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WELCOME
Weekly selected highlights in flow
control, treatment and combustion from the many McIlvaine publications.
·
Conference Briefs
·
Combust, Flow, and Treat (CFT) Market in Oil and
Gas is Large but Volatile
Conference
Briefs
WEFTEC: September 22-27 -Chicago
McIlvaine
has created route maps for Membrane Bioreactors, sludge dryers and aeration
blowers. If you are interested in
these three subjects and will be an attendee you will find these analyses
helpful http://home.mcilvainecompany.com/index.php/other-services/27-water/1517-weftec-2019-mbr-and-aeration
SOX-NOX
2019 and DSUA Users Conferences last week in India and the U.S.
Attendees
report that both conferences were informative and well attended. Report and
support information about them was published in the last few weeks in
Insights - September 4, 2019
Insights - August 27, 2019
Insights - August 20, 2019
Combust,
Flow, and Treat (CFT) Market in Oil and Gas is Large but Volatile
The
drone attack on Saudi oil fields last week is just one of a number of
indicators that the CFT oil and gas market will be very volatile. The basis
of the volatility is
· The CFT
investment per unit of gas or oil
produced varies by 1000% depending on the source
· Political events such as the tariffs,
embargoes, and terrorist bombing of production facilities have considerable
impact on the source and quantity of oil and gas
· China has the potential to convert
coal to syngas and chemicals and to fracture shale to produce enough oil and gas to eventually become self sufficient
· Hydraulic
fracturing is creating oil and gas at costs much lower and quantities
larger than anticipated
· Gas must be liquefied in order to be
an international commodity
The
CFT investment per unit of gas or oil varies by 1000% depending on the source
The
investment in CFT equipment, consumables and service varies greatly. Here
is a comparison using conventional extraction as the base.
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Technology
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Cost Ratio
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Oil or gas
extraction under natural pressure
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1
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Hydraulic
fracturing - U.S.
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3
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Hydraulic
fracturing - China
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4
unless Sinopec is too optimistic
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LNG
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5
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Gas to
liquids
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7
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Coal to
syngas
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10
(direct liquefaction would be less)
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Political
events such as the tariffs, embargoes and terrorist bombing of production facilities have considerable impact on the source
and quantity of oil and gas
The amount of
gas and oil which can be extracted at low cost is finite and shrinking. The
nations with the most available resources would be economically best served
by a strategy which maximizes revenues over 20 or 50 years and not one
which maximizes revenue year to year.
Production can be curtailed to raise prices and profits over the
long term. It can also be curtailed due to embargoes as demonstrated by the
U.S. sanctions against Iran.
As
witnessed by the drone strike last week, production can be curtailed.
Houthi rebels in neighboring Yemen claimed responsibility for what would be
one of their largest-ever attacks in Saudi Arabia. The production shutdown
amounts to a loss of about five million barrels a day and close to 5
percent of the world’s daily production of crude oil. The kingdom produces
9.8 million barrels a day.
The
attackers created large fires at Hijra Khurais, one of Saudi Arabia’s
largest oil fields, and at Abqaiq, the world’s biggest crude stabilization
facility. Khurais produces 1.5 million barrels a day while Abqaiq helps
produce up to 7 million barrels a day. As the world’s biggest exporter of
oil, Saudi officials are discussing drawing down their oil stocks to sell
to foreign customers to ensure that world oil supplies aren’t disrupted.
China
has the potential to convert coal to syngas and chemicals and to fracture
shale to produce enough oil and gas to eventually become self-sufficient.
The U.S. initiatives to prevent flow
of oil from Iran have spurred action
by oil importers. Chinese oil industry executives said this past week that
China’s oil industry must have a contingency plan in case the trade war
takes another turn for the worse - China’s oil import dependence is at 70
percent currently, this makes it very vulnerable. However, it has the
capability to develop its coal and shale reserves and become
self-sufficient. Most of the fuel
will come from coal which requires the most CFT investment. China has shale
reserves which are greater than those in the U.S. The geology of the
reserves makes it more difficult and expensive but Sinopec is confident that it has
developed the technology for economic extraction.
China
Petroleum & Chemical (Sinopec) several years ago received Beijing's
approval for a mega project to turn coal into natural gas as part of the
mainland's strategy to increase energy efficiency and cut reliance on oil
and gas imports.
The total
cost of the pipeline would exceed 100 billion yuan. Sinopec would lead the
project and be responsible for investing in 8 billion cubic meters of
annual gas production and transmission capacity. Total capacity will be 30
billion to 36 billion cubic meters (bcm).
The amount
of CFT products and services needed to gasify coal is apparent from the
process schematic.
McIlvaine
believes this process can be more economical with the extraction of rare
earths. This can be done at very little cost by combining the particulate
removal and chloride scrubbing steps as shown in the above the process. The
technology is discussed at Join the Debate on Insitu Rare Earth Recovery
The cost of gasification is low enough that chemicals can be economically
produced. Most of the world’s ethylene glycol is produced from ethylene, a
basic chemical that is typically made by cracking oil or natural gas in a
petrochemical plant.
But the pace at which coal-based production is being
implemented in China is spectacular. “From nothing in 2011, China now has
3.5 million tons of coal-based ethylene glycol capacity”, says Cao
Mengting, a polyester consultant at CCFGroup, which is focused on the
Chinese fiber industry. By 2022, this capacity will have doubled, she
expects. Today, coal-based facilities represent about 40 percent of China’s
ethylene glycol production capacity and 14 percent of actual output,
according to Michael Zhao, another CCFGroup consultant. In five years, he
expects coal-based facilities will account for 20 percent of the country’s
output, while production capacity will be half of the country’s total.
Hydraulic
fracturing is creating oil and gas at costs much lower and quantities
larger than anticipated.
The
oversupply of the natural gas will be reinforced by a new surge in
associated gas production from the Permian Basin. Even the increase in
demand will not be able to increase the price of natural gas. The domestic
demand has increased by 14 billion cubic feet per day (BCF/d) since 2017
and is expected to increase by an additional 3 BCF/d of liquefied natural
gas (LNG) in 2020.
Natural
gas production in the US has also grown by more than 14 BCF/d since January
2018 to more than 90 billion cubic feet per day in 2019 and 2020. Drillers
are now able to increase supply faster than domestic or global markets can
consume it. Nearly all the growth in U.S. natural gas demand over the next
few years will come from LNG exported to other countries. The added supply
from the Permian will match—if not exceed—those volumes.
The
Henry Hub natural gas spot price averaged $2.22 per million British thermal
units (MMBtu) in August, down 15 cents/MMBtu from July. Based on recent
price movements and EIA’s assessment that natural gas production will be
sufficient to meet expected demand and export levels at a lower price than
previously forecasted, EIA lowered its Henry Hub spot price forecast for
2020 to an average of $2.55/MMBtu, 20 cents/MMBtu lower than the August
forecast.
EIA
forecasts that U.S. dry natural gas production will average 91.4 billion
cubic feet per day (Bcf/d) in 2019, up 8.0 Bcf/d from 2018. EIA expects monthly average natural gas
production to grow in late 2019 and then decline slightly during the first
quarter of 2020 as the lagged effect of low prices in the second half of
2019 reduces natural gas-directed drilling. However, EIA forecasts that
growth will resume in the second quarter of 2020.
World
liquids production is anticipated to match demand over the next 16 months.
WTI crude prices are likely to hover in the $50-60/barrel range
throughout the next 16 months. The
drone strike on the Saudi facilities could cause price increases. However, the amount which would be made
available from reserves could mitigate any price rise
Gas
must be liquefied in order to be an international commodity.
The
U.S needs to accelerate LNG plant construction to take advantage of the low
cost gas and to compensate for production problems caused by political
activities in the Middle East.
U.S.
exports of liquefied natural gas (LNG) have been growing steadily and
reached 4.7 billion cubic feet per
day (Bcf/d) in May 2019. This year, the United States became the world’s
third-largest LNG exporter, averaging 4.2 Bcf/d in the first five months of
the year, exceeding Malaysia’s LNG exports of 3.6 Bcf/d during the same
period. The United States is expected to remain the third-largest LNG
exporter in the world, behind Australia and Qatar, in 2019–20.
U.S.
LNG exports have increased as four new liquefaction units (trains) with a
combined capacity of 2.4 Bcf/d—Sabine Pass Train 5, Corpus
Christi Trains 1 and 2, and Cameron Train 1—came
online since November 2018. Although Asian countries have continued to
account for a large share of U.S. LNG exports, shipments to Europe have
increased significantly since October 2018 and accounted for almost 40
percent of U.S. LNG exports in the first five months of 2019. LNG exports
to Europe surpassed exports to Asia for the first time in January 2019.
LNG from the United States accounted for 7 percent of
China’s total LNG imports in the first six months of 2018. In September
2018, China imposed a 10 percent tariff on LNG imports from the
United States, and in the months since then (October 2018 through
May 2019), U.S. LNG has accounted for 1 percent of China’s LNG imports.
Because no long-term contracts between suppliers of U.S. LNG and Chinese buyers
exist, LNG from the United States is supplied to China on a spot basis.
Spot LNG shipments are dispatched based on the prevailing global spot LNG
and natural gas prices, and the tariff made LNG imports from the United
States to China less competitive.
By 2021,
six U.S. liquefaction projects are expected to be fully operational.
Another two new U.S. liquefaction projects (Golden Pass in
Texas and Calcasieu Pass in Louisiana) that started construction this year
are expected to come online by 2025. By that time, EIA projects that the
United States will have the world’s largest LNG export capacity, surpassing
both Qatar and Australia.
Summary
CFT suppliers have the opportunity to substantially
increase their revenues with the proper pursuit of the international
opportunities. A larger percentage
of the fuel demand will be met with products which require up to 10 x the
investment in CFT products and services.
So a fuel demand growing at
3percent can result in a CFT market growing at a CAGR of 10 percent. On the other hand the political factors
make any projection uncertain.
There is a big opportunity for
CFT suppliers to be technology leaders. This includes components which can
withstand the erosive and corrosive and extreme physical conditions occurring
in hydraulic fracturing, LNG, gas to liquids, coal to gas and liquids. New opportunities such as solving the
fracturing challenges in Argentina and China and extracting rare earths
from syn gas can pay big dividends.
Manufacturing fracturing sands from low quality Texas sources has
been achieved only with the ingenuity of the CFT industry. Where would the U.S. be if its citizens
had not developed hydraulic fracturing and the country was paying $150/bbl
for oil?
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