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Archive for Thursday, December 30, 2010

Natural gas, oil could replace coal mining in southeastern Kansas

December 30, 2010

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— For the most part, the coal mining has stopped in southeast Kansas. The land still bears the echoes of strip mining for fossil fuels.

But while the coal mining is largely done, the hunt is still on for fossil fuels in local counties. Where coal was once king, natural gas and oil are now taking up residence.

Crawford and Bourbon counties are now the site of pumps and wells dotting the countryside, and have been for some time.

One company, JayHawk Energy Inc., has made Bourbon and Crawford counties the focus of its fossil fuel hunt.

Southeast Kansas sits in an area of natural gas potential called the Cherokee Basin that includes most of the counties in the region. The Department of Energy believes the basin, which stretches into northeast Oklahoma and western Missouri, may hold 2.8 trillion cubic feet of recoverable coal-bed methane.

“Particularly in Bourbon and Crawford counties, there is an estimated 40 billion cubic feet of coal-bed methane,” said Lynn Watney, senior scientific fellow with the Kansas Geological Survey. “That’s significant. There’s been a decline in natural gas near Hugoton, and that’s been made up for by gas in southeast Kansas.”

It’s not like natural gas production is anything new, either. In fact, natural gas production in Bourbon and Crawford counties has been happening since the 1980s.

“The local bed really got going in the late 1980s. There were tax incentives to look for alternative energy sources, and oil and gas production was looked at in this region,” Watney said. “It just grew from the ’80s. It’s a relatively recent development of that resource.”

According to figures from the Kansas Geological Survey, the first modern natural gas well in the entire Cherokee Basin was put in place in 1984. But for more than 15 years, natural gas production in the Basin was fairly minimal. And then 2002 hit.

Before 2002, there were only 63 registered natural gas wells, producing more than 530,000 million cubic feet of natural gas. In 2002, that number more than tripled to 214 wells producing 1,728,000 million cubic feet of natural gas.

The latest complete data (from 2009) indicate more than 5,200 wells in the entire Cherokee Basin, with 43,471,000 million cubic feet of gas produced.

At least in Crawford and Bourbon counties, the primary natural gas and oil producer is JayHawk Energy Inc., a company headquartered in Post Falls, Idaho.

The “Uniontown Project” of Bourbon and Crawford counties is the first and foremost of the companies holdings. The company also holds a few light oil wells in North Dakota.

Also in play for JayHawk is an 18-mile gas pipeline the company bought from Galaxy Energy, along with 34 wells, seven of which are tied in to the pipeline. The pipeline is directed to a larger pipeline that allows for sales and growth.

Marshall Diamond-Goldberg, JayHawk president and geological expert, said that the company is well positioned in southeast Kansas, a region he believes is perfect for the company.

“The return for us is pretty good,” Diamond-Goldberg. “The reserves are low enough that we don’t have any significant competition from the larger companies, but they’re large enough to pursue oil and gas opportunities in the state. It’s a tremendous opportunity looking at all the region.”

In fact, it’s oil that may be the most beneficial for JayHawk right now. Natural gas is in production, but the oil is the most profitable at this point. Diamond-Goldberg noted several sand zones in the ground that offer the potential for oil.

“There are a substantial number of them,” Diamond-Goldberg said. “As you move further to the east, closer to Chanute and Fort Scott, there are a large number of oil pools. They have produced a substantial amount, and we are looking to the exploitation of new opportunities.”

But it’s not all good news for energy production in southeast Kansas. In fact, there are some signs it may already be tapering off.

According to an article by Dave Newell of the Kansas Geological Survey in the Oil and Gas Journal in February: “Only 200-300 new producing gas wells may have been drilled in the Cherokee Basin in 2009. With the number of new wells being so low, coal-bed methane production in Kansas is probably at or near its historic peak.”

Even Diamond-Goldberg said the prospects aren’t necessarily bright right now, but for a different reason. He said that the light of natural gas in the area is dimming less because of its availability and more because of the general price of natural gas.

“If it’s $4, $5, $6 for 1000 cubic feet (of natural gas), it’s more viable than if it’s $3 or less,” he said. “It’s been close to that for two years now... We’re struggling with our economic return. The company is producing fairly enough to make the break-even point. We’d like to see the natural gas price get over $4 sooner rather than later. Then you might see an expansion opportunity rather than just maintaining our production to get to the break-even point.”

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