he said. "That's where the public can come in and say 'you can do it, but do it right.' "

Industry officials say that development can be done responsibly. But the future of development will also depend on fluctuations in the natural gas market. Likwartz, of the Oil and Gas Commission, said he's seen prices go through two major cycles in the last six years.

Right now, while the prices are good, is the time to keep development moving, he said.

"All the studies show we have the biggest potential (for natural gas), even more than the Gulf Coast," he said. "And yet, I just see more and more roadblocks being thrown up."

source: http://www.billingsgazette.com/index.php?id=1&display=rednews/2004/01/07/build/state/30-cbmgrowingpains.inc 7jan04

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