Interest Grows in LNG Use for Western Canada E&P Operations

Interest Grows in LNG Use for Western Canada E&P Operations

Advances in hydraulic fracturing that unlocked potential shale gas resources in the United States are being successfully applied to Canadian shale gas resources. With seven shale plays in Alberta estimated to hold resources of 3,424 trillion cubic feet of natural gas – along with shale resources such as the Horn River Basin in British Columbia, Canada's shale gas potential has vaulted the country into a position as a potential LNG exporter. This shale gas play has also created opportunities for exploration and production (E&P) operators in Western Canada to switch from diesel to natural gas in their operations, a trend that is also occurring in the United States with operators such as Apache Corp., which has switched to using natural gas in its hydraulic fracturing operations.

Rigzone spoke with Ken MacQuarrie, corporate development manager of Canada-based fuel and petroleum product supplier and reseller Parkland Commercial Fuels, and Petersen Barnaby, LNG Business Development Executive of Shell Canada, about what trends they see for the use of liquefied natural gas (LNG) in exploration and production operations in Western Canada.

E&P company officials gathered last month in Calgary at the inaugural LNG for E&P Operations Forum, which highlighted the latest in natural gas powered equipment and vehicles and highlighted the opportunities for greater use of LNG in E&P operations. 

Are oil and gas operators beginning to show more interest in using natural gas in E&P operations in Western Canada? Is this primarily due to cost or other factors such as environmental concerns? What kind of market share does Parkland see for natural gas in upstream and downstream oil and gas operations in Western Canada?

Ken MacQuarrie: Yes, there is an increasing level of interest being expressed by E&P companies in Western Canada for LNG driven by the favorable economic and environmental benefits of LNG as evidenced by the strong number of companies represented at the first LNG for E&P conference May 14. In total, we had over 285 pre-register and 75 E&P companies represented. The primary benefit is economics with LNG demonstrating savings up to 30 percent versus diesel in oil and gas operations. The environmental benefits in reduced particular matter, reduced sulfur oxide (SOX) and nitrogen oxide (NOX) also contribute to customer's interests. While it is still too early to determine the degree of market penetration LNG might enjoy in Western Canada we believe that it could be significant. US oil and gas experience for both fracs and drilling rigs converting to natural gas are experiencing up to 55 to 60 percent substitution. 

Has there been a push not only in Western Canada but throughout the country to use more natural gas domestically to boost economic and job growth, similar to the trend seen in the United States? What are some obstacles/challenges to achieving this goal?

MacQuarrie: Currently, the Canadian market is predominately based on conventional diesel. There has been limited supply due to only 4 peak shaver plants in operation across Canada (utility companies storing LNG for peak demand) with little available for sale. With the announcement of Shell's new Jumping Pound liquefaction facility and other announced plants, the supply will become available. The rate of customer adoption (demand) will also be a factor in the growth of LNG. With strong economic and environmental benefits, we believe demand will develop. Finally the lack of infrastructure and distribution capacity will need to grow to link the supply to demand. All three legs of the stool, (supply, demand and distribution support) are necessary for the market to grow domestically. 

Can you outline the economic and environmental benefits of using natural gas in place of diesel to power E&P equipment and vehicles? Can you give estimates of cost reductions operators can see by using natural gas versus diesel?

Petersen Barnaby: Case Study presenters at the LNG for E&P Operations Forum [SB1] including Noble, Encana, and Apache identified significant potential savings based on their experience with the use of LNG in their operations. The results varied based on the nature of their operations but all of the companies represented at the forum who are presently testing LNG are experiencing positive benefits. Natural gas is a cleaner burning fuel which will result in a reduction of particulates and local emissions in well-site applications.

Are there any benefits for using more natural gas versus diesel in E&P operations for western Canada specifically that aren't seen in other countries?

MacQuarrie: Though there is an upfront capital investment, LNG provides cost savings long-term. The economics for fueling E&P operations with LNG are ready today — not 10, 20 or even 30 years from now.

For example, companies like Encana, Apache, EQT, and Noble are using natural gas to power drill rigs present day. It's unlikely these companies would not have made the investment in adopting new equipment for LNG fuel if there wasn't an assured return on investment.

Aside from the strong economic benefits of switching to LNG, we're working to educate our customers and lead them through the investment dynamics at each stage of the adoption process. By supporting them through this process, we hope to help our customers make the successful transition to LNG-powered equipment.

Are operators in Canada facing requirements that call for new air pollution standards for oil and gas exploration and production? If so, is this also fueling interest in the increased use of natural gas?

MacQuarrie: The use of LNG for E&P operations can help meet demands for improved air quality as environmental regulations will continue to focus on the reduction of criteria pollutant emissions from diesel engines.

On average, natural gas fuel may produce 20 percent less carbon and 30 percent fewer greenhouse gases when compared to diesel fuel. Burning natural gas may also result in 90 percent less nitrogen oxide and particulate matter (which are smog-forming air pollutants), and a 100 percent reduction in sulfur oxide, a pollutant known to harm human health.

What are the challenges/obstacles that currently stand in the way of greater use of natural gas versus diesel? Are these primarily infrastructure challenges? Would LNG be trucked in and stored on site, or would equipment/infrastructure be available to convert field gas to LNG?

Barnaby: There has been limited supply of LNG as there are only four gas liquefaction facilities in operation across Canada. Little of that production is commercially available. With the announcement of Shell's new Jumping Pound liquefaction facility and other announced plants, the supply will become more readily available in western Canada. With strong economic and environmental benefits we believe the demand for LNG will continue to grow, which will spur growth in infrastructure and distribution capacity.

LNG is handled as a liquid up until the time it is vaporized and burned in the generators and boilers. In its liquid form, LNG is trucked to the wellsite and stored onsite in much the way diesel is, with special tanks that will maintain the cold temperature of the product.

Shell is building a liquefier at its existing Jumping Pound gas plant, which ensures consistent product quality and levers existing infrastructure and secure gas supply.

Can you discuss some of the current LNG E&P projects taking place in Western Canada? Is Shell involved or plan to be involved in any of these projects?

Barnaby: Shell is currently running a Nabors rig that has 3 Caterpillar 3512C engines that have been converted to bi-Fuel power using Caterpillars Dynamic Gas Blending technology. The rig is seeing very strong substitution rates of Natural Gas for Diesel and no difference in performance versus  conventional diesel engines. In the U.S. we have a worked with GFES on a 100-percent LNG powered frac spread using their gas turbine pressure pumpers with exciting results. We are continually looking at all of the possible opportunities to substitute LNG for Diesel and we will make those conversions when appropriate. 

What are the benefits of LNG versus CNG? Would LNG be a more viable option for Western Canada?

MacQuarrie: Natural gas consists mostly of methane and is drawn from gas wells or in conjunction of crude oil production. Both CNG (compressed natural gas) and LNG (Liquefied natural gas) are simply natural gas either under pressure (CNG) or a super-cooled (cryogenic) liquid (LNG). Natural gas is lighter than air and thus will normally dissipate in the case of a leak or spill, giving it a significant safety advantage over gasoline, distillate or LPG.

An odorant is normally added to CNG to facilitate leak detection. A disadvantage of CNG is the extreme pressures it is under 3000 to 3600 psi, limiting quantities that can be shipped by expensive transportation vessels.  The advantage of LNG is that if offers an energy density 600 times more than natural gas and similar to diesel fuels, extending range and reducing refueling frequencies. The disadvantage is the high cost of cryogenic storage and the major infrastructure requirements for LNG dispensing plants, production facilities and delivery equipment.

Has technology been one reason that natural gas has not been used to power E&P operations? What has changed in this arena? What are the remaining challenges/issues that must be addressed with natural gas engines and equipment in western Canada?

Barnaby: Yes, technology has been one of the limiting factors for the adoption of LNG in drilling and fracking operations; however, as we saw at the LNG for E&P Forum the technology landscape is rapidly changing. All of the major diesel engine manufactures are introducing bi-fuel options, third-party bi-fuel systems continue to improve and be a viable option. Caterpillar and GE are also focused on improving their 100-percent Natural Gas engines that are very well suited to the Western Canadian drilling and fracking operations. 

Is natural gas demand expected to grow due to planned oil sands projects? How much natural gas will this absorb?

Barnaby: Natural gas demand is expected to grow due to natural gas being a cleaner burning hydrocarbon, with the potential of bringing customers a strong business case on cost reductions. Shell has announced significant investments in LNG liquefaction in North America based on our view that LNG will be an attractive fuel for customers in the future.

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