COLUMN-Frac of the future: John Kemp

Fri Jan 25, 2013 10:22am EST

By John Kemp

LONDON Jan 25 (Reuters) - Oilfield services company Halliburton blamed the upfront cost of rolling out its "frac of the future" efficiency initiative, as well as lower rig rates and idled equipment, for shrinking margins in its North American business, when the company presented its Q4 results on Friday.

Frac (or frack as it also called) of the future maybe causing the company some discomfort in the short term. But it is a perfect case study of how the drilling industry is innovating in response to pressure to cut costs and its environmental footprint.

HIGH-HORSEPOWER GAS ENGINES Working with Apache, a major gas producer, and Caterpillar, an equipment supplier, Halliburton has started to convert some of its pressure pumping units employed in fracturing operations to a dual-fuel system that uses compressed or liquefied natural gas as well as diesel as a source of power.

Natural gas is cleaner burning than diesel, allowing Halliburton to claim its dual-fuel system cuts carbon emissions and is more environmentally friendly.

Much more importantly, natural gas is plentiful and cheap, especially in the oil and gas producing regions, while oil is more than six times as expensive on a calorific basis, and diesel is the most expensive refined fuel of them all.

Converting pressure pumps to run on a gas-diesel mix is mutually beneficial for gas producers, who do not know what to do with all the gas currently coming out of the ground, and drilling companies, under pressure to show they can drill and complete wells more cheaply to cope with depressed U.S. gas and increasingly oil prices.

Caterpillar's Dynamic Gas Blending (DGB) sets allow customers to use up to 70 percent natural gas in their existing diesel engines with no loss of performance, and can be retrofitted to existing equipment, according to the company.

The new DGB kits were specifically designed for petroleum operations, and were first released to customers in 2012. They have already been supplied to Halliburton and a range of other drilling and pumping companies.

Oilfield operations account for only a tiny fraction of total diesel demand. But Dynamic Gas Blending engines could in principle be used in a much wider range of industrial operations, providing another way for cheap gas to displace expensive oil in one of the liquid fuel's remaining core markets .

"Caterpillar believes the price disconnect between petroleum and natural gas is here for the foreseeable future. (The company) sees natural gas as the future for high-horsepower applications -- the higher the horsepower, the faster the adoption -- and is betting that its commitment will pull the market along," the specialist website "Fleets and Fuels" reported in September.

"Large engines are going gas," a Caterpillar official associated with the programme told a Houston conference. "It becomes economically suicidal not to do anything else ("Caterpillar embraces natural gas" Sep 27).

Allowing for self-interested ebullience, there is clear interest in replacing expensive diesel with cheaper gas in a wide range of applications.

VERTICAL SILOS AND PAD SPACE

Frac of the future is also introducing vertical storage silos for storing the frac sand (proppant) employed in fracking operations.

Rather grandly named the "SandCastle PS-2500 Vertical Storage System," which at least shows someone at the company has a sense of humour, it minimises the amount of ground space by the simple expedient of storing the frac sand in a vertical tower, with solar power providing all the operating power needs for the unit ().

It is a prosaic innovation. But fracking firms are under intense pressure to drill and frack more wells from fewer and smaller pads. SandCastle is just one example of numerous large and small operational improvements drilling and fracking firms are introducing in the field to squeeze costs out of the process.

They come in response to pressure from clients worried about the continued economics of exploration in a world where gas prices are already low and oil and liquids prices are coming under pressure and likely to fall in future. Necessity (in this case low natural gas prices) is again proving the mother of invention.

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