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Will China's CBM Help Make the Next Energy
Billionaire?
by James Finch 30-08-2006 |
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Grewal Turns to China to Build His Fortune
Randeep Grewal's came into the energy markets as chairman and chief
executive of an oil and gas horizontal drilling company, Horizontal Ventures.
During the energy bear market, Grewal cleverly began a series of mergers and
acquiring oil and gas assets, which led to his first Greka Energy Corp. He knew
where to find deals and deftly began assembling his energy empire. Horizontal
drilling is integral to coalbed methane development, which brings Grewal back to
where he started - as a gas drilling company.
Also along the way, two of Grewal's companies have suffered bankruptcies. This
past November, Saba Enterprises, formerly Greka Energy Corporation, filed for
Chapter 7 bankruptcy, after two creditors won judgments totaling $19.5 million.
In its petition the company announced it had no assets. The total creditor
shortfall could rise to more than $24 million. In 1999, another company of which
Grewal was a director, Sabacol - a subsidiary of Saba Petroleum, was dissolved
following the sale of its assets after working its way through Chapter 11
bankruptcy proceedings.
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Life is also filled with many second chances. This time, however, through Greka
Energy (Hong Kong) and Green Dragon Gas (GDG), Grewal owns what might someday
become a multi-billion dollar gas project. Smith & Williamson, Green Dragon's
IPO underwriter valued the company at $973 million, depending on its success in
recovering GDG's estimated methane gas in place and the wellhead price at time
of delivery.
Until recently, coalbed methane was treated as a hazardous waste product which
killed coal miners in tunnel explosions. In China, depending upon whose numbers
you believe, between 4,000 and 6,000 coal miners die each year. At best, methane
was an unwelcome byproduct of coal mining, which the Chinese vented into the
atmosphere aggravating an already atrocious air pollution crisis.
When the Chinese began to realize CBM was providing a greater percentage of the
U.S. gas production, they wanted to develop their own vast resources. After all,
the Chinese are pragmatists. Why pay through the nose to import LNG, when you
are throwing away all that methane? In 2004, coalbed methane accounted for 8
percent of U.S. gas production. That's the same percentage number China mandated
in its eleventh five-year plan for the role of gas in its energy mix. And as
we've mentioned in previous articles, China has idled as much as 40 percent of
its gas-fired plants because it could not obtain sufficient gas supplies.
Methane or C4, which is a more pure gas than conventional gas, is found within
the carbon lattice of coal at a molecular level. The less "sweet" natural gas,
which is found in more conventional fields, was generated by hydrocarbon source
rocks and is trapped in a porous and permeable reservoir rock, such as carbonate
reserve or sandstone. Water pressure holds coalbed methane in place, which
required new drilling technology, to efficiently extract.
To extract coalbed methane, a company drills wells into the coal seam, and then
perforates and fractures the coal seams. By increasing permeability through this
process, water is able to be pumped out of the coal seam. During this
de-watering process, pressure holding the gas in place is reduced. This pressure
differential vents the gas through the fracture systems into the well. Voila!
What had been killing coal miners and polluting China's atmosphere could now be
utilized to power gas-fired energy plants.
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