GE pushes gas power for drill rigs, Caterpillar's diesel turf

Tue Nov 12, 2013 1:19pm EST

* Caterpillar has dominant position in market for rig engines

* Tighter emissions rules may accelerate switch

* GE says gas far cheaper for drillers than diesel

By Terry Wade

HOUSTON, Nov 12 (Reuters) - General Electric Co is trying to deploy more of its natural gas engines on rigs drilling for hydrocarbons in the North American energy boom - where Caterpillar Inc diesel engines have long been the industry standard.

The sales push comes as GE forecasts global natural gas consumption will rise by a third through 2025 and as it makes strategic investments in the gas sector - like its 2010 purchase of U.S. engine maker Waukesha.

Rigs, mammoth machines that bore holes in the earth before the extraction of crude oil and natural gas, normally rely on three engines that burn expensive diesel and operate around the clock.

Engineers at energy and drilling companies consulted by Reuters - from Ensign Energy Services Inc to Patterson-UTI Energy Inc and Devon Energy Corp - say that natural gas engines are far cheaper to run than diesel, which is often trucked in to remote drilling sites from far away.

GE says potential savings are significant and that running cleaner-burning natural gas would help curb greenhouse gas emissions from rigs and reduce tanker truck traffic on overburdened local roads near drill sites.

"Exploration & production (E&P) companies can save $600,000 per engine, per year by switching to natural gas-fueled engines versus diesel. E&Ps can realize a $1.8 million fuel savings per rig by using field gas versus diesel," GE said in an email.

There are about 1,700 oil and gas rigs actively drilling in the United States, according to Baker Hughes Inc.

According to several industry experts, at least 80 percent of the diesel engines are made by Caterpillar, followed by smaller market shares for Cummins Inc and MTU Detroit Diesel.

Caterpillar declined to comment on its share of the rig market, but emphasized it has a line of natural gas engines it is also selling to clients.

"In the gas space, we are seeing a big opportunity," said Steve Igoe, Caterpillar's commercial manager.

PACE OF CHANGE

The adoption of gas engines has been slower over the past couple of years than many in the industry had predicted - in part because of infrastructure constraints.

But the switch to gas rigs may start to accelerate as stricter diesel regulations from the U.S. Environmental Protection Agency take effect in 2015, more filling stations offer compressed natural gas, and newer engines are set up to burn gas from local wells.

Evidence of the pace of change to gas and away from diesel is mostly anecdotal.

Ensign said it has about 300 drilling rigs globally and about 20 of them can run natural gas, with four those being so-called dual fuel engines.

Of some 192 rigs in operation, Patterson has four rigs running entirely on natural gas and has commitments to power five other rigs with gas engines.

"How far and how quickly things will grow is unknown - but it is clear that companies are moving beyond the pilot project phase," said Brian Murphy, engineering manager at Ensign.

Competition in the market for rig engines between GE and Caterpillar is just the latest skirmish in a pitched battle between the two titans - which already compete in the lucrative market for locomotive engines and replacement parts.

Both companies say their gas engines can run on gas that varies in quality and that may contain liquids. That means a rig could in theory run on gas produced at local wells.

But relying on field gas can be tricky.

"These wells don't give up a steady supply of gas all the time so that means you are depending on a well for fuel that varies and that becomes a dynamic situation," said Michael Matlock, a senior facilities engineer with Devon.