CHAPTER 8 JOINT DEVELOPMENT OF COAL AND COALBED METHANE
| Jurisdiction | United States |
(Nov 2002)
JOINT DEVELOPMENT OF COAL AND COALBED METHANE
Dorsey & Whitney LLP
Salt Lake City, Utah
I. INTRODUCTION*
Men argue, nature acts.1
During the past ten years, the Western states have experienced an explosion in the number of coalbed methane gas (also known as and generally referred to herein as CBM) development projects. The pressure to tap into and produce this long ignored energy source has resulted in diverse new conflicts between competing production of coal and CBM. Although the source and nature of the conflict have been long understood, the commitment to address and resolve the problem of concurrent or sequential joint mineral development on common lands has become more focused. Unlike a legion of past papers addressing CBM development, this paper will not review the legal question of ownership or priority of development rights. Rather, this paper examines the differences between coal and CBM development with the purpose of finding practical tools to manage inevitable conflicts. The paper uses federal mineral development in the West to illustrate the issue.
First, this paper reviews the anatomy of a coal mine operation and a CBM project and then identifies the typical points of conflicts between the two types of operations. The paper then examines archetypical Western conflicts between federal coal and federal CBM development through the lens of comprehensive environmental review processes. The paper uses the background drawn from the two types of operations to consider agreement templates for resolving joint development conflicts. Finally, the paper summarizes possible regulatory and legislative solutions to the conflicts.
II. BACKGROUND
A. Characteristics of CBM
The conflict between coal development and CBM development has a long history. The seeds of the conflict can be found in the inherent characteristics of CBM.
1. Physical Attributes
Coalbed methane is produced as a by-product of coal during the coalification process.2 During this process, plant materials, which have been buried under layers of sediment, are
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compacted and pressurized, thereby creating coal.3 As coal is formed, pockets are created, and due to a weak physical attraction that the gas has to the coal, the coal traps and acts as a container for CBM.4 The high pressure in the coal seam causes most of the gas to be adsorbed within the coal.5 The amount of CBM present in any given coal seam depends on the "thickness and extent of the coalbed, the coal ranking, the thickness of the overburden, and the hydrostatic pressure."6 Due to coal's extremely large surface area, it can store six to seven times the amount of natural gas as traditional rock reservoirs.7
Although CBM is not pure methane, it can contain over 80% methane.8 The concentration of methane in CBM is dependant upon its environment "including the coal rank, the pressure and temperature, the permeability and porosity of the coal, the degree of fracturing, the distance to the outcrop, and the permeability of adjacent strata."9 Generally, the CBM occurring deeper in the coal seam is subject to more pressure and, therefore, usually has a higher concentration of gas.10
CBM was originally deemed to be one of the greatest dangers to coal mining. It is highly combustible and toxic and until recently was considered a valueless gas, which was routinely vented to protect the miners prior to mining coal. Although originally thought of as only a liability to the mining process, technological advances, support from the federal government, increasing energy demand, and a greater understanding of the resource itself has made CBM a viable energy resource.11
Coal mine methane (CMM) is a subset of CBM. This methane originates as CBM but, during the drilling and coal mining process, it escapes from its original CBM reservoirs in the coal pores and mixes with other gases thereby diluting the methane concentration.12 Al-
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though the CMM has a lower concentration of methane, it still can be used as an energy resource.13 However, when the methane is mixed with oxygen through ventilation systems, which ensure that the methane concentrations stay below 1% in working areas, the recoverable methane is of limited use14 .
2. Economics
Prior to the gas crisis in the 1970s, CBM was routinely ventilated as a harmful and valueless gas. CBM was merely a dangerous by-product of the valuable coal resource.15 Even if it were feasible to use the CBM as an energy source, extraction was economically impractical.16 However, the oil crisis of the 1970s spurred a new interest in CBM.
With the help of research,17 CBM production rapidly increased during the 1980s. The national annual CBM production rose from virtually zero in 1982 to 858 billion cubic feet (Bcf) in 1994.18 In 2000, CBM comprised about 7.5% of total gas production in the United States.19 This increase in production was the result of technological advances, including decreased drilling and production costs, and tax incentives.20 Recent estimates suggest that more than 700 trillion cubic feet (Tcf) exist in-place, with about 100 Tcf potentially recoverable.21 During 2000, 3,752 wells were drilled/22 And although the natural gas wellhead price,
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which includes CBM, has fallen in recent months, the price is projected to increase into the foreseeable future.23
B. Legal Considerations
At the time when many leases, contracts, and even statutes were drafted, CBM was considered virtually valueless and, due to its dangerous nature, was a liability.24 Therefore, contracts and leases rarely addressed CBM ownership. But as CBM-capturing technology advanced and CBM became a viable energy resource, ownership became a hotly battled issue.
For years, the courts were split between whether coal leases or oil and gas leases covered CBM.25 In 1999, the Supreme Court settled the issue for federal leases, In Amoco Production Co. v. Southern Ute Indian Tribe,26 the Court determined that the definition of coal (as used in the 1909 and 1910 Coal Lands Acts) did not encompass CBM. The Court held that the CBM at issue in Southern Ute had not been reserved by the United States, but rather it was conveyed to the surface owners in fee.27 The Court concluded that the party who had leased the oil and gas rights from the surface owners had rights to the CBM contained in the coal owned by the Indian tribe.28
Although Southern Ute cleared much of the legal underbrush which has snarled ownership claims to produce CBM, conflicts continue regarding concurrent development of co-existing minerals.
III. ANATOMY OF COAL AND COALBED METHANE PROJECTS
A. Coal
The successful development of a coal deposit demands project planning equaling the best technical military field campaign. Modern coal mines call for comprehensive engineering, permitting, and operational plans that embrace thousands of acres and investments in the
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hundreds of millions of dollars.29 A review of the principal components of a coal mine project contrasts the conflicting operational characteristics of coal and CBM projects.
1. Nature of the Deposit
a. Surface Mining
There are many methods used for surface mining, depending on the contour of the surface land, including area mining, contour mining, and mountaintop removal.30 In areas where the coal seam runs parallel with the surface, area mining is used.31 This technique involves creating a series of cuts in the surface of the land with a dragline or shovel, removing the coal and overburden, and then filling the first cut with the overburden from the second cut.32 This process is repeated across the entire coal area as the land's original contour is restored.33
Contour mining is used in areas with medium or steep contours. This process involves cutting the surface land, removing coal and overburden, and then replacing the overburden.34 The mining "stops when the ratio of overburden depth to coal becomes so high that removal is no longer economically feasible."35
Mountaintop removal involves excavating the entire coal seam with massive equipment while depositing the overburden in valleys or areas near the mining site. This method changes the original contour of the land, leaving behind plateaus or rolling hills.36
b. Underground Mining
Many mines can only be accessed using underground mining methods. These coal seams are mined "via a vertical 'shaft' or a horizontal 'slope' or 'drift' entry ...,"37 Underground mining was originally conducted using the room and pillar method, where large areas (rooms) of coal were mined, and unexcavated coal pillars were left standing to support the roof.38 This method is still widely used.39 Retreat mining follows the same process as the
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room and pillar method, except as the operation retreats, the coal pillars are excavated allowing the excess coal to be claimed. Longwall mining, which is highly efficient and "accounts for 20-25% of U.S. underground coal production," uses large machines that shear or plow "back and forth across the coal face, removing walls of coal without leaving pillars for roof support."41 The machine itself supports the roof as the coal face is mined. As the machine proceeds, the roof collapses behind it. "A longwall 'panel' is typically a block of coal about 400' to 800' wide along the face and up to two miles in length. Parallel panels are mined in succession until mining is complete."42
2. Federal Regulatory Process and Permitting
a. Regulatory Process
After a federal coal lease is issued, the Surface Mining Control and Reclamation Act (SMCRA) gives the Office of Surface Mining (OSM) primary responsibility to administer programs that regulate surface coal mining operations and the surface effects of underground coal mining operations.43 Under the Act, state administrative environmental...
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