Price of natural gas remains an issue for offshore production

These are interesting times. Here's the United States, sitting on a humongous gas bubble, but without enough demand to sustain a decent price.

Ghiselin
GhiselinDick Ghiselin • Houston

These are interesting times. Here's the United States, sitting on a humongous gas bubble, but without enough demand to sustain a decent price. Some big names are backing out of the business, such as Royal Dutch Shell. Without more demand, gas remains a low-margin business. Ironically, natural gas is a beautiful fuel. It burns clean, and is easy to handle and transport to markets. So why is demand not going through the roof?

Let's take a look at demand. There's both good news and bad news. The good news is that a growing number of fleet operators are switching their vehicles over to natural gas. Those who have done so report double-digit saving percentiles. It is cost-effective and produces less CO2—less smog. The only thing holding back more fuel switching is the lack of a market infrastructure for distribution. It is still challenging to find natural gas outlets. However, an entire industry for automotive engine conversion has sprung up.

A solution for low gas demand that should motivate the environmental activists is the conversion of power generating stations from burning dirty coal to burning clean natural gas. However, the activists seem to be focused more on stopping the Keystone XL Pipeline, which has little potential threat to the environment, instead of pushing the utilities to make the big switch to natural gas—a solution that would benefit both the environment and the consumers' pocketbooks.

A perpetual market

Long range projections show that the percentage of the world's energy satisfied by fossil fuels continues to grow versus the share claimed by renewables. Gas deliverability is safe, clean, and cheap compared to mile-long coal trains snaking across the countryside. And the recent winter should have convinced northerners that clean, reliable, and economical natural gas will eliminate the dependency on coal or fuel oil to heat homes, schools, and businesses.

Today, geopolitics raises its ugly head. Europe depends on three main sources of natural gas: theNorth Sea, North Africa, and Russia. Political analysts suggest that Russia could cut off gas supplies to Eastern Europe to keep affected countries from complaining too much about what is happening in Ukraine. A potential solution to mitigate the threat as suggested in today's press, is exporting liquefied natural gas (LNG) from US terminals to feed European markets. But at the moment, the US is capacity-bound, although steps are being taken to boost LNG delivery capacity from East and Gulf Coast terminals.

Can offshore help?

Tipping the scales in favor of natural gas could change the picture for offshore. Already, offshore operators have cooperated on projects such as the Independence Hub to deliver high volumes of natural gas from several fields cost effectively. Clearly, increased demand could have an upside effect on natural gas prices, making such offshore cooperative projects more viable. With increased prices, what is to stop producers from delivering gas directly to a floating offshore terminal that could process and export compressed natural gas (CNG) and LNG directly to worldwide markets? A floating system would have several advantages. It could position itself strategically to serve its sources, it would reduce costly pipelines to shore, and eliminate the not-in-my-backyard mentality of coastal residents who do not want a terminal spoiling their beach view, but would not mind a terminal floating out of sight just over the horizon.

How big is the coal threat?

What about the coal industry, is that the 500-lb gorilla waiting to launch a price war with the gas guys? A bit of history might shed some insight on the coal issue. Before and during World War I, Sir Winston Churchill served his country as First Lord of the Admiralty, analogous to the US' Secretary of the Navy. As boss of the Royal Navy, he commanded a global armada of warships along with the associated supply and hospital ships. At the time, all were coal-burning, and depended upon the vastly prolific British mines for their fuel. As the war loomed, Churchill ordered the conversion of the fleet to fuel oil. He was convinced that fuel oil was more efficient, more easily transported and transferred at sea to needy vessels, and more available worldwide. It also eliminated the need for dozens of sweating sailors shoveling coal into roaring furnaces deep in the bowels of the ships. Needless to say, the changeover to fuel oil did not please the coal miners. Britain had plenty of coal but no oil (at that time). It was a costly decision, both for the miners and for the taxpayers who would have to fund the conversion. Churchill persevered, and the fleet was converted, followed by every other major nation's fleet because no one wanted to be inferior to the Royal Navy. His immensely unpopular decision proved to be the right one, both from a militarily strategic point of view and for the shot of adrenalin it gave to the infant oil and gas industry. The 500-lb gorilla turned out to be as fearsome as the organ-grinder's monkey.

I predict the same result if the US converts its coal-fired generating plants to natural gas. It is the right thing to do, economically and environmentally.

Smoothing the bumps in the gas road

Historically, natural gas has served the home heating market, which is cyclic to say the least. The entire gas storage industry was formed to help alleviate the seasonal cyclicity of the gas market. This provided gas producers a level playing field. Ship the gas up north during the warm months and store it in depleted reservoirs or aquifers; then produce and burn it all winter to heat homes. But if natural gas takes over the electrical power generation sector, the cyclicity of demand will be considerably leveled.

There is only one thing standing in the way—price. Unless gas prices rise from the cellar they are in, we can forget about the offshore potential as a valuable resource. But should demand grow, and it can, prices should grow with it.

Wireless link announced

Two-way communication with downhole test tools has been around for many years. Commands needed to activate packers and flow control/metering systems were transmitted by pressure pulses in the past. Challenges included mis-coded pulses that required commands to be sent again and again until they were properly received. In addition, many times there was no way for tools to acknowledge receipt of commands and execution was only known by changes in flow measurement at surface.

Halliburton has announced its RezConnect well testing system that provides two-way telecommunication between surface and well test strings in the hole. The medium is acoustic signals transmitted through the tool string. Not only can control commands be sent and acknowledged, but critical downhole data can be transmitted to surface in real time.

Recently, the RezConnect system was used on a deepwater well in Latin America to monitor a drillstem test (DST) in real time. Bidirectional acoustic commands were used across the subsea safety system to operate the downhole tools and actuate the fluid samplers while providing real time critical reservoir data and verification of downhole tool functions. With the ability to continuously monitor downhole activity, test duration can be optimized to ensure conclusive reservoir data are received. This resulted in rig-time savings of five days.

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