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The US natural gas story

Hydrocarbon Engineering,


The US is experiencing a once in a generation revolution. A tsunami of natural gas is flowing from the ground in ever increasing abundance. The Marcellus and Utica shales in the US northeast, for instance, are producing at record rates.

While natural gas is mostly made of methane, it also contains a host of other components. Natural gas liquids (NGLs), including butane, propane and ethane, can be stripped from gas and put to use in a myriad of ways. The low cost and widespread availability of ethane, in particular, have galvanised the petrochemical sector.

Complications

The abundance of gas has led to a shortage of pipeline capacity in some regions. The issue is felt most acutely in basins where the focus has been on oil rich shale. In North Dakota, where Bakken production has expanded by 1 million bpd in only a few years, midstream operators are scrambling to replace crude by rail transport with liquids pipelines. The production of gas in association with the crude is seen as a byproduct, and millions of cubic feet are flared off. The governor of North Dakota, Jack Dalrymple, has been quite vocal against the wasteful practice.

US operators are looking to new markets on the continent. Midstream companies have been creating pipeline links to the Mexican border in Texas and Arizona in order to send large amounts of gas south. Mexico’s Federal Electricity Commission recently estimated that new and existing lines will have the capacity to deliver almost 6 billion ft3/d (mainly to new natural gas powered electricity plants) within a few years.

To the north, Canada is also receiving large amounts of natural gas from the US due to the explosive growth of the Marcellus shale. The Tennessee Gas Pipeline system, once an export point for Canadian gas, has been reversed and now supplies almost 0.5 billion ft3/d to Ontario and Quebec. Energy Transfer Partners announced it is nearing a final decision on its Rover project, which would ship Marcellus and Utica gas to the Midwest, Gulf Coast and Canada. The line would deliver up to 3.25 billion ft3/d in total; the entry point for Canada would be near Detroit, in Sarnia, Ontario.

Gas producers are also eager to export to Asia and Europe, where gas is selling at far higher returns. The global LNG market is expanding at 3 billion ft3/d, and is expected to reach 53 billion ft3/d by 2020. Cheniere Partners, which owns an LNG import terminal in Sabine Pass, Louisiana, has been contracting with various international firms to ship LNG to Europe. Construction of the US$6.5 billion liquefaction train is expected to be finished by 2015.

The use of natural gas as a vehicle fuel is also being promoted. Only a small percentage of fleet vehicles currently run on compressed natural gas. But Ford, Chrysler, Honda and other car manufacturers have been building consumer vehicles for several years, and most diesel and gasoline engines can be converted with kits. Although the US Senate’s State Natural Gas Act of 2012 (which called for US$100 million in grants to build a refuelling infrastructure and bolster the existing US$7500 vehicle tax credit to US$10 000 through 2016), died in the previous Congressional session, much interest remains; even if the US ups its natural gas fleet to only 10% of all vehicles, it would have significant effect on the gas sector.

All of these alternate markets have the potential to significantly reduce the supply glut, leading to eventual price rises. Should gas soar to prices seen in the mid 2000s, petrochemical manufacturers and other major industries are concerned that their investments might be stranded.

The practice of fracking is also a growing concern. Environmentalists are concerned that frack additives (which reduce the viscosity of water) may befoul groundwater and surface bodies. Farmers and rural communities in arid regions are worried that the huge amounts of water used in fracking may aggravate drought conditions.

Misinformation and misperceptions about fracking have many of the general public alarmed and wary. Recently, citizens in the Texas city of Denton voted to ban further permitting of hydraulic fracturing within municipal boundaries. Opponents successfully argued that fracking pollutes air and drinking water, and that the disposal of the vast amounts of water produced by the drilling process could cause earthquakes. Denton sits atop an immense resource; the development of the Barnett shale pioneered the economic production of shale gas. If the trend becomes more widespread, unconventional gas supplies might be seriously curtailed.

Finally, the recent 25% drop in international oil prices could have a knock on effect on gas. Unconventional reservoirs require constant drilling just to meet high well decline rates, and drilling and stimulation costs can easily exceed US$10 million/well. Explorers have been relying on liquids rich shales to help generate cash flow in the face of weak gas prices; many plays become uneconomic when the price of oil dips below US$80/bbl. Although operators are still weighing whether the precipitous plunge is a short or longer term phenomenon, continuing low prices will have an inevitable impact on capex budgets.

Solutions

By its very nature, the oil and gas sector requires constant evolution, innovation and reinvention. Midstream companies, for instance, are building new lines and repurposing existing assets to meet infrastructure demands. According to the Interstate Natural Gas Association of America (INGAA), North America will need to spend almost US$641 billion over the next two decades (approximately US$30 billion/y), to handle all the midstream gas, crude oil and natural gas liquids (NGLs) coming onstream.

Drillers are looking at new ways to save money and time, and increase productivity. Seismic and petrophysical research and development has identified the best ‘sweet spots’, to improve production. Pad drilling, in which as many as 20 wells are spud from one site, has lowered
non-productive moving time on rigs. Precision bit guidance systems place wells within metres of the best production. Stimulation technologies have been refined in order to reduce fracking time and increase effectiveness.

Even though exports to Mexico and Canada, LNG and other uses will soak up significant supplies, new gas sources are expected to keep sufficiently ahead of continental demand. The EIA reported the Henry Hub natural gas spot price averaged US$4.57/1000 ft3 in 2014 and expects an even more moderate US$3.94 in 2015, with longer term outlook in the same range.

The oil and gas industry is moving to address sundry issues on the environmental front. Alternate, benign frack additives are being devised. New stimulation technologies and processes are reducing the amount of water used (and, in some cases, eliminating it). Industry groups are engaging the public in discussions to allay unfounded concerns. Scientists have been working on ways to trace frack fluids to ascertain if leaks are occurring; a team from Duke University recently announced that they have identified unique boron and lithium isotopes that return from the fracked reservoir to the surface with produced water. The presence of these isotopes in adjacent groundwater is an indicator that contamination has occurred; conversely, their absence is strong proof that frack technologies are safe.


Written by Gordon Cope.

Adapted for the web by Emma McAleavey.


The full article can be found in the February issue of Hydrocarbon Engineering.

Read the article online at: https://www.hydrocarbonengineering.com/special-reports/05022015/the-us-natural-gas-story-190/


 

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