Coal Bed Methane (CBM) supply potential and its implication for Global LNG trade

Coal Bed Methane (CBM) supply potential and its implication for Global LNG trade Prepared for 3rd International Natural Gas Symposium INGAS 2009, Istanbul, Turkey 10th June 2009

Outline • CBM Overview • CBM Development - Key Success Factors • Conclusion

Outline • CBM Overview • CBM Development-Key Success Factors • Conclusion

Projected US Natural Gas Production Bcf per day North America has demonstrated CBM potential when critical success factors are in place • The source of gas supply in the US is changing rapidly as traditional reservoirs begin to decline • CBM is one of the leading new sources and activity continues to ramp up • CBM accounts for about 10% of total gas production in the US but this number continues to grow • Significant upside from some newly announced plays—Haynesville, Marcellus, BC Horn River Source: ICF International

Australia is the emerging power in CBM landscape • Eastern Australia has been producing CBM over last fifteen years • CBM accounts 30 % of gas supplied in Queensland area • World’s first CBM to LNG Plant is getting build and more than Ten LNG trains are currently under construction at various location • Australian CBM promises large volumes and economic benefits- major players BG,BP, Shell, Statoil, Petronas and ConocoPhillips are already part of the business CBM to LNG Project Proposals Source: Arrow Energy

Globally over 70 countries have recoverable coal reserves and potential CBM recovery The U.S. Geological Survey (USGS) estimated 210 Tm3 of CBM potential in 1994 Key Regions: Australia, Canada, China, India, Russia, United Kingdom, United States , Indonesia Asia’s CBM stores remain untapped and could emerge hot energy play China: China’s CBM resource potential is greater than the United States and Australia combined The CBM development is still at an early stage, in 1996 government formed dedicated entity “China United Coal bed Methane Corporation (CUCBM) to explore CBM in china At present CBM is produced and consumed locally, with no governmental direct price as conventional gas China has set a target of 10 billion cubic feet of annual CBM production by 2010 More and more multi-national energy companies are entering into China’s CBM market CBM development will depend on the integration of existing demand centres and pipeline infrastructure to evacuate remote CBM gas Is the Future Unconventional ? Global CBM Resources Source: CBM sector overview by Fox-Davies Capital Limited Identified CBM Regions Source: CBM sector overview by Fox-Davies Capital Limited

Cont. • India: • CBM development in India is also at early stage with lone commercial production started on July 14, 2007 by Great Eastern Energy Corporation Ltd (GEECL) from its Ranigunj block in West Bengal • CBM reserve estimates are highly uncertain and not known with any great precision, current reserves estimates of around 4.5 TCM are probably optimistic, but are still expected to be considerable reserves • India has so far awarded 26 CBM blocks through 3 rounds of bidding covering an area of 13,600 sq. kilometres. Government has recently announced 4th round with 10 blocks for auction • CBM reserves are mainly confined to eastern-northeast region which are stranded from current demand centres, infrastructure development will be the key • State owned ONGC and private player RIL is expected to begin their commercial production by 2011-12 from Jharia in Jharkhand and Sohagpur (East) block in Madhya Pradesh respectively

CBM Development -Key Success Factors • Resource . • Abundant coal basins, with thick coal seams, high gas content and suitable reservoir characteristics • Understanding of resources characteristics, recoverable reserves and production potential • Use of proven and appropriate technology with continued development • Availability of adequate pipeline infrastructure • Market Fundamental • Supply/Demand Gap (existing or potential) • Sufficient, sustained and deregulated Price • Competitive market • Mix of experienced CBM players • Cash Flow • Enough margin to support projects over project life. This suggest an alignment of Resources costs and Gas price. Presently very few markets in world are fitting both criteria, over last few years China and India has developed investors confidence • Strong Government Support • Preferential policies to encouragement investment in CBM • Significant tax and fiscal incentives in initial phase of CBM development

Rising unconventional natural gas production could provide a competitive alternative to imports of LNG World LNG Demand Forecast Asia Pacific Europe Atlantic Source: Natural gas and LNG Supply/Demand trends in Asia Pacific and Atlantic Markets, IEEJ 2008

Conclusion • Unconventional gas will continue to grow as a complement to conventional fossil fuel and increasing world demand • Pipeline gas/LNG imports could potentially pose a risk associated with the rising level of dependence in certain geographic areas, the development of unconventional gases like CBM could eventually become a priority for security of supply • In Europe, China and India economics look potentially attractive but they remain tentative as projects are at an early stage or on a small scale • Australia’s eastern region CBM success story has demonstrated CBM gas can work in low gas price environment • Major energy companies and independent exploration and production companies (E&Ps) are viewing unconventional resources as key elements of their future energy strategy • Unconventional gas set to become Conventional over long run

For More Information Sachin Nagdive snagdive@icfi.com New Delhi 124 Janpath Thapar House New Delhi 110 001 India +91.4354 3000 Headquarters: 9300 Lee Highway Fairfax, VA 22031 USA +1.703.934 3000 Disclaimer: The view expressed in the paper are personal views of the authors and do not reflect that of ICF International

Coal Bed Methane (CBM) supply potential and its implication for Global LNG trade