RAILROAD COMMISSION OF TEXAS A l t e r n a t i v e F u e l s R e s e a r c h & E d u c a t i o n D i v i s i o n

Natural Gas in Upstream Operations

Patrick Wilson

Railroad Commission of Texas

Drilling Engineers Committee Houston

June 11, 2014

RAILROAD COMMISSION OF TEXAS A l t e r n a t i v e F u e l s R e s e a r c h & E d u c a t i o n D i v i s i o n

• RRC is Texas’ chief energy agency. • The RRC is required by statute to promote natural gas

as an alternative fuel that can benefit Texas’ economy, air quality and/or energy security.

• AFRED performs this function. • AFRED is developing options to encourage more use

of natural gas in E&P activities as part of Railroad Commissioner David Porter’s Natural Gas Initiative.

Railroad Commission Role

RAILROAD COMMISSION OF TEXAS A l t e r n a t i v e F u e l s R e s e a r c h & E d u c a t i o n D i v i s i o n

Opportunity

96 percent of gas produced in the United States is for the domestic market. Source: U.S. Department of Energy, Energy Information Administration

RAILROAD COMMISSION OF TEXAS A l t e r n a t i v e F u e l s R e s e a r c h & E d u c a t i o n D i v i s i o n

894 Drilling Rigs ~ Texas Use 490,000,000 USG diesel annually 40 Frac Spreads ~ Texas Use 40,000,000 USG diesel annually

Equipment

RAILROAD COMMISSION OF TEXAS A l t e r n a t i v e F u e l s R e s e a r c h & E d u c a t i o n D i v i s i o n

Partners

Drilling Contractors Ensign Energy

H&P Nabors Orion

…others

Service Companies Baker Hughes

Halliburton Schlumberger

Universal Well Services

…others

Operators Anadarko Apache Cabot

Chesapeake Encana Marathon Pioneer

…others.

RAILROAD COMMISSION OF TEXAS A l t e r n a t i v e F u e l s R e s e a r c h & E d u c a t i o n D i v i s i o n

Safety • Limited range of flammability

• LEL for methane 5% • LEL for diesel is 0.6% • LEL for gasoline is 1.4%

• Ignition temperatures • Methane 1,100 degrees F. • Gasoline 475 degrees F. • Diesel 410 degrees F.

• Lighter than air • CNG tanks withstand rupture or puncture better than

gasoline/diesel containers

RAILROAD COMMISSION OF TEXAS A l t e r n a t i v e F u e l s R e s e a r c h & E d u c a t i o n D i v i s i o n

Economics

Source: World Bank “Pink Sheet”

RAILROAD COMMISSION OF TEXAS A l t e r n a t i v e F u e l s R e s e a r c h & E d u c a t i o n D i v i s i o n

How much does 1,000,000 BTU Cost?

= 8.6 USG Gasoline x $3.50 = $30.10 = 7.8 USG Diesel x $4.00 = $31.20 or…… = 8.6 GGE CNG x $2.00 = $17.20 = 7.8 DGE LNG x $2.00 = $15.60

RAILROAD COMMISSION OF TEXAS A l t e r n a t i v e F u e l s R e s e a r c h & E d u c a t i o n D i v i s i o n

Drilling Rigs Fuel options: CNG, LNG, field gas

Retrofit or new build Capital cost of retrofit ~$500K price spread of $1.75/DGE payback for retrofit = 1 year payback for new build is less than 2 years.

Source: Gladstein, Neandross & Associates

RAILROAD COMMISSION OF TEXAS A l t e r n a t i v e F u e l s R e s e a r c h & E d u c a t i o n D i v i s i o n

Drilling Rigs

“We now have 22 [natural-gas-fueled] rigs working, with plans to deploy 59 by fourth quarter 2015. The dual fuel systems are still in demand, with diesel savings averaging 40 percent (and resulting reduced emissions as an additional important benefit.)”

RAILROAD COMMISSION OF TEXAS A l t e r n a t i v e F u e l s R e s e a r c h & E d u c a t i o n D i v i s i o n

Pressure-Pumping Equipment

Installed cost ~ $150K/engine; $1.25MM --$2.5MM/spread 50 percent substitution = savings of $1,000,000 annually W/ price spread of $1.75/DGE, payback is < one year.

Source: Gladstein, Neandross & Associates

RAILROAD COMMISSION OF TEXAS A l t e r n a t i v e F u e l s R e s e a r c h & E d u c a t i o n D i v i s i o n

So . . . .why aren’t we there yet?

RAILROAD COMMISSION OF TEXAS A l t e r n a t i v e F u e l s R e s e a r c h & E d u c a t i o n D i v i s i o n

Fuel Supply & Infrastructure Public Stations

Source: U.S. DOE Alternative Fuels Data Center

Grapevine Houston Irving Laredo Longview Marshall Mesquite Midland San Antonio Willis

Andrews Arlington Austin Beaumont Bryan Cleburne Conroe Corpus Christi Dallas El Campo Garland

RAILROAD COMMISSION OF TEXAS A l t e r n a t i v e F u e l s R e s e a r c h & E d u c a t i o n D i v i s i o n

“Multiple LNG providers have approached us [and] we believe dual fuel will continue to expand in Texas, as this will also translate to increased demands for 100 percent natural gas engines.”

Fuel Supply & Infrastructure

RAILROAD COMMISSION OF TEXAS A l t e r n a t i v e F u e l s R e s e a r c h & E d u c a t i o n D i v i s i o n

Developing….

• CARB certification for dual fuel conversion kits. ALTRONIC GTI

• Solid State Generator

Technology

RAILROAD COMMISSION OF TEXAS A l t e r n a t i v e F u e l s R e s e a r c h & E d u c a t i o n D i v i s i o n

Texas Natural Gas Summit October 23, 2014

• Palmer Events Center, 900 Barton Springs Road, Austin 78704

• Combination Job Fair and NGV Expo

• 60 exhibitors • Panels/workshops on E&P, fleet

vehicles, grants and incentives, and regulatory issues

RAILROAD COMMISSION OF TEXAS A l t e r n a t i v e F u e l s R e s e a r c h & E d u c a t i o n D i v i s i o n

• Grants • Incentives • Opportunities • Developments

RAILROAD COMMISSION OF TEXAS A l t e r n a t i v e F u e l s R e s e a r c h & E d u c a t i o n D i v i s i o n

Conclusions

• The upstream sector of E&P has a significant role to play in reducing dependence on foreign oil and improving emissions.

• Neither cost nor availability of equipment is an obstacle. • Faster adoption of NG equipment will depend on

improving fueling infrastructure.

RAILROAD COMMISSION OF TEXAS A l t e r n a t i v e F u e l s R e s e a r c h & E d u c a t i o n D i v i s i o n

RAILROAD COMMISSION OF TEXAS A l t e r n a t i v e F u e l s R e s e a r c h & E d u c a t i o n D i v i s i o n

Pat Wilson

Alternative Fuels Research & Education Division Railroad Commission of Texas

512-475-2911 Patrick.wilson@rrc.state.tx.us