Firm targets coal deposits on peninsula

Anchorage business eyes southern area's potential for local consumers

Posted: Monday, June 16, 2003

Coal deposits on the lower Kenai Peninsula thought to contain commercial quantities of natural gas are now the target of an Anchorage-based company recently granted eight leases to explore and develop those resources.

Lapp Resources Inc., an independent oil and gas exploration and development company, was issued the leases officially June 1 by the Alaska Division of Oil and Gas. Those leases, totaling 20,637 acres located generally south and east of Anchor Point and extending toward the head of Kachemak Bay, entitle Lapp to pursue coal-bed methane, natural gas trapped in coal seams up to 3,000-feet deep.

That depth is shallow compared to other oil and gas operations in Cook Inlet, but like its more industrially complex cousins, retrieving shallow gas deposits has its share of technical difficulties and environmental hazards. And coal-bed methane extraction has been controversial in parts of the Lower 48 where it is more widely practiced.

Bob Shavelson, director of Cook Inlet Keeper, a Homer-based organization dedicated to protecting the Cook Inlet watershed, said residents of the lower peninsula should be aware of the potential for environmental changes that attend shallow gas development. He delivered that message to the Homer City Council on last week.

"The message was to put them on notice that this new wave of development was about to descend on the lower peninsula and that they need to educate themselves about this new type of industry," Shavelson said Thursday.

"I think when people look at the map where roughly 20,000 acres was opened for leasing, that got people's attention. The council seemed to recognize the need to follow the issue closely."

Citing a study for the Western Governors' Association, Shavelson said development could include construction of new roads, pipelines, compressors and other facilities. Among the problems in other locales have been air and noise pollution, but water has been the central concern where conflicts have arisen.

To tease natural gas from coal seams, developers must extract the water that keeps the gas contained. In some areas of the Lower 48, mineral-laden subsurface water pumped from development wells has been discharged on the surface, affecting local ecosystems and aquifers.

Dave Lappi, president of Lapp Resources, said his company is prepared to meet the environmental challenges and to adhere to mitigation measures applied to the leases by the state. But many of the problems associated with shallow-gas development in the Lower 48 likely won't occur the lower peninsula. The environment and the geology, even the potential market for gas are much different, he said.

"Water has been an issue, particularly in arid areas of the country because water is a scarce commodity," Lappi said.

Shallow-gas production often requires drawing large quantities of subsurface water to the surface, he said, and some states allow surface discharge.

"Alaska state law requires re-injection (of produced waters) into deep disposal wells," Lappi said.

Those wells can be located nearby, but they are typically much deeper than the 3,000-foot maximum depth allowed for coal-bed methane extraction, he said.

"Domestic water wells (on the lower peninsula) are generally 100- to 200-feet deep at most," Lappi said. "The productive (gas) wells are more than 1,000-feet deep. In every case, there are impervious layers of strata between the two. Impacts to surface waters are very unlikely."

The amount of gas trapped in coal beds varies with depth, Lappi said. A general rule of thumb is pressure increases by a half a pound per square inch per foot. Thus gas trapped at 100 feet may only be at 50 psi, while gas at 1,000 feet could be at 500 psi.

If any gas is discovered, it may be marketed locally to consumers on the lower peninsula through a low-pressure distribution system. If that's the case, Lappi said, the gas likely would be delivered at around 50 psi in plastic piping, which means there would be no need for a high-pressure steel pipeline nor compressor facilities.

But Lapp Resources has a contract with Unocal allowing Unocal to explore for and develop gas resources on six of Lapp's eight leases. Shavelson questioned whether Unocal, which has major industrial customers, will be interested in distributing gas locally if it can build a pipeline and move the gas to the central peninsula.

Lappi said gas discovered and distributed on the lower peninsula would simply free up gas resources in the central peninsula. Lower peninsula gas itself wouldn't necessarily be shipped north and would be available for local consumers.

The leases owned by Lapp Resources are on land to which the state controls the subsurface rights. In some cases, the state has sold the surface rights to landowners. The potential for conflict between surface and subsurface rights holders always exists, Lappi acknowledged, but exploiting the gas resources will mean reaching accommodations with surface-rights holders.

"The courts have always held that the mineral estate is dominant over surface rights," Lappi said. "However, that doesn't mean oil companies can run roughshod over surface users. We're not interested in making enemies."

Lappi said he doesn't expect any exploratory drilling to occur in the first year, and perhaps not in the second.

"It may be two or three years out to see any activity," he said.

The Homer area has a wealth of shallow coal seams. Coal literally falls out of the bluffs overlooking Kachemak Bay's north side and washes up on the beach. In the early part of the 20th century, coal was mined commercially around Homer.

Gas is known to exist amid the coal seams, in part because many local shallow water wells release gas -- gas trapped in coal near the surface.

"If you look at coal-bed gas producing areas in the U.S., that's generally a sign there are producible amounts present," Lappi said.

Producing shallow gas doesn't require the giant rigs often associated with other oil and gas development common around Cook Inlet, Lappi said. The rigs are more like those used to drill for water, and in some cases those water rigs can be converted for gas drilling.

Lappi said he doesn't expect many jobs to be created in the initial stages of exploration and development. Right now there are only two companies eyeing the lower peninsula -- Lapp Resources and Unocal. Lappi said 10 wells might mean one job, 100 wells perhaps 10.

He also said he doesn't think the lower peninsula will produce a bonanza of natural gas, but it could produce enough to supply the local area with a cheap alternative to electricity and oil.

Shavelson said the potential for real good exists alongside the potential for harm.

"If they give a preference to the local community for this local gas and can adequately deal with the water-quality, water-quantity and property rights issues, this could be a workable enterprise for making the transition to more renewable energy resources," Shavelson said. "If they don't, they will encounter the same types of landowner issues encountered in the Lower 48."

Shavelson also suggested that property owners should look into what impact the existence of a state lease for gas-bearing subsurface coal seams may have on the value of their surface property rights. He said he wasn't sure how that could be determined, but it might be a factor in such things as assessed value.

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