Part I: Oil and gas fuel chain Oil and Gas Exploration Jan Osička What is peak oil? Peak oil Peak oil Lecture outline • Oil and gas characteristics • Exploration process and techniques • Reserves • Concluding remarks on the peak oil concept Oil • Dark and flamable liquid • Lighter than water (density 800-990 kg/m3) • Content: 84-87 % C, 11-14 % H, up to 4 % S and 1 % N • Gases: methane, ethane, propane, butane, carbon dioxide • Liquids: alkanes, iso-alkanes, cyclo-alkanes, aromates • Solids: resins, asphalt, sulphur • Marginally nitrogen, oxygen, heavy metals Natural gas • Colorless and odourless • Lighter than air (0,6 kg/m3 at 25 °C x 1,2 kg/m3) • Content • Methane 70-90% • Ethane , propane, butane 0-20% • Carbon dioxide, oxygen, nitrogen, sulphide up to 1 % • Marginally noble gases Origins of oil and gas Origins of oil and gas Exploration: profit is the key • Geology, geochemistry, geophysics = sciences • Exploration = business activity • The price: • 10 bn barrels of oil • 2 bn cubic meters • ~ 1 500 000 000 000 USD Risk: between profit and loss 1983 Mukluk Island, Alaska Drilling rigs rental prices (March 2014) • Jackup IC 300'+ WD (201 pieces): 166 000 USD/day • Semisub 4000'+ WD (117 pcs): 432 000 USD/d • Drillship 4000'+ WD (94 pcs): 499 000 USD/d Costs of average exploratory well • Arizona: 0.4-1 milion USD • North Sea: 10-17 milion USD • Angola (offshore): 25-60 milion USD • Deepwater (several kilometers): ca 100 milion USD 13 Phases of exploration 1. Area identification – based on existing knowledge, new technology, changed situation on the market.. 2. Exploration licensing proces (+ license auction) 3. Exploration proces 1. Where are the carbon-rich layers? 2. What is their structure and thickness? 3. Where and when were they subject to sufficient temperature and pressure? 4. Are there any traps to form a reservoir? 4. Evaluation – are there suitable spots for exploratory drilling? 15 Geophysical exploration Seismic exploration • The most frequent technique • Accustic wave stimulation and reflection • Outcomes • The presence of hydrocarbons (since 1960s) • Thickness and constitution of layers • 2D, 3D, 4D graphics 17 18 19 20 21 22 Exploratory wells • Final stage of exploration • Hypothesis testing only • Same process as with production wells • Success rates: • 1970s, 1980s (USA): 25% • 2005 (USA): 50% • Deepwater (Gulf of Mexico, 2006): 10% => Gulf of Mexico 1996-2000: just 8% out of 3,000 leases drilled Result: reserves (3P) • Proven – 90% probability of being technically and commercially producible. • Probable – 50% • Possible – 10% • Podhodnocování i nadhodnocování zásob obvyklé 24 Evaluation Exploration efficiency • Costs per unit of recoverable reserves • Estimation of recoverability vs. actual recoverability • Average costs per unit found Both overestimation and underestimation are very common Reserves replacement ratio The amount added to its reserves divided by the amount extracted Exploration portfolio • Vast majority of exploration ventures fails and ends with financial loss • Each step of exploration work refines the likelihood of success, but makes the whole process more expensive • Individual ventures show different levels of risk • Geological • Economic • Political Company success <= RRR <= good exploration portfolio 30* Total amount of oil produced between 1965 and 2013 in the US: 163,000 MMbbl 31* Total amount of gas produced between 1970 and 2013 in the US: 845,000 Bcf Peak oil? • End of oil predicted many times already • Availability of oil is a function of demand rather that supply Oil and Gas Production Jan Osička Lecture outline • Oil and gas drilling • Oil and gas recovery • CS: Macondo oil spill Phases of production • Planning • Drilling • Completing • Production • Abandoning Planning • According to the outcomes of exploration • According to the production license • Technology, material and tools • Succession of activities • Logistics • Subcontractors • Land access Drilling • Percussion • Rotary drilling Percussion drilling Nárazová technika 39 +Remote areas +Low capex, cheap maintenance +Low water use +Efficient use of personel - Low productivity - Low penetration rate in hard formations www.practica.org Rotary drilling 41 Rotary drilling Workforce Engines Hoisting Drilling mud circulation Blow-out preventer Cementing and casing Cementing and casing Offshore drilling 51 Activity log Completing the well Offshore production Production/recovery • Primary • Natural flow • Gas lift • Pumping • Secondary • Gas injection • Tertiary • Water injection • Steam injection • Setting the deposit on fire • Increasing the permeability of the oil-bearing horizon Enhanced recovery Abandonment Macondo well spill 2010 History • High pressure well • Gas eruption causes overpressure • Drilling string buckles and moves off-center within the BOP • 87 days of leaking oil • 4.9 million barrels Blind shear ram failure Blind shear ram failure Macondo 62 Causes and liabilities BP • No risk assessment of operational decisions (well design only) • Operational decisions aimed on cost-reduction BP Decisions SOURCE: THE BUREAU OF OCEAN ENERGY MANAGEMENT, REGULATION AND ENFORCEMENT (2011): REPORT REGARDING THE CAUSES OF THE APRIL 20, 2010 MACONDO WELL BLOWOUT. Causes and liabilities Federal court decision 2014 • BP found grossly negligent • Transocean and Halliburton found negligent BP (61.6 bn USD, as of July 2016) Transocean (1.4 bn USD) • Inproperly maintained, powered and connected BOP • Lack of training of the crew (with regards to the BOP) • The crew fails to test the cement slurry properly Halliburton (1.1 bn USD) • Cement slurry did not meet the API standards Causes and liabilities Mineral Management Service • 2004 Report: • Existing BOPs do not work properly even in controlled conditions • recommends to use two blind shear rams at each BOP => Not translated to legal requirements Unconventional gas and oil Jan Osička Lecture outline •What is uncoventional gas and what makes it distinct from conventional gas •Hydraulic fracturing controversies •Uncoventional oil recovery Shale gas •Conventional gas found in unconventional reservoirs •Unconventional reservoir needs stimulation to release gas. Field development Field development •Vymezení výzkumného tématu •Klíčové koncepty •Metoda •Výzkumný postup •Očekávaný přínos a limity práce Field development Field development Field development •Vymezení výzkumného tématu •Klíčové koncepty •Metoda •Výzkumný postup •Očekávaný přínos a limity práce Shale play development •Vymezení výzkumného tématu •Klíčové koncepty •Metoda •Výzkumný postup •Očekávaný přínos a limity práce Unconventional oil Shale oil Bakken, North Dakota Shale oil flow rates Well frequency Well frequency Gas flaring Gas flaring Oil sands • Alberta, Kanada • Bitumen (1-20%) –soaked sand • Extraction: • Surface mining (20%) • In situ methods 85 86 In situ methods •CSS (Cycle Steam Stimulation) •SAGD (Steam Assisted Gravity Drainage) 87 Proven reserves 88 Oil shale Surface layers that contain kerabitumen („early“ oil) Extraction • In situ • Drilling • Heating towards 350-450 °C throughout several months • Kerabitumen dissolution => collecting condensed oil vapors • Surface • Excavation => crushing => burning in conventional plants Oil shale Environmental controversies Environmental controversies •Fresh water contamination •Countryside degradation •Water consumption •Earthquakes •Greenhouse gases emissions •Increased heavy traffic Fresh water contamination The Oposition: •HF fluid contains toxic chemicals. •Nearby wells, exogenous substances were found; fresh water contained gas The Industry: •Gas-rich formations are separated from fresh water by several hundreds of meters of impermeable rock •The chemicals are present at very low concetrations •In some areas, gas siphons are natural phenomenon •Connection between gas presence in water and drilling has never been proved despite long history of the technique Fresh water contamination The Federal Government: •Energy is regulated at the state level •Federal laws to govern HF: Clean Water Act (CWA); Clean Air Act (CAA); Resources Conservation and Recovery Act (RCRA); Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA); Emergency Planning and Community Right-toKnow Act (EPCRA); Toxic Substances Control Act (TSCA); and Federal Insecticide, Fungicide and Rodenticide Act (FIFRA) Fresh water contamination Is HF exempted from the „Safe Drinking Water Act (SDWA)“ • 1940s: HF employed at conventional wells • 1974: SDWA: does not concern neither composition nor usage of the fluid • 1997: U.S. Court of Appeals for the 11th Circuit (Atlanta) rules that HF of coal seams (CBM) qualifies as „underground injection“ and subsumes it under the scope of SDWA => EPA is authorized to examine the impact of HF CBM on underground fresh water reservoirs • 2004: EPA claims that the risk is low and federal regulation unnecessary (unless naphta injection is taking place). • 2005: Energy Policy Act (EPAct) exempts „fluid and propant injection for HF purposes“ from the SDWA‘s „underground injection“ definition Fresh water contamination Fresh water contamination •2010: The Congress orders EPA to reinvestigate HF‘s environmental impact •2012: EPA Progress Report •2014: Draft for peer review •2019: Final Report => regulation „Connection between gas presence in water and HF has never been proved“ Cabot Oil & Gas Company: 14 wells at Dimock, Susquehanna County, Pennsylvania; • 2009: the EPA finds manganese, barium, arsenic, natural gas in a water well after another one blew out during nearby fracking operation • 2010: Consent Order and Agreement between DEP and Cabot • pay the impacted families settlements worth twice their property values ($ 4 M) • install a “gas mitigation device” (a water filter) at each residence • 2014: Ohio State University study: leaky well to be blamed, not HF  HF as such does not cause contamination.  Other related activities do. Fresh water contamination Marcellus shale play, Pennsylvania Fresh water contamination Marcellus shale play, Pennsylvania Countryside degradation The oposition •In the desserts of the US the drilling does not bother anybody, in countries like CZ this is not possible The industry •In the US, the drilling takes place everywhere, including city centers or an uni campus (Arlington, TX). •Population density above the Barnett Shale is 5x larger that average population density of the CZ Jonah tight gas wells, Wyoming Horní Věstonice, 50 km south of Brno •Vymezení výzkumného tématu •Klíčové koncepty •Metoda •Výzkumný postup •Očekávaný přínos a limity práce Countryside degradation Electricity Source Land Intensity (Incl. Fuel Production) Gas 100 Biomass 205 Coal 190 Nuclear 177 Wind 1538 PVE 2154 Countryside degradation Trend: fewer drilling pads, longer laterals Water consumption The oposition •Fracking of one well requires tens of millions of liters of water The industry •In a typical production area, the extraction activities account for approx. 0.1 – 5 % of the regional water consumption. •Other sectors such as agriculture, residential, or coal mining consume significantly more water. Water consumption •Na štěpení jednoho vrtu je třeba stovky tisíc hektolitrů vody. •Její část zůstává pod zemí a je „ztracená“. •V typické produkční oblasti připadá na těžbu zhruba 0,1 – 5 % regionální spotřeby vody, se zemědělstvím, rezidenčním sektorem nebo třeba těžbou uhlí se těžba BP nedá srovnávat. •Uvolněný plyn je „vlhký“, nese velkou část vody s sebou v podobě par, které jsou odlučovány. Earthquakes •HF induces local earthquakes that may be dangerous at the surface (Blackpool, UK) •Earthquakes occur only in contact with already strained stratas of rock •Current technology can measure secondary vibrations and adjust the pump pressures accordingly Greenhouse effect •Flow back contains large amounts of methane, more wells and gathering pipes lead to more leakages. •Methane is 28x stronger greenhouse gas than carbon dioxide. •No one knows how much methane is actually released. The Cornell study •Howarth and Ingraffea (Cornell Uni) proved, that if the whole cycle is considered, shale gas is worse than coal in terms of climate effect. •No one knows. Neither do Howarth and Ingraffea know. They only point out the importance of overseeing the whole cycle. The Cornell study "We reiterate that all methane emission estimates, including ours, are highly uncertain. As we concluded in Howarth et al. (2011), “the uncertainty in the magnitude of fugitive emissions is large. Given the importance of methane in global warming, these emissions deserve far greater study than has occurred in the past. We urge both more direct measurements and refined accounting to better quantify lost and unaccounted for gas.” The new GHG reporting requirements by EPA will provide better information, but much more is needed.„ (http://www.eeb.cornell.edu/howarth/Howarthetal20 12_Final.pdf, str. 10) Air pollution by fuel Pollutant Gas Oil Coal Carbon Dioxide 100 140 178 Carbon Monoxide 100 83 520 Nitrogen Oxides 100 487 497 Sulfur Dioxide 100 1,112,200 259,100 Particulates 100 1,200 39,200 Traffic •A typical 1,5-4 km deep well requires 700 to 2000 truck trips •In the hot phase, the daily traffic can be as high as 250 truck trips •It requires 3.5 to 5 years to complete 25-36 wells drilled from one pad. •A well is a matter of just a few months, after that only the „christmass tree“ is left. Shale gas environmental impact •Shale gas affects the environment negatively •The notion that HF and water contamination are totaly unrelated does not hold. •However, other energy sources affect the environment too. Oil and Gas Transportation Outline • Marine transportation: oil and LNG tankers • Pipeline transportation: building, financing, operating pipelines History • 1877: Zoroaster – 250 DWT • 1940s: 12 500 DWT • 1950s: 20 000 DWT • 1956 and 1967: Suez crises • 1960s: 80 000 DWT (1966: VLCC Idemitsu Maru 206 000) • 1970s: ULCC (350 000) • 1981: Sea Wise Giant/Happy Giant/Jahre Viking/Knock Nevis/Mont (564 650) AFRA tanker classification • Product Tanker 10–60,000 DWT • Panamax 60–80,000 • Aframax 80–120,000 • Suezmax 120–200,000 • VLCC 200–320,000 • ULCC 320–550,000 Daily consumption (2018): • USA 2,200,000 tons • China 1,560,000 • Germany 279,000 • Australia 128,000 • Egypt 114,000 • Portugal 25,000 • Armenia, Estonia Eritrea, Malta 500 Tanker ownership structure Owner No. Share Age Independent companies 4391 83% 9.6 States 490 9% 12.4 Energy companies 156 4% 11.0 State-owned energy companies 150 4% 16.9 Total 5187 100% 11.5 Tanker transport costs • Operation costs (wages, insurance) • Regular maintenance (dry dock) • Transportation costs (fuel, fees) • Cargo-related costs (onloading, discharge, demurrage) • Capital costs (new ships: approx. 50%) Renting Tankers are usually owned and rented via indepent shipping companies • Voyage charter (one voyage from onloading to discharge ports) • Time charter (a set period of time, for multiple voayages) • Bareboat charter (the charterer becomes the vessel‘s operator => is responsible for crew and maintenance) • Contract of affreightment (a total volume of cargo to be carried in a specific time period and in specific sizes) Shipping tariffs • Lump sum rate (sum for a cargo delivery, port and other voayage costs paid by the operator) • Rate per ton (sum for a cargo delivery, port and other voayage costs paid by the charterer) • Time charter equivalent (daily rate, port and other voayage costs paid by the charterer) • Worldscale Flat rate + Multiplier Worldscale • Current tariff system established during the WW II • Before 1939: non-standardized tariffs • During the war tanker shipping requisitioned and controled by the UK and U.S. governments => daily hire rate compensation • Between the end of the war and the end of gov. control (1948) tankers made available for IOCs to rent • The rent tariffs were scaled so that, after allowing for port costs, bunker costs and canal expenses, the net daily revenue was the same for all voyages • Bunker costs: fuel costs • Canal expenses: canal (Suez, Panama) tolls • Port costs: tariffs for onloading/offloading (demurrage costs not included) Daily shipping rates (kUSD) Class 2007 2008 2009 Aframax 35.2 49.8 16.2 Suezmax 40.4 67.2 29.9 VLCC 51.0 88.4 28.0 Oil price 64.2 91.5 53.8 0 20 40 60 80 100 2007 2008 2009 Aframax Suezmax VLCC Oil price Tanker transportation market Near perfect competition • Highly standardized product (identical service) • Many suppliers who are unable to influence the price • Availability of information (Baltic index) • No regulation-related entry barriers (right of flag) • No exit barriers (well functioning after market) LNG chain Assumptions • Small production costs • Price level at the target market • More expensive, undesirable, impossible pipeline transport • Deposits close to sea shores • Low content of impurities Liquefaction Hampson-Linde cycle Liquefaction unit manufacturers • JCC Corp. (Jap) • Chiyoda Corp. (Jap) • Kellog Brown & Root (USA) • Bretchel (USA) • Foster Wheeler (USA) • Chicago Bridge & Iron (USA) • Snamprogetti (Ita) • Technip (Fra) LNG train: capacity development Train size • 1990: 4 bcmy (2.3 Mtpa) • 2005: 6.2 bcmy (4.5 Mtpa) • 2010: 11 bcmy (8.0 Mtpa) Liquefaction costs • 1970-2000: Gradual decrease in capex • Learning curve • Expansion projects (new trains within existing facilities – 50% of costs) • After 2010: high costs projects (namely Australia) Liquefaction costs LNG Vehicle (LNGV) 134 135 LNG Fleet Class Capacity (tcm) Small < 90 Small conventional 120-149 Large conventional 150-180 Q-flex 200-220 Q-max > 260 LNG Fleet • Fleet size • 2003: 150 LNGVs • 2005: 203 • 2007: 247 • 2008: 266 • End of 2013: 357 LNGVs, another 108 ordered • Average voyage length • 2000: 5,700 km • 2006: 6,300 km • 2007: 6,700 km • 2010: 8,000-8,500 km (Qatar-Europe: 9,660 km, Qatar-USA: 12,800 km) Receiving terminal • Storage tanks • Regasification (heating, water, sea water) • Measurement => Pipeline network • Usual utilization (Europe): 50% Pipeline transportation BUILDING PIPELINES Assumptions • Available commodity (export capacity) • Outlet (insufficiently supplied market) • Distance Production costs + transport < wholesale price The Process • Feasibility study (technology, costs, EIA) • Open season (capacity auction – non/binding) • Funding • Regulator‘s permit • Land access • Logistics and materials • Construction • Testing • Commissioning FINANCING PIPELINES Consortiums • High capex + low opex • Cross-border investments => joint ventures Funding • Stakeholders‘ funds • Private loans • EU: EBRD, EIB, political tools (TEN-E, CEF) • Open season indicates viability of the project OPERATING GAS PIPELINES Shipping contracts • Firm (granted transmission capacity in the pipeline) • Interruptible (transmission capacity allocated if available) • Shipping portfolio (firm/interruptible) • Both the pipeline and shippers Shipping • Nomination • Confirming • Scheduling • Allocating • Balancing Nomination • A notification by a shipper to the pipeline company • Request for transportation services • Shipper‘s transportation contract no. (TCN) • Delivering party‘s TCN • Start date • Stop date • Shipper‘s receipt location • Shipper‘s receipt amount • Shipper‘s delivered amount • Receiving party‘s TCN Scheduling • A notification by the pipeline to its operations personnel • Nominated amount • Receipt location => Delivery location • Until stop date or further notice is given • A report to all the parties that scheduling process has been completed successfully = What the pipeline expects to happen Allocating • The scheduled and actually flowed amount usually differ. • Ascribing the real flows to the shippers according to the scheduled amounts • Firm contracts > interruptible contracts Allocating: an example • Scheduled: 40,000 MWh • Measured: 30,000 MWh Shipper Scheduled Allocated note Firm 1 10,000 10,000 Firm 2 10,000 10,000 Interruptible 1 10,000 5,000 10,000 / 20,000 * 10,000 Interruptible 2 6,000 3,000 6,000 / 20,000 * 10,000 Interruptible 3 4,000 2,000 4,000 / 20,000 * 10,000 Total 40,000 30,000 Balancing • Imbalance: • Receipt > delivery • Receipt < delivery • Tolerance (up to a few %) • Daily imbalances above the tolerance are cashed out at the end of the month • Over-delivery (short imbalance) => market price + premium • Under-delivery (long imbalance) => market price – discount => Monthly balancing Transit tariffs • Distance-based • Entry-exit • Point-to-point Distance-based Unit: $/1000m3/100km Entry-exit Units: €/MWh/d/y; €/m3/h/d/y Entry-exit Point-to-point Units: €/MWh/d/y; €/m3/h/d/y