LNG

Drillers are becoming their own best customers as equipment converts to gas

HOUSTON -- Alternative uses of natural gas may be catching on in the nation's oil patch more quickly than in the long haul trucking fleet.

For the past few years, natural gas producers have been eager to find new markets for selling their huge supplies, worried as they are about future business prospects in the face of very low North American gas prices. Companies such as Chesapeake Energy Corp. have been advocating for a transformation of the trucking fleet to gas, particularly liquefied natural gas (LNG), and hundreds of LNG and compressed natural gas fueling stations are being built.

But increasingly, oil and gas companies are becoming their own customers, collecting the gas they're producing in the oil patch to power their trucks, generators and even the drilling rigs.

Despite the conversion costs, companies are making it work economically, measuring cost savings from reduced reliance on expensive diesel fuels. At the same time they are able to avoid oversupplying the market with gas, which would prolong bearish pricing.

So far, relatively little LNG and CNG is used for drilling. But it is a trend that seems to be picking up speed, and companies providing oil field fueling solutions and conversion kits for rigs and trucks are reporting good business prospects. Gas-powered hydraulic fracturing appears set to become the next trend to come in.

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At a recent conference on gas for fuel use, hosted by the market research firm Zeus Intelligence, executives counted about 70 land drilling rigs capable of using natural gas in the fleet, or about 6 percent of the total currently in use. Those figures are increasing as drillers are catching on to the trend, finding it a practical way to reduce flaring and lower their fuel costs, even if the payback from converting equipment could take a year.

"Proponents of natural gas as replacement for diesel have achieved the greatest penetration with drilling rigs," Zeus analysts said in an overview. "Increasingly, contractors, such as Ensign Energy Services and Patterson-UTI Drilling, are converting these diesel engines to dual-fuel natural gas."

Other companies active in the gas conversion market include Prometheus Energy and American Power Group, and business appears to be going very well for them. American Power Group reported a revenue surge of 223 percent for the second quarter of 2013.

"Record oil and gas shipments during Q2 brings total oil and gas unit conversions in the field to over 115 units as of March 31st, with one of the industry's largest hydraulic fracturing rigs using liquefied natural gas," the company told investors.

LNG or piped gas is not entirely displacing diesel.

Typical kits allow the rigs to run on a combination of LNG and diesel and can be quickly switched to diesel-only mode should LNG supplies become tight. It is widely expected that diesel's position as the dominant fuel source for the industry will be maintained for quite some time.

But tight gas supplies in any form is not a worry for drillers at the moment either.

One sign of that confidence in LNG use for rigs came out in April, when Prometheus announced the deployment of turbines powered entirely by LNG for use in hydraulic fracturing to be used by Green Field Energy Services in the Eagle Ford Shale. The company said the "first-of-a-kind project is yet another step by Prometheus in creating LNG distribution infrastructure."

"We are extremely pleased to support Green Field Energy Services in providing critical equipment and LNG fuel solutions that greatly reduce air emissions in the hydraulic fracturing market," said Prometheus CEO Jim Aivalis.

Cars still travel 'road to natural gas'

Gas-powered trucking continues to advance as well, even as oil field contractors race to convert rigs and deploy new equipment.

Yesterday, Clean Energy Fuels Corp., a company that supplies LNG and is constructing a network of fueling stations, released its latest "Road to Natural Gas" report. In it, Clean Energy highlighted some of the milestones the natural-gas-for-fuel business reached in the United States. The company noted UPS Inc.'s decision to purchase 700 additional LNG-fueled trucks for its fleet.

Clean Energy also reported that the nation's railroads could become the next major sector to take on the trend, noting a successful GE Transportation test on a dual-fuel locomotive in Pennsylvania last month. Airports are another growing customer base of LNG.

Oil and gas companies are adopting natural gas for trucking as well, taking advantage of new technologies entering the market for small-scale liquefaction, compression and fueling that companies can use at their drilling sites.

Oil field services giant Halliburton Co. says it is deploying 100 light-duty CNG-powered trucks to its operations at 15 sites across the United States, part of a pilot program. The company said the trucks it bought for the pilot can slash fuel costs by more than $5,000 per truck per year, while cutting emissions by about 90 percent.

Clean Energy says it built about 70 LNG fueling stations for trucks across the United States last year, more than all previous years combined since it started. The company wants to build at least 80 more stations by the end this year.

LNG fueling is advancing into the oil and gas fields at the same time.

Zeus counts around 30 LNG mobile fueling units that oil and gas companies can take advantage of for drilling and hydraulic fracturing. Mobile fueling solutions provide flexibility for constantly moving equipment and drilling sites and can remove the need for developers to come up with their own solutions. Zeus sees mobile LNG solutions as "a linchpin for market development."

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