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LNG HHP Applications Struggling with Low Commodity Prices

A niche exists in the portable oilfield and remote power generation sector, but liquefied natural gas (LNG) in these high-horsepower (HHP) applications is struggling to compete with diesel because low commodity prices have narrowed the gap for the two alternatives, a Prometheus Energy executive said Tuesday.

Speaking at the Williston Basin Petroleum Conference, Prometheus Vice President Randy Hull, who oversees business development, described an LNG-powered onsite generation project at a compressor station in the Bakken Shale. He said diesel and LNG options are priced about the same these days, compared to past years when gas had a clear price advantage.

Hull and Aggreko LLC's Mark Glaze presented a case study of a project put in place late last year.

Hull called the LNG market for HHP applications "very challenging" today, except for when environmental considerations are a major part of a project. Prometheus is one of the top LNG suppliers for HHP applications.

"It's very difficult now because of the collapse of the oil pricing and the narrowing of the spreads between LNG and diesel and other refined products,” he said. Longer term, however, the LNG mobile generation market is bright, he said.

Prometheus and Aggreko worked on the Bakken compressor station power project, which produced 15.5 MW.  Once the Bakken onsite power project determined that gas conditioning was not economic, Glaze said LNG got the nod for the project to power five 2,500 hhp compressors, which eliminated 3.8 Bcf of flared gas at the site.

"This project was really driven by its tight schedule and the environmental permitting," said Hull, noting it wouldn't have penciled out currently on a fuel cost comparison.

A 60 MMcf/d compressor station near Watford City, ND, considered using pipeline gas but it was ruled out because of the processing costs to clean up supplies. Diesel was competitive from a price and logistics standpoint, but not from an environmental perspective, which left LNG as the option chosen.

Today, LNG is about three times the cost of pipeline gas because of the need to buy gas, liquefy it and transport it, Hull said. Delivered to the customer, LNG currently ranges between $10-15/MMBtu. Before the price crash two years ago, the price of diesel was $23-27/MMBtu, but today that is $13-15/MMBtu, he said.

"So you have to have an environmental driver to select LNG for the onsite power application, such as the one in the Bakken," Hull said. "Gas engines also generally have a higher rental cost than diesel engines for projects like this."

However, engine costs are going to be higher beginning in 2018 when diesel engines will be required to include emission mitigating equipment. "All diesel generation sets will have significant additional emission controls, so that's coming," Hull said.

Two or three years ago, Bakken producers were paying up to $3.50/gal. for diesel, but that was when oil prices were around $100/bbl. "I don't think we'll ever get back to that situation, but with the new environmental regulations for diesel generation sets and the additional cost for operating them, natural gas field gas and LNG will look a lot more attractive in the future," Hull said. He noted propane is also suitable, but for him, more hazardous than LNG for these applications, compared to methane products.

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