In 2017, the US tipped from net importer of natural gas to net exporter for the first time in 60 years1. In 2018, the US exported 3,832,761 cf – more than 900,000 cf in excess of imports2. Behind that transformation lie the gas-rich fields of the Appalachian Basin, particularly Marcellus, as well as rising capacity in the Permian. These valuable reserves can play a role in fuelling the American economy, supporting its transition to gas from coal and aiding its rise as a major global gas exporter.
Yet, so much potential goes unharnessed, purely because lack of access to a pipeline has meant there is no economic way to take the extracted gas to market. There are unknown thousands of orphan wells strewn across the US, abandoned due to unfavourable economics, and many more stranded assets as yet undrilled for similar reasons3. Despite fevered take-away expansion in the Appalachian Basin over recent years, this will remain the case for many asset owners who still find themselves remote from traditional midstream infrastructure.
But what if pipelines weren’t necessary? What if there was a cost-effective way to extract, and distribute natural gas, regardless of proximity to pipeline, and bring those assets back to production? What if the industry went in a direction that didn’t need pipelines? For those looking to monetize unproductive natural gas assets or bring unproductive wells to come back to production, it would be revolutionary.
The pipeline deficit
Historically, the Appalachian Basin has struggled for takeaway capacity, creating bottlenecks. In recent years, fevered pipeline expansion has gone some way to alleviating that – the EIA estimates pipeline capacity in the Northeast region grew from 5 Bcf/d to 23 Bcf/d between 2008 and 20184.
However, there is no shortage of Appalachian asset owners still waiting on pipeline expansion to unlock their fields. They may be kept on the hook for some time, with fewer large-scale pipeline expansions scheduled for this year in the region. This may discourage drilling activity, and production may be constrained by “limited in-basin demand growth, downstream constraints on pipelines and demand, escalating long-haul pipeline project costs and capital availability5.
Does it matter? After all, the US has surged to a strong position as a natural gas exporter; the industry is not in dire straits. However, there is plenty of headroom for further growth. The IEA estimates global gas demand to grow at roughly 1.6 percent per year through to 2023, largely due to growing demand in Asia6. The growth of US export capacity – especially LNG shipments – is expected to be a key driver for meeting that demand, so it’s far from clear that now is the time for putting on the breaks. There are plenty of slices left of the pie for Appalachian producers if they can crack their takeaway conundrums.
However, the true potential of the market – both domestic and export – could be even greater. As the energy transition gathers pace, there is a clear direction of travel towards favouring cleaner-burning natural gas over dirtier fossil fuels such as coal and diesel. This is true for large scale power generation, but also in many other areas of economic activity. Think of remote industrial sites or mines, too far removed for grid connection and reliant on diesel gensets; or look at transport and gauge the opportunity in hauliers’ truck fleets, or ferries and ships burning marine diesel. Or even consider off-grid American homes, where a growing number are looking for a functionally similar alternative to fuel oil for heating homes. All that is needed to unlock these sectors is a more flexible and reliable method of distributing gas to where its needed.
The problem with pipelines
The obvious solution would be a massive expansion of pipeline infrastructure and gas distribution networks. Obvious, but expensive and difficult.
Energy Transfer’s Rover Pipeline alone was priced at $4.2 billion capex in 20177, and since then has racked up more than $15 million in fines along with the company’s Mariner project8. These are large infrastructure projects, and more will only be built if developers are confident of long-term favourable market conditions and suitable risk levels. As such, pipelines are ill-suited to respond to more short-term fluctuations in demand.
Pipelines also come with a considerable political price tag. For example, look at the fierce opposition at state level in New York to the planned Constitution pipeline, and the back and forth between the State and Federal Energy Regulatory Commission (FERC)9. Battle lines can be drawn over planning permissions, water quality and safety concerns, to name just a few fault lines. The politicised nature of pipelines introduces an unhelpful level of risk and delay.
Where we’re going, we don’t need pipelines
If only there were an alternative method of takeaway and distribution that offered greater reach and flexibility than pipelines, with comparatively negligible costs and risks. Such a solution would unlock opportunity for operators sitting on orphan wells or stranded assets across the Appalachian Basin, while also facilitating new end-use markets for natural gas as an alternative to the likes of diesel.
What might such a solution look like? The Edge answer to this is the Virtual Pipeline concept. This entails sending one or more unique Cryobox liquefaction units to site, which are capable of quick and simple conversion of natural gas to LNG at the wellhead. Crucially, the Cryobox is the size of a truck trailer, so can be delivered wherever there is road access, far beyond the reach of the pipeline network. The produced LNG can then either be used on-site, transported via existing takeaway options or else distributed to market also by truck. This Virtual Pipeline is limited only by the road network, enabling reliable delivery direct to end-users, however remote the site.
Small-scale LNG is the ideal option for non-pipeline distribution: safe, easily transportable and suitable for a variety of uses, with or without regasification.
For asset owners, the Cryobox integrates quickly, safely and efficiently to extraction equipment without causing damage, opening up a previously closed revenue stream. For LNG buyers, it creates a new source of high quality, low-cost LNG to power a variety of end-use applications – all without the need for any additional fixed infrastructure.
A combination of new technologies and business models therefore means that, for those wondering what to do with orphan wells or stranded assets, there is in fact a way back to production – and where we’re going, we don’t need pipelines.