JOGMEC Tests Potential For New Revolution

BMI View: Japan Oil, Gas & Metals National Corp. (JOGMEC) reached a pivotal point i n the second week o f March 2013, beginning its first offshore production test for methane hydrates. This is part of a government plan , announced in late February, to produce commercial quantities of gas trapped in frozen liquid structures by 2018. JOGMEC is already among the most experienced companies in this field and we believe that Japan's high demand for additional hydrocarbon resources will create large incentives for further technological development in this area.

Japan Oil, Gas & Metals National Corp. (JOGMEC) , in partnership with the Japanese National Institute of Advanced Industrial Science and Technology , is reported to have achieved the world's first gas production from methane hydrates in a test on March 12 . The operation took place 50 kilometres (km) off the coast of Aichi prefecture in the Eastern Nankai Trough.

The test is expected to be followed by further production analysis and data collections. This will most likely be the first in a long series of others that JOGMEC will conduct , with the government hoping to develop cost efficient technology to make production from methane hydrates sources commercially viable by 2018.

Japan is leading the development of methane hydrates , which is un surprising given the country's rising import bill and limited domestic deposits of conventional natural resources . The country has already initiated extensive attempt s to leverage its sparse shale resources, in order to partially alleviate the burden of its gas imports (see our online service, November 4 2012, ' Shale Hope Still A Distant Dream ') .

Japan's Gas Wall
Japan's Gas Production, Consumption and Net Imports, bcm

Welcoming The (Not So) New Hydrocarbon Prospect

This test is JOGMEC's first offshore drilling operation targeting the extraction of natural gas trapped in ice, but is the last in a succession of technological trials on the matter. JOGMEC had collaborated with Canada to conduct extensive methane hydrate research and development (R&D) in the Mallik Methane Hydrate Site in the Beaufort Sea from 2007 and 2008.

Preparatory drilling for methane hydrates offshore the Nankai Trough started in February 2012. It is thought to hold 1.2trn cubic metres (tcm) of methane hydrates-in-place, according to industry-government-academia association MH21. Based on current consumption rates, the Nankai Trough could hold resources sufficient to meet about 11 years of Japanese gas needs. JOGMEC has also partnered with the US Department of Energy and major ConocoPhillips to test for methane hydrate extraction in the North Slope of Alaska between February and April 2012.

Recent Development In Methane Hydrates Exploration
Source: Japex, BMI
FY2002 First onshore production test in Canada
FY2003 3D seismic survey in the eastern section of Kumano-nada to Tokai-Oki
FY2004 Exploration drilling in the eastern section of Kumano-nada to Tokai-Oki
FY2007 Detailed assessment of reserve volume in the eastern section of Kumano-nada to Tokai-Oki
FY2007-FY2008 Second onshore production test in Canada
FY2009 Final assessment of Phase 1
FY2012 Onshore production test in Alaska North Slope's Prudhoe Bay, between DOE, ConocoPhillips and JOGMEC at Ignik Sikumi well.

The realities of Japan's energy mix make it likely the country will remain at the forefront of methane hydrates exploration and development. The high costs of liquefied natural gas (LNG) imports and energy shortages, with an uncertain outlook for nuclear energy, are making the economics of searching for methane hydrates under seabed more attractive than countries which have access to cheap gas, such as the US. Japan will also be able to leverage its high-end engineering expertise to develop the relevant technologies to accelerate the experience curve for methane hydrates extraction.

Japan's Target
Map Of Methane Hydrates Reservoirs Offshore Japan

JOGMEC 's research could have important 'learning curve' effects if it leads to the develop ment of technology for commercially viable gas production from methane hydrates . The US Geological Survey (USGS) estimates that gas resources from methane hydrates could rang e between 2,830trn cubic me ters (tcm) and 8,490,000tcm, between eight and 24,000 times the amount of current estimate s of conventional proven gas reserves.

Technological Challenge

Initial attempts to recover gas from methane hydrates were conducted by dissociating or melting the ice structures, either by heating up the reservoir through hot water/steam injection, through the injection of an inhibitor such as methanol, or by decreasing the reservoir's pressure (techniques currently used by JOGMEC). The main issue with this technique is reportedly the threat to the reservoir's strength, as it would entail the addition of water, raising the risks of a blow out.

Recent research in Alaska focused on a different method aimed at preserving the ice structure of methane hydrates. The technique, based on research by ConocoPhillips and the University of Bergen in Norway, consists of injecting carbon dioxide into methane hydrate in order to push the methane upward.

According to USGS, these resources, while extensive, remain little understood. The commercial viability of methane hydrates might be far down the road, especially considering the potential risks associated with its exploration. For instance, methane hydrate sediments are thought to usually cover gas pockets, which could create hazard for drilling activities.

More broadly, we believe that at present, development of direct, large scale methane extraction globally could face significant opposition from environmental groups. The actual environmental risk of tapping the resource remains uncertain given that study of this is still at a very nascent stage. Nonetheless, the fear of the unknown could prompt environmental activists, regulators and politicians to push for more stringent regulations based on the precautionary principle, as we have broadly seen for fracking in shale gas and liquids extraction.

Regulations could vary from region to region. The falling costs of shale gas production in North America give little political incentive to implement a regulatory regime favouring production from methane hydrates. However, Japan's need for gas resources could see the government play down risks in order to advance gas production. Still, while successful gas extraction from methane hydrates by JOGMEC is a positive sign that Japan could meet its 2018 target for first commercial production, we do not expect production on a significant scale. The economics of methane hydrates could still be high, and if the rise in global LNG export projects leads to a fall in LNG prices, it could reduce the incentive for Japan to rely on its methane hydrates sources for energy security.

This article is tagged to:
Sector: Oil & Gas
Geography: Japan