Running On Fumes
In another initiative to increase demand and reap the rewards of low natural gas prices, operators are turning to gas to power their drilling activities
Natural gas prices remain below C$4 per thousand cubic feet. Crude oil is hanging in around the US$80 pera barrel mark. And diesel fuel remains around US$4 pera gallon. Natural gas demand remains weak in North America as the United States struggles to avoid a double-dip recession, suggesting that gas prices will stay right where they are for at least the next few years. And most of us fully expect crude oil to climb off the price mat sooner rather than later—after all, plus-$100-plus oil is only a hurricane or a Middle East uprising away.
Not too many gas producers like those realities; fuel- switchable industrial consumers love those realities. And now the North American drilling industry is looking more seriously at weaning itself from diesel-electric rotary rigs—the staple of oilfields around the world for the past 60 years or more—in favour of punching holes (for oil, of course, hardly anyone is actually looking for dry gas these days) using cheaper, cleaner and quieter natural gas.
Ensign Energy Services Inc. has been building gas-powered rigs for clients in the United States for about five years now, and the units are quite popular in some of the more densely -populated shale plays—the Marcellus in the northeast, the Barnett in Texas—and in parts of Colorado and Wyoming where prevailing air pollution laws restrict the use of diesel generators.
Ensign is now running a total of 15 dedicated gas-powered rigs in the United States, but hasn’t yet targeted the Canadian market, although it does have one dual fuel (diesel and natural gas) in its Canadian fleet. Nor does it anticipate building any for the Canadian market, although it is in the process of adding two more dedicated gas-powered rigs to its American fleet, according to Will Matthews, vice- president, marketing in Ensign’s Denver office.
Trinidad Drilling Ltd., however, is targeting the Canadian market: it’s just finishing up its first dedicated gas-powered rig, a triple that Encana Corporation will use to drill pad wells in the Horn River, and that will put Trinidad into a leading position in the gas-powered rig market.
“It will be, I believe, one of the biggest [(gas-powered]) rigs on land,” says Adrian LaChance, Trinidad’s vice-president, U.S. operations and manufacturing. “It’s a 25,000-foot rig and I think it will be the biggest nat gas rig in North America.”
While the new rig will be Trinidad’s first dedicated gas-powered rig, it’s already running a dual-fueled rig that uses diesel or natural gas. That rig is currently drilling for Encana at Kiwigana, in northeastern British Columbia.
Gas-powered drilling has taken hold firmly in the United States, LaChance says, and one of the key reasons for their its rising popularity is cost.
“If I look at what we’re running right now, our gas engine that we are going to run, per day would cost us around $900 in natural gas costs at the sales line,” he says. “To do the same work with diesel power, I’m close to $4,800 a day.”
The environmental benefits are also enticing. Encana reports that a gas-powered rig it ran in the Jonah field of Wyoming between 2004 and 2009 exhibited a reduction of more than 4,000 tons of volatile organic compounds and 600 tons of nitrous oxide (NOx) every year, even with increased drilling activity.
Natural gas engines certainly cost more—anywhere up to $250,000 more than a diesel genset in a new-build setting to north of $1 million on a retrofit—but they’re cleaner burning, quieter and require less maintenance than diesel generators, LaChance adds.
“For the load we have on the engine, we believe we are going to be able to get at least 3,000 hours between oil changes, whereas on a diesel engine, because of the dirty fuel, you’re going to be sitting in that range of between 500 and 1,000 hours between oil changes.”
As part of its overall focus on improving the North American natural gas economy, Encana has taken a lead role among operators espousing the virtues of gas-powered drilling, building on its experiences in the Jonah field initially, and later in the Barnett shale play of North Texas and in Colorado’s Wattenberg field north of Denver.
David Hill, Encana’s Denver-based vice-president, natural gas economy, says the company’s move into gas-powered drilling was propelled largely by the close proximity of its drilling activities to urban developments. In that kind of environment, Hill says, a gas engine on a drilling rig, “does make a noticeable difference at two in the morning.”
“In the Barnett, and just north of Denver here in the Wattenberg field, we’re definitely in urban settings, around golf courses, schools, homes, developments and airports,” he says. “It’s important for us and for industry, with drilling coming into these more urban settings, that we have quieter rigs—there is less smell and there is no black smoke coming out the stack.”
Trinidad’s LaChance says gas-powered rigs do carry higher costs, and will thus command slightly higher day rates than conventional diesel-electrics. “We’re going to be getting more day rate (on a gas-powered rig), that’s the way it is,” he says. “If you want to drive a Ferrari, you gotta pay more for it.”
Hill concurs that retrofitting a diesel-electric can be a pretty expensive proposition, upwards of US$1.2 million to pull two “perfectly good” diesel generators off a rig and replace them with two new gas-powered generators, at a cost of about $175,000 per generator. But starting from scratch and building a fit-for-purpose rig using gas-powered generators instead of diesel generators, is considerably less daunting to the bean counters and those mandated to pinch pennies.
“In a new build—and we actually think fit-for-purpose rigs are a better application for the resource plays that we drill—when we’re designing new rigs, we are asking for them to be natural gas– powered,” he says. “The [(price difference]), in that case, is just an extra $150,000 or so per engine. It makes the decision even easier on a new build.”
Hill is reluctant to be pinned down on exactly what the savings of running a gas rig might be, since there are a number of variables that come into play, including choice of fuel (field gas needs to be treated; sales gas needs to be extended to the lease, if the site is remote; liquefied natural gas [LNG] needs to be vapourized) and taxes and royalties that might apply to consumption of field gas.
On a straight-up comparison of fuel costs, the savings can be as much as $4,000 a day, he says, but there are extra costs: for LNG, for example, a vaporizer can run $500– to $800 a day.
“What we typically tell people is that we save anywhere from $2,000 a day to $500 a day, depending on the type of fuel, the extra equipment needed on site,” Hill says. “We do a full life-cycle analysis so that is the total cost savings, all in. We like it to be totally transparent, because there are added costs to convert your rig, there is different equipment out there needed on site that you have to account for.”
On the other side of the equation, Hill says moving to gas-powered drilling also makes sense from a market development perspective. Gas prices are low and likely to remain low for some time, North American gas demand could always use a shot in the arm, and the type of pad drilling Encana is engaged in sets up perfectly for a gas-powered rig drawing being fueled either by field gas (with appropriate conditioning and treatment) or sales gas (as Encana is doing with the Trinidad rig being built for its Horn River activity).
“When the rig sits on a pad and drills eight to 16 wells it sits there for a very long period of time,” Hill notes. “The pad drilling really makes the natural gas choice a lot easier because you build the infrastructure to go to the rig and it sits there. Our drilling technology has allowed us to make this choice easier than it has been historically.”
Gas-powered drilling—unless liquefied natural gas (LNG) is used as the fuel source—also eliminates the various environmental and social impacts of keeping a diesel generator fuelled: less road traffic, reduced dust, fewer tailpipe emissions. In the Horn River, such considerations might not mean much; in the suburbs of Fort Worth, they are invaluable to maintaining piece with the neighbours.
“Those are all extremely positive benefits of drilling with gas, and if you tie those together with the petroleum displacement and the cost savings, you really do have a true win-win-win situation,” Hill says.
So far, two of those wins have been notched: the environment and the public wins from quieter, cleaner rigs; and Encana—with a third of the rigs it uses running on natural gas—wins from a cost perspective. What’s left, Hill says, is to get the rest of the industry to buy into the drilling-for-oil-with-gas concept.
“What we’d like to see is that as industry adopts this technology more and more, costs will come down,” he says. “Right now, it’s expensive, because there are not a lot of people doing it, and not a lot of support and service on it. What we’d like to see is industry take full advantage of this opportunity to go ahead and make a large adoption and drive those first costs down. We think we are seeing that.”
To help spread the word, Encana worked with America’s Natural Gas Alliance (of which it is a founding member) to host a drilling workshop in Louisiana last June. Peer companies were invited in for the one-day affair, and heard several case histories from operators who have gone down the road to gas-powered drilling. The event raised awareness around the industry, and more and more operators are asking for a gas-powered option, and more and more contractors are offering that option, Hill says.
“We are seeing more and more operators are aware of it, evaluating it, talking to the drilling companies and several are experimenting, which is what we wanted to see,” he says. “We wanted to demonstrate that this is viable, it still does have hurdles and challenges, but we talk about those to all of the companies to make sure there is a learning process.”
