Researcher: Small-Scale Gas Patch Power Generation Economics Work
Gas producers who’ve grown weary of low commodity prices might wish their molecules were electrons as the latter form of energy can fetch a better price. After having crunched the numbers at the behest and expense of a gas producer, a small engineering firm believes it can make economic sense to turn gas into power right in the producing field.
Putting small-scale power generation — reciprocating engines or combined-cycle units — in the midst of or adjacent to the gas patch can make economic sense if there’s someone to buy the power output, and especially if the thermal energy from small combined-cycle units can also be monetized, Jack Perkins, president of Horseheads, NY-based Jaker Engineering, told NGI.
“What’s interesting is the gentleman who requisitioned us to do this [study], he’s actually done this overseas. The market value for electricity [there] was substantially higher than for putting gas into a pipeline,” Perkins explained. He declined to name the Dallas-based producer who paid for the study, which looked at putting power generation in the Marcellus Shale. Perkins said a Houston-based company also has expressed interest in the concept.
The basic business model of the Marcellus Shale study was previously awarded a grant by the New York State Energy Research & Development Authority as a means to recover stranded gas resources.
While turning gas into power in the field is one way to tap stranded reserves and get their energy to market, Perkins said the concept of power generation in the gas patch works even when there is pipeline takeaway capacity available.
In the past others have said a spark spread of 4 to 5 cents is necessary to make such a prospect economic, noted Perkins, an engineer with a background in power plant engineering and design. “We’ve shown that you really don’t need that much. We did a more modular system; we figured in the debt servicing and we came out actually with a difference of below 3 cents.”
Jaker’s producer client had pipeline takeaway capacity available for his gas. “They were actually looking for a way to hedge pipeline price. It is a financial play,” Perkins said. “Infrastructure does come into the equation because, obviously, any time you go to connect to the existing electrical or pipeline infrastructure, there are costs associated with that. In this particular study we were close enough to existing electrical transmission and distribution systems that it was really a pretty good opportunity.”
Perkins said Jaker could have gone further with its research; however, power prices in the Northeast have declined of late and natural gas prices were experiencing a little bit of a rebound. Additionally, a Marcellus Shale drilling moratorium in New York State has dampened the sense of urgency behind the project.
He allowed that the capital cost for such a project — which would be sized in the range of 1-3 MW per field — can vary widely. Some projects could be developed for as little as $1,000/kW, he said.
“Being here in the Northeast with all of the gas drilling that was going on with the Trenton Black River, we started kind of putting together our model, if you will, taking a look at some of the wells that [producers] were walking away from,” Perkins recalled. “We just had the chance to get our hands on some numbers. People were willing to talk and share a little bit. That’s when we kind of set up our system.
“If it’s stranded [gas], then the economies of scale are much more in your favor; that was where we started with the concept. Don’t just plug these [wells] and walk away; these have some value to them. And then we were able to show that with a good design and very modular and forward-thinking development of each site, we could get below what was the typical spark spread.”
Perkins noted that in order to work economically, several sites need to be developed. As production declines, the generating units, which can last up to 20 years, can be moved to new well sites. “That helps you actually move the cost of development around as new sites are opened up…just like oil and gas developers that want to be continually opening fields and continuing to expand their territories. It’s very similar with this kind of concept.”
According to the Jaker analysis, the depletion rate of gas fields allows for an exit strategy to return the gas to pipeline delivery in the case of an improved gas price.
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