Deep sea methane: Energy Saviour Or Impending Disaster?

In December 2003, an international team of geologists announced that they had successfully tapped a new energy source.

Methane hydrate, a solidified form of natural gas bound into ice, lurks under the seafloor along the margins of every continent and under the Arctic permafrost.

On the Mackenzie River delta in the Canadian Northwest Territories, engineers drilled hundreds of meters below the permafrost into the hydrate deposits.

They punched fractures into the layers of sediment and pumped hot water into the earth, releasing the natural gas from its icy prison.

This first harvest of methane hydrate could mark a new direction for the energy industry. Engineers once assumed that the energy costs of melting the frozen fuel would outweigh the gains but rising oil and gas prices and creative uses of existing technology, like the recent test in the Canadian Arctic, are beginning to change their minds.

The United States Geological Survey estimates that the total amount of natural gas in methane hydrates surpasses all of the known oil, coal, and gas deposits on Earth in energy content, although only a fraction of the frozen fuel will be extractable.

The hydrates can form at any latitude on Earth if temperature and pressure conditions are right, and are usually mixed with sediment under the ocean floor.

There is a catch, however. Methane hydrates offer the energy industry dangers as well as opportunities, warns Charlie Paull, a geochemist at Monterey Bay Aquarium Research Institute in Moss Landing, Calif.

Deep-sea drilling operations that melt seafloor deposits of the icy fuel might set off an underwater accident under certain circumstances.

China pays $1.7Bn to buy into Canadian Tar Sands market

Canada and China have signed a deal that will see PetroChina, the market arm of the state-owned China National Petroleum Corp., investing $1.7 billion in two Canadian tar-sands deposits in Alberta.

Canadian Industry Minister Tony Clement said the government gave PetroChina the go-ahead for the acquisition. Industry sources said the deal was agreed about two months ago but only finalized before Clement's announcement before the new year.

If successfully exploited, the tar-sands development will secure for China's energy-hungry economy a substantial resource from about 5 billion barrels equivalent of "best case" bitumen.

Canada is the world leader in oil produced from tar sands, followed in a smaller measure by Venezuela. The Canadian tar-sands industry, centered in Alberta, produces more than 1 million barrels a day of synthetic oil -- about 40 percent of Canada's oil production -- from the sands currently under exploitation.

Oil sands involve a developing technology that normally requires high crude prices to remain attractive to investors. In China's case, however, government energy economists' projections for meeting future demand rather than market prices for oil is the decisive factor in the Chinese acquisition policy.

The deal gives PetroChina 60 percent control of Athabasca Oil Sands Corp.'s Mac Kay and Dover oil sands deposits in Alberta. The yield from the two deposits is likely to be modest when compared with total estimates of about 175 billion barrels of oil held in the sands, the largest after Saudi Arabia.

Analysts said the Chinese yields will depend largely on the efficiency of the methods employed to extract commercially feasible oil.

Unlike crude oil, production from tar sands requires complex and costly processes. Tar sands usually are mined and processed to extract the oil-rich bitumen, which is then refined into oil.

Because the bitumen in tar sands cannot be pumped from the ground, developers use strip mining or open pit techniques, resort to underground heating and upgrading of the resource.

Clement said the investment would be of net benefit to Canada. PetroChina operations, although likely to be run by a largely Chinese senior management, will create local jobs. PetroChina has also pledged more than $250 million toward development of the costs. A PetroChina regional office is also planned.

PetroChina is the listed arm of the state-owned CNPC, China's biggest oil producer. It is traded in both Hong Kong and New York. Since issuing stock in Shanghai in November 2007, PetroChina has seen its market value soar to new heights each year.

Industry analysts said China would likely seek to expand its Canadian tar sands portfolio.

The United States, too, has tar-sands deposits primarily concentrated in eastern Utah, mostly on public lands and estimated to be equivalent to 12 billion to 19 billion barrels of oil.