Government of Saskatchewan
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Wednesday, March 22, 2017
Saskatchewan. Building an innovative, thriving and sustainable economy.

1. NGC Basics

Formation of Coal

What is NGC?

NGC is natural gas found in coal deposits and consists mainly of hydrocarbon gas primarily methane with minor amounts of carbon dioxide and nitrogen. The primary energy source of natural gas is methane. Natural gas in coal (NGC), (which is also referred to as coal bed methane), will be the term used throughout this document. NGC is gas that is located in coal seams, as opposed to conventional natural gas, which is trapped in rock. NGC is near pipeline quality when produced and, therefore, does not require extensive processing.

NGC is created from plant material such as roots and wood that underwent chemical changes when they were deposited in swamps and lakes up to 100 million of years ago. As this material was buried deeper, and compressed under layers of sand and mud over millions of years, it changed to coal. As the coal was formed, the decomposing organic material produced methane gas, nitrogen and carbon dioxide (CO2). The burial process puts pressure on the coal, which keeps much of the gas in the coal.

What is the difference between NGC and conventional natural gas?

  • NGC is gas produced from coal seams as compared to conventional natural gas, which is produced from other geological strata, primarily sandstones.
  • NGC is generally sweet (little or no hydrogen sulphide [H2S]), whereas conventional natural gas is often associated with hydrogen sulphide (sour) gas.
  • NGC is typically at a lower pressure than conventional natural gas.

How are NGC and conventional natural gas similar?

  • The gas found in coal seams is made up of the same components as natural gas produced from other sources and is a mixture of hydrocarbon gases (chiefly methane) and other non-energy gases (e.g. nitrogen). Simply put, NGC is a conventional resource in an unconventional location.
  • The exploration for and development of NGC pools are similar to the procedures used for conventional natural gas.
  • Production operations for NGC are also similar to those of conventional natural gas. A well is drilled into the gas-bearing coal seam and the well is completed with cemented steel casing. Depending on the producing characteristics of the reservoir, a submersible pump may be placed downhole to lift produced water to surface, where it is collected and removed in flowlines for disposal. The gas is under some pressure and flows via flowlines to a central facility where it is compressed and processed before being delivered onto the gas transmission system, in much the same way as production from any other natural gas well.
Formations

What is the potential NGC resource in Saskatchewan?

In Saskatchewan, the subsurface rocks are divided into different “formations” based on age. The formations sit one on top of each other, like a layer cake. The main coal-bearing formations and their ages are shown in blue in the image to the right. The map below shows the general areas of the province in which coal is present in these formations.

There are three formations in Saskatchewan that have sufficient coal to warrant further discussion. They are:

Ravenscrag Formation

The Tertiary Ravenscrag Formation, from which coal is currently mined near Estevan and Coronach, is not considered a potential NGC horizon. Coal in this formation is lignite and likely too low a grade to generate economic amounts of natural gas.

 
Belly River Formation

In the Upper Cretaceous Belly River Formation, there are an estimated 1.63 trillion cubic feet (tcf) of gas in place over a 150 township area in the southwest corner of the province. Flow rates and recoverable gas from the Belly River coals have not yet been tested.

CBM Map

Mannville Group

Mannville Formation occurs in a large portion of the western side of Saskatchewan and potentially contains large in situ resources of natural gas. The Geological Survey of Canada is examining the distribution and characterization of these coals. A preliminary study titled “CO2 sequestration and Coalbed-Methane potential of Lower Mannville Groups (Lower Cretaceous) Coals, Southern Saskatchewan – Preliminary Investigations”; (S.L. Bend and M.C. Frank, 2004) done for the Government of Saskatchewan indicates that there are localized areas of thicker coals found in the Kindersley area.

Currently, there are no NGC-producing wells in the province; however, it is felt that some wells are producing gas from conventional sandstone reservoirs that are being continually charged by an adjacent coal seam.

A full geological outline of NGC in Saskatchewan can be found in the ministry's Prospect Saskatchewan issue on the subject.

Why does production of NGC often produce a lot of water?

NGC is attached or “adsorbed” to the coal. Adsorption means that the gas is attached by weak chemical bonds to the surface of the coal particles, in much the same way as gases can attach themselves to a charcoal filter. Pressure from the overlying rock and water within the coal seam prevents the gas from escaping, unlike conventional natural gas reservoirs where the gas typically is trapped “mechanically” within pores in the rock matrix.

In order to produce NGC, the pressure of the coal seam must be reduced, thus allowing the gas to flow to the wellbore. Each coal bed is different in the volumes of water produced and the water to gas ratio.

What are the production rates of NGC wells in other jurisdictions?

Using Alberta data for comparison, an NGC well in the Mannville Formation could be expected to produce between 35 and 75 Mcf of gas per day. This production rate could be increased dramatically by using horizontal wells.
 
NGC production rates from the Belly River are still untested; however, comparable rates to the Horseshoe Canyon Formation in Alberta could be expected due to similar formation depth and potential water content. Horseshoe Canyon wells produce 75-87 Mcf of gas per day with little to no associated water production.

What types of issues have been encountered with NGC developments in other jurisdictions?

Recent experience in the Horseshoe Canyon and Belly River formations in Alberta has shown economic gas production with very little associated water production. There are now over 2,500 NGC wells in Alberta.

NGC has been produced in the U.S. for over two decades. The Powder River Basin, in Wyoming, is one of the areas where NGC was produced. There has been a history of improper water disposal techniques and noise issues related to compressor stations in this area.

Because of the relatively low production rate of NGC wells, it may be possible to have increased well density in NGC fields. This may also add to noise-related issues as well.

The Alberta experience has shown NGC can be produced in an environmentally responsible manner. That would be the course followed in Saskatchewan as well.

Why is Saskatchewan pursuing NGC now, and how can the province benefit?

The projected growth in demand for natural gas is the highest among the various fossil fuels, and natural gas is becoming a strategic commodity for Saskatchewan. However, as conventional sources of natural gas are being depleted, the province must look at the economic potential of non-conventional gas sources like NGC and other sources.

Natural gas has contributed to Saskatchewan’s energy supply for decades. NGC is simply an extension of the existing natural gas industry. It has the potential to generate more jobs and population growth to local communities, a new supply and services industry, and additional revenues to government to help fund public services.

Is NGC safe?

NGC is no different than conventional natural gas in how it is produced, gathered, transported and delivered. The same standard techniques are used, and these are well proven to be both safe and reliable. 
 

2. Land Tenure


Do Saskatchewan’s petroleum and natural gas dispositions include NGC?

Yes, they do, and land will be administered for NGC in the same way as for any other petroleum and natural gas development. The full details of the land tenure process can be found here: http://www.economy.gov.sk.ca/pngdispositions.

What if I own the mineral rights on my land?

If mineral rights are privately held, the exploration company must enter into an agreement to purchase the rights from, or enter into a partnership with, the mineral rights owner.

How will NGC affect my ability to continue using my land?

There should be no change from the current way petroleum and gas sites are accessed. On deeded land, the Surface Rights Board of Arbitration will oversee appeals regarding compensation and access; otherwise the company deals directly with the land owner. On Crown land, site and roadways are withdrawn and a lease provided to the company. Some compensation is paid to the agricultural leaseholder.

Can agricultural leaseholders control access for surface use?

Agricultural leaseholders can negotiate the access entry with the company and ensure that the company addresses any legitimate agricultural concerns like fencing, gate locations, access routes, water runs, dugouts and cattle protection devices.

Can agricultural leaseholders receive compensation?

  • Land is withdrawn from the lease, but the lessee remains responsible for the annual taxes.
  • In the first year of development, the lessee receives a one-time payment of $200 plus $200 for a second and subsequent well drilled on the surface lease.
  • In the second and subsequent years, the lessee receives an annual rent reduction of $100 for each surface lease, and, if there are two or more producing wells on lands withdrawn from an agricultural lease, the lessee receives a $100 reduction in annual rent for each well.
  • The annual rent can be reduced to a maximum of 30%.
  • The lessee also receives a one-time payment from the oil and gas company for crop loss resulting from the withdrawal of land from the lease.

Do or can Surface Rights Board legislation and processes apply to these lands?

On deeded lands, the answer is yes. On Crown-held lands, The Provincial Land Regulations provide the authority to issue surface leases for oil and gas development on land included in an agricultural lease. Upon issuing the surface lease, the land is removed from the agricultural lease and the farmer/rancher is no longer charged rent on the removed parcel.

As a land owner/lessee, what rights do I have?

You have exactly the same rights as with conventional oil and gas. You have access to the Surface Rights Board of Arbitration on deeded lands. On Crown lands, legitimate agricultural concerns must be addressed by the oil and gas company prior to the department granting a lease to the company.

3. Royalties, Regulations and Taxes


Do Saskatchewan’s existing gas royalties and freehold production tax regulations apply to NGC?

Both The Crown Oil and Gas Royalty Regulations and The Freehold Oil and Gas Production Tax Act contain the following definition for gas:

“gas” means natural gas, including casing head gas and all hydrocarbons not defined as oil.

Since NGC is natural gas found in coal deposits and consists mainly of hydrocarbon gas primarily methane with minor amounts of carbon dioxide and nitrogen, it is considered a “gas” for purposes of levying a Crown royalty or freehold production tax.

What would be the expected royalty rate on an NGC well?

Above is a graph depicting the expected royalties on an NGC well. Saskatchewan’s royalties are very competitive with those of other jurisdictions.

How would the Corporation Capital Tax affect NGC development?

Under the Corporation Capital Tax system, there are two separate taxes payable by resource companies.

  1. First, there is the basic tax equal to a flat rate (currently equal to 0.6%) times the company’s “paid-up capital.”
  2. Second, there is the surcharge tax that applies only to resource revenues. This surcharge tax is essentially equivalent to a flat royalty rate (currently equal to 2% for new developments) applied to gross resource revenues.

The basic tax would have little impact on NGC development. Based on the low NGC production rates of wells in Alberta, the Crown royalty rate applicable to NGC wells would likely be less than the 2% surcharge tax rate.

Do The Petroleum and Natural Gas Regulations and The Oil and Gas Conservation Regulations apply to NGC?

Yes. Based on a study of these regulations by Saskatchewan Justice, it has been determined that they apply to NGC as they would any other natural gas in the subsurface. However, addition of the term “NGC” into these regulations may be necessary in the future to avoid any ambiguity.

Is the ownership and development of NGC included in any other provincial regulations aside from The Petroleum and Natural Gas Regulations, 1969?

A study of:

  • The Coal Disposition Regulations, 1988;
  • The Mineral Disposition Regulations, 1986;
  • The Subsurface Mineral Regulations, 1960; and
  • The Oil Shale Regulations, 1964,

has indicated that none of these regulations, and their associated dispositions, create a conflict with the definition of “gas” that appears in The Petroleum and Natural Gas Regulations, 1969. In their present form, these regulations cannot be used to acquire rights from the Crown to NGC nor do they create an ambiguity in relation to the ownership of NGC where a petroleum and natural gas disposition co-exists on the same lands as these other Crown mineral dispositions.

4. Resource Conservation


How are NGC wells regulated in Saskatchewan?

Under The Oil and Gas Conservation Act and Regulations. This act and regulations would treat NGC the same as any other subsurface natural gas.

How is the data for NGC wells (e.g., well production) reported in Saskatchewan?

The well data would be reported in the same way as any other gas or oil well in the province.

Is the well space tighter for NGC?

This will not be known until NGC production is underway and the reservoir characteristics can be determined.

What types of surface facilities are required for NGC production? Is noise likely to be a problem? What regulations exist to address noise associated with NGC developments?

The facilities would be the same as that for conventional natural gas production – compression and dehydration facilities.

There would be some short-term rig noise from drilling the well, and compressors, if noisy, could be fitted with “hospital-grade mufflers.”

5. Environmental Management


What is the provincial and municipal approval process for NGC developments in Saskatchewan?

Provincial Regulations

It is anticipated that the environmental review and approval process for NGC will be the same as for other oil and gas projects. That process is generic and sufficiently flexible to allow a wide range of environmental considerations to be incorporated into the environmental review. If issues or emphases unique to NGC are identified, they will be considered within the context of the existing environmental review and approval process.

Details of the environmental assessment review process administered by Saskatchewan Environment (SE) can be found on the SE website at:
http://www.environment.gov.sk.ca/EnvironmentalAssessment.

SE’s review process bases the level of review on the anticipated concerns associated with a project (i.e., it is risk-based). There are four levels of review for oil and gas drilling projects, as follows:
• Private Land Checklist – self-screening process designed to identify specific issues when the project affects private farmland
• Project Proposal / Reclamation Plan – used for most projects on Crown land, when major environmental issues are not anticipated
• Environmental Protection Plan – used for projects on designated environmentally sensitive land (primarily Crown)
• Environmental Impact Assessment – detailed review of projects that raise significant environmental issues or public concern because of potential environmental change

It is possible that issues raised with NGC will require some re-configuring of the types and levels of review received by particular types of projects or in particular areas. However, that determination can be made only when additional information is available regarding the industry, areas where NGC is likely to occur, and/or the types of technical issues that may be raised.

Any substantial use of a provincial resource (e.g., if ground water levels would be lowered due to dewatering of NGC-producing formations) would be subject to review under the environmental assessment review process.

Municipal Regulations

The normal procedure would be to contact the RM for local development permits. The criterion for the requirement of these permits is in The Planning and Development Act (1983).

What are the potential environmental impacts of NGC, and how is government addressing these issues?

It is expected that the types of issues raised by NGC will be qualitatively similar to those raised by regular gas development. Since NGC is expected to be in many ways indistinguishable from conventional gas, the types of concerns will relate primarily to issues on the land surface due to wells, flowlines and access roads. Potential impacts and issues include:

  • habitat loss and habitat destruction on areas of native vegetation
  • loss of native species and native vegetation (e.g., native grassland)
  • rare and endangered species
  • wildlife, including Wildlife Habitat Protection Act land
  • surface and shallow groundwater
  • heritage resources
  • waste management / disposal
  • produced water disposal (including potential for beneficial uses of this water)
  • spills
  • loss of agricultural productivity (topsoil loss, compaction, reduced ability to use large equipment)
  • aesthetics
  • public inconvenience and infrastructure damage
  • land use conflicts

Should NGC development require higher well-density patterns, the potential for adverse effects is correspondingly greater. This concern extends to both impacts on cultivated land and areas of native vegetation. A higher level of environmental scrutiny may be required on native grasslands and environmentally sensitive lands if higher well densities are required, due to the greater potential for surface disturbance, habitat fragmentation and native community disruption, and impacts on rare species.

Any substantial use of a provincial resource (e.g., if ground water levels would be lowered due to dewatering of NGC-producing formations) would be subject to review under the environmental assessment review process.

What regulations exist in Saskatchewan to address noise associated with NGC developments?

NGC is not expected to be any noisier than regular natural gas development on a per-well basis. If higher-density development is required, the greater level of activity associated with drilling, traffic and production may increase overall noise levels, primarily during the drilling period. New compressor stations would cause noise concerns in proximity to the station.

Saskatchewan does not have regulations that govern noise levels associated with industrial activities. However, noisy facilities (e.g., compressor stations) are expected to comply with current best operating practices, including those associated with noise production. Noise associated with drilling is temporary and not expected to differ from that at other drilling operations.

What are the requirements in Saskatchewan regarding the venting and flaring of NGC wells?

Venting and flaring (except possibly during upset conditions) are not expected to occur during NGC production. The objective of NGC is to capture and transport gas flows to a central processing / compression facility, and any venting or flaring will be minimized as it represents a loss of valuable product.

How is the water produced from NGCs wells handled?

Water from NGC wells will be handled in the same manner as water produced from ordinary oil and gas wells. Unless otherwise approved, Saskatchewan Industry and Resources policy requires that all produced water be captured and re-injected into the same or otherwise acceptable formation via licensed disposal wells. It is not anticipated that any produced water would be released to surface.

If there were surface discharge from NGC wells, it would be subject to Saskatchewan Environment’s Surface Water Quality Objectives, in the same manner as any other release of an industrial effluent to the environment. These objectives are designed to ensure that the release does not cause harmful environmental impacts. Any proposed beneficial use of produced water (e.g., livestock watering, irrigation) would be subject to detailed review prior to any such use being permitted.

What is the likely quality of this water?

The quality of this water can be estimated using conventional hydrogeological mapping; however, this has not yet been completed. It is safe to say, however, that salinities of these waters will be greater than 4,000mg/l of total dissolved solids, requiring the traditional subsurface disposal of these waters in the usual manner. This is on par with water produced in conventional oil and gas operations.

Can the water produced by NGC be used for something beneficial?

This question cannot be adequately answered until the quality of the water in the Belly River and Mannville formations has been accurately determined.

Does NGC production impact the air quality?

NGC production is not anticipated to adversely affect air quality. While Saskatchewan does not have specific information derived from NGC wells in this province, it is anticipated that NGC will be “sweet”; that is, it will not be contaminated with odiferous materials such as hydrogen sulfide (H2S). As such, it is unlikely that NGC will produce odours different from or in greater quantity than the minimal levels that accompany regular natural gas production.

Can carbon dioxide be sequestered in the coal beds?

Coal has potential to store vast quantities of CO2, and injected CO2 can be used to enhance the recovery of the natural gas in the coal seams. However, much more work is necessary to understand and optimize the process. The Petroleum Technology Research Centre (PTRC) in Regina is recognized internationally as a leader in the area of CO2 sequestration and storage. The PTRC is currently studying sequestered CO2 in the Weyburn and Midale oilfields. Some of this knowledge may be applicable to CO2 in NGC developments.

Will there be any new roads needed for NGC developments?

Road service issues should be discussed with the rural municipality (RM) as with any petroleum development. RMs are not responsible for road construction, only the developer is.

Will I have a say in NGC developments in Saskatchewan?

Government will be informing communities in the regions of potential NGC development through the RM offices. Should NGC development occur, the government will be consulting with communities, interest groups and the public at large to explain NGC and to solicit feedback and address concerns that you may have regarding NGC development.



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