The Quest for Unconventional Gas Sources

The recent increase in shale gas production in the U.S. and Canada, made possible largely by technological advances, has meant access to reserves nearly impossible to tap a mere five years ago. For energy producers, as well as valve, actuator and control manufacturers and distributors, this access creates potential for profitable exploration. For consumers, it means a relatively inexpensive source of clean energy not subject to the whims and vagaries of politically unstable countries.

Still, while low natural gas prices are a boon to consumers and utilities, those lower prices have created a real challenge to producers over the past year. As of mid-February 2012, prices were hovering around $2.50 per thousand cubic feet, necessitating cutbacks in the Marcellus shale area and making it less viable to drill in more remote locations like Haynesville and Barnett. Several companies have recently announced intentions to either reduce the number of new wells drilled or reduce production at operating wells.

However, prices that go down will eventually come up, and with them, production rates will rise. In the meantime, unconventional natural gas producers and those who supply the industry continue to develop more efficient exploration and production methods, engineer more robust materials and implement special practices that balance economic viability with environmental responsibility.

THE CHALLENGES

So what challenges does this lucrative industry face?

Economics and Water Use

Mike Romano, global market manager, Unconventional Oil and Gas, Tyco Flow Control, says that the recent drop in gas prices is one of the most significant challenges to unconventional gas production today.

He points to the decoupling of gas from oil prices.

“Spot prices have dropped from around $12 per million British Thermal Units (BTU) in 2008. Now they’re at $2.50. Oil went down from $130 to $70 per barrel, but came back up to $100. Before, when gas or oil prices went up, the other followed, but when shale gas came into play, the prices started going in different directions.”

Why did this happen? Romano says because of lower demand caused by the financial crisis compounded by dramatic growth of gas production through new technologies.

Another challenge to the industry today is water management. Hydraulic fracturing for a typical horizontal shale gas well takes about 4.5 million gallons of water. Detractors of fracturing have accused producers of depleting the drinking water table even though companies such as Chesapeake and Encana have made it a practice to steer away from potable water use. In addition to using untreated water from rivers, creeks, lakes and groundwater, they use discharge water from industrial or city wastewater treatment plants. The fracturing industry also has adopted the practice of reusing frac water to lower consumption of new sources.

While the overall mix of water sources depends on the region, the costs associated with transporting water in and out of a site can be as much as $1 per barrel, a sizeable incentive to reduce water use and recycle whenever possible.

In addition to the water source controversy, the fluid used in the fracing process, which is comprised of water, sand and some chemicals, must be extracted from the well and either recycled or disposed of through proper channels. Surface water discharges of this flowback are regulated by the National Pollutant Discharge Elimination System program under the Environmental Protection Agency (EPA), which requires flowback to be treated before discharge into surface water or underground injection be treated before its discharge. Underground injection of flowback is regulated by either EPA’s Underground Injection Control (UIC) program or a state with primary UIC enforcement authority.

The problem was compounded recently when increased underground injection of frac wastewater was blamed for causing earthquakes near Youngstown, OH. Environmentalists used what happened to call for broader federal regulation and drilling moratoriums. What effect this will have on continued development is yet to be seen.

Public perception

In a recent interview on ValveMagazine.com, Chris Tucker, team lead, Energy in Depth (EID), pointed out that public perception is a major challenge facing the shale gas industry. [EID is a research, education and public outreach campaign launched by the Independent Petroleum Association of America in 2009. Tucker was interviewed for an article posted Feb. 9, 2012].

While valve manufacturers, producers and pipeline operators seek ways to reduce emissions, improve safety and reduce the environmental impact of hydraulic fracturing and natural gas transport, opponents have gone to great lengths to malign these efforts. EID addresses this issue through media education and public outreach programs, but negative publicity remains a constant battle.

TECHNOLOGICAL ADVANCES

The challenges of public image, current low prices and high costs have been balanced somewhat by technology, which has made the endeavor of unconventional natural gas reserve retrieval financially feasible.

Shale is a fractured structure (a structure with cracks) with free gas (the natural gas in the fractures of the formation). Horizontal drilling exposes as many of these natural fractures as possible to the wellbore. A formation might be only 300 feet thick, but horizontal drilling of up to 8,000 feet can expose as much as two miles of production service. That one wellbore then exposes a much larger pay zone.

John Perry, team lead, Completions, Mid-Continent Business Unit, Encana Oil & Gas (USA) Inc., says one of today’s innovations is resource play hub, a plant model used by Encana that enables the drilling group to drill multiple wells on a single location.

After this is done, the project is turned over to a crew that can complete the multiple wells while remaining in one location. Since the equipment and personnel don’t move, high operating efficiency levels can be reached, reducing costs and improving project economics.

Technological breakthroughs are also occurring in valve design and production.

The demand placed on valves in this industry is intense, presenting huge design and materials challenges for manufacturers and distributors. Cameron’s Brian A. Matusek, vice president of Business Development for CAMSHALE Services of Cameron, explains the various stages and requirements for valves.

“In the fracturing environment, friction forces and formation resistance result in pump discharge requirements as high as 12,000 psi, but the formation pressure and the flowing wellhead pressure is less than 10,000 psi,” he says.

Another consideration is pressure differentials. “In the completion environment, we’re dealing with sand and abrasive fluid. We’re pumping approximately 300,000 pounds of sand per stage of frac [the length of horizontal drilling done in one stage],” he says.

Add to that the number of stages to the wear and tear on the valves, “and it becomes very significant,” he says. “That environment is a 6A environment. As we move into the flowback cycle, which is basically unloading the frac fluid or the formation fluid and commercializing the well, we move from the 6A sector into the 6D environment, where we see a lot of the classic ball valves and floating ball valve environments, as well as some of the relief systems.”

The frac tree, the wellhead and the frac manifold are all 6A valves.

“The frac manifold is actually a fairly recent innovation used by producers and fracturing companies,” Matusek explains. “It allows simultaneous operations. In the completion environment, we’re most concerned with solids resistance and the severe service in which we’re operating. This severe service mandates our valve selection criteria and governs the types of valves that we put into our sand separation choke skids and frac tree systems.”

When those seeking the valves for fracing are asked what the most significant challenge for the process is, most in the business give the same reply: supply of the right valves for the job.

Ralph Chaney, vice president of business development – Downstream Valves, MRC, explains that, “Valve durability and availability is always key when we evaluate products for this segment.” His colleague, Greg Peterson, vice president of Valves & Specialty Products, Midstream/Upstream/Projects at MRC, says that sealing capability is essential because of environmental issues.

Tyco’s Romano adds that, “The other design consideration is H₂S and CO₂ content. In addition to abrasion with the sand at velocity, you have erosion or chemical attack with the H₂S and CO₂ content. This is severe service; o

nce the abrasives ping the metal, then [those two gases] start to erode it with chemical attacks.

“Right now they’re using exotic metals wherever they can, stainless, super duplex. The issue, even with pressure relief valves, is that they must be designed to last,” Romano says.

Peterson stresses that the valve industry as a whole has benefited from engineering accomplishments in machining and valve testing capabilities partly because of innovations made for the hydraulic fracturing process. These have increased the number of valves made and the quality of valve products.

Chaney says, “Each customer has a different approach to buying selection. Some look long term and reuse valves with exotic materials, while some choose to purchase less-expensive materials and throw them away after each use. They’re looking for hardened materials for seats and sealing surfaces.”

Perry says more robust valves are essential. “Because of the 24-hour operation of the fracing process, I like to see valves that are more durable, that can withstand that type of service duty. We would like a product that reduces the need for maintenance and greasing of the valve.

“We maintain people on the operation around the clock who do nothing but pump grease on the valve after every frac,” he explains. Retorquing is also a frequent requirement. The frac stack will vibrate “so we also have to continually retorque all the valves in the frac stack and production tree,” he says. His company looks for ways to reduce that need.

As far as sealing ability, “we need valves that can withstand more abrasive fluids on the flowback. Pressure rating, metallurgy and size are important of course, but a balanced stem design is critical with these high pressures and differentials during fracing and flowback,” Perry says.

On the cleanout side, “after the final stage of fracing, we will rig up a coil tubing unit and go in under pressure with a positive displacement motor and a mill and drill through all those composite bridge plugs,” Perry says. This is because, “We have to clean all the stages out to the bottom of the well, out through the lateral. We need specialized equipment rigged up to the tree and the frac stack; that allows us to take that large amount of fluid, abrasives, plug material, clean it up through a separator.”

The valves on the tree have to be able to handle that work, he says. “The well stream needs to be clean of all debris prior to turning it over to our production group.”

ALLIANCES

While technological advancements are responsible for much of the increase in production, alliances between producers and frac companies have also played a large role in the industry’s success.

Perry mentioned an innovative operator/vendor model his company uses. The vendors have fit-for-purpose fracing equipment that can be used 24 hours, 7 days a week for the six to eight weeks it takes to complete a three-well, multi-pad operation.

“Not all equipment in the industry can pump around the clock, so we have alliances with frac companies and have worked with them to develop certain equipment that we feel can handle this type of service. Tri-plexes are available to most everyone in the industry but most pumps are not for continuous service like this,” he explains.

“Our frac spreads are outfitted with heavy-duty pumps. The vendors have the pump trucks, the tractors for the pumps. The blender, hydration unit, all the high pressure manifolds and valves, they’re all provided by the service company.

“On a three-well pad, the 90 stages could take a full month of pumping to frac, and then another two weeks to drill the wells out. Then we could simultaneously produce those wells to clean them up. It takes a lot of specialized equipment to frac a 7,500- to 8,000-foot lateral, clean it out, and turn it to production,” he says.

THE FORECAST

For valve manufacturers, the potential for growth goes far beyond valves actually used in the shale field.

With the shale gas drilling and production boom, the oilfield specialty chemicals market has also grown, and plants treating the water for production and pipelines, such as Crestwood Midstream Partners and Mountaineer Keystone’s $70-million, 42-mile (68 kilometer) system, are also markets for valve products.

However, “There are major concerns with gas prices at such low levels,” Peterson says. “Opinions are the rigs exploring for gas could drop off by 100 to 200 rigs in the short term.

“On the upside, the belief is that these resources will be redirected to exploration for liquids. There are major shale areas, such as the Eagle Ford and Marcellus regions as well as smaller plays in need of the installations of gathering infrastructure,” he says.

Peterson also says he believes the drilling will continue because of the long-term outlook on gas and the exploration under contract.

“With U.S. gas storage at capacity and consumption low due to a mild winter and sluggish economy, we could create an over-production situation. The U.S. producers are looking for alternative markets for gas, including more gas-fired power plants, increased industrial usage applications and ultimately the export of U.S.-produced natural gas.”

POLITICS AT PLAY

Hydraulic fracturing is a political football for legislators, who struggle to balance activists’ concerns with economic responsibility.

At the state level, increased regulations concerning chemicals and water use and disposal and a recent decision in Pennsylvania to allow municipalities to tax producers could be considered challenges to the industry. However, Peterson comments that, “Responsibility is critical to the long-term outlook and activity in the shale plays. By following these heightened requirements, our industry is taking steps to develop a long-term commitment in these regions.”

On the national stage, President Obama rejected the Keystone XL Pipeline, but he made it very clear in his 2012 State of the Union address that he will support unconventional natural gas production. This factor, in addition to his mandate to increase manufacturing in the U.S., bodes well for the suppliers, manufacturers and producers of the valuable resource of natural gas.

Peterson says, “Low-cost energy is critical to the success of American manufacturing. With the development of horizontal drilling and fracing in the shale layers under U.S. soil, low-cost domestic production of oil and gas could revolutionize the ability of American manufacturers to compete in global markets. Our current and future U.S. administration must educate themselves on energy and economics. A true domestic and foreign energy policy must be put in place to benefit American manufacturing and jobs.”

Kate Kunkel is senior editor for Valve Magazine. Reach her at kkunkel@vma.org.