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About that Shale Oil 'Miracle'…

Unpacking the propaganda
Tuesday, October 28, 2014, 8:16 AM

Our work here at Peak Prosperity largely centers on trying to use facts and data to shift people’s actions towards the more positive and sustainable things that we not only can do, but should do.

There’s nothing preventing us from behaving in ways that increase the Earth's abundance rather than deplete it, but generally speaking we choose depletion.  Besides being both prudent and needed, the positive actions we could take are usually cost-effective, in our best interest, and worthy of our creative talents as human beings.

We can build rich topsoil at 100 times the rate of nature alone. We can build negative-energy footprint buildings that actually add electricity back into the system rather than draw it down.

There are thousands of wiser steps we could be taking right now, but aren't.

It's been said that humans are rationalizing -- not 'rational' -- animals. The deep truth in that statement is that we humans have strongly-held beliefs that color the information we take in an accept. We're often guilty of recognizing only the data that supports those beliefs while rejecting the rest.

For example, today most people place a great deal of faith in the potential for technology to fix whatever predicaments society may face in the future. And they support that view with cherry-picked data, while conveniently overlooking evidence suggesting technology is instead a sword with two edges.

Here's a recent example of that duality: 

The USDA Approved a New GM Crop to Deal With Problems Created by the Old GM Crops

Sept 25, 2014

Last week the U.S. Department of Agriculture approved a new line of genetically modified corn and soybeans for use in the U.S. The crops, made by Dow Chemical Company and running under the brand name “Enlist,” may be the future of genetically modified crops. This future, though, has been largely determined by the problems caused by the last generation of GM crops.

Dow's new Enlist genetically modified crops are the intellectual descendants of Monsanto's genetically modified “Roundup Ready” crops. Like Monsanto's crops, Dow's are designed to be resistant to a patented herbicide. By planting the modified crops, farmers can spray the herbicide to kill weeds without worry that it will affect their crops.

(Source)

Well isn’t that just great. There’s a new batch of herbicide-resistant plants out there because the old batch is being overrun by RoundUp-resistant weeds.  To me this is merely a sign that technology is not trouble-free, and quite often creates problems equal to the ones it was ‘solving.’

The record is rife with such new technological fixes for problems caused by yesterday’s technological advances. 

Geo-engineering is being proposed to deal with the excess carbon released by -- you guessed it! --  all the marvelous technology that allowed us to find and burn all those wonderful fossil fuels in the first place.

Antibiotics are slowly being rendered useless by their overuse leading to stronger 'superbugs'. And so what are focused on? Developing ever stronger antibiotics in a race most doctors assure us we will eventually lose.

And on and on. 

My point here is the extent to which we fail to confront the facts, free from beliefs and the biases that come with them, is the extent to which we are deluding ourselves.

About That Shale Oil Miracle...

A recent piece of belief-based propaganda, designed to dovetail perfectly into society’s main belief in technology, ran in the Wall Street Journal. Based on the comments it generated, it scored a bull’s-eye.

I’m going to pick this piece apart one belief or fact-free assertion at a time.  The reason this is important -- besides using it as a teaching tool to expose the degree to which thoroughly debatable, if not blatantly false, ‘facts’ masquerade as truth in the mainstream press -- is because such unchallenged views are hindering our ability to confront reality as it exists.

Here’s the opening salvo:

The Oil Price Swoon Won’t Stop the Shale Boom

Oct 23, 2014

[T]he current slump sets the stage for what I call America’s shale boom 2.0.

Three factors make it unlikely that the decline in oil prices will bring the shale revolution to an end.

First, shale production is profitable at today’s lower prices. We know this because the boom began during the Great Recession years of 2008-09, when prices fell below $50 a barrel. The price U.S. shale producers got for their oil during the boom averaged around $85 to $90, even though the world price stayed well over $100.

(Source)

For starters, the author calls for a “shale boom 2.0”, which is hugely appealing to people already in love with technology.  “2.0” always means something better, more evolved and more advanced. It’s way better than “1.0”, right?

And yet, the more subtle reader can detect an underlying current of concern in the author's tone. Even though there have yet to be reports of lower oil production out of the main shale plays due to falling oil prices (or any other factors), the author feels it necessary to immediately begin listing factors as to why the shale revolution will keep chugging along.

But who exactly has been warning about an imminent production drop-off? Answer: no one. This is a strawman argument of the most common variety.  Even if not one single new shale well is drilled from here onwards, the existing wells will continue to produce oil for years, albeit in ever diminishing quantities. 

So the author already wins! No matter what happens next, for the next decade or more he can always claim that shale oil is still flowing.

But the real problem in these opening lines is the claim that “we already know shale oil is profitable below $50” based on the 'evidence' that oil prices briefly fell below that mark in 2009.  That's just not a logical conclusion...revealing the actual profits of the companies during that time period would have made a case, but simply noting that drilling occurred is not the same thing.

The data we have shows that the shale oil producers, as a collective industry, have not yet turned in a positive year of free cash flows since 2009.  They have reported profits, but all sorts of accounting gimmicks can show a ‘profit’ even when a company is burning through cash at a faster rate than it is earning it. 

Perhaps for a year or two this can be perfectly reasonable. But what are we to make of a shale industry that is now 7 full years into its ‘miracle’, and yet free cash flows remain persistently negative?  Since the wells deplete ~90% in 3 years and the best spots in the play get drilled first, shouldn’t we expect the shale companies to be in full stride and generating oodles of free cash flow by now?  If not, then why not?

I mean, heck, if the author’s claim is valid, and “we know” that shale operators are profitable at $50 a barrel, then what is the explanation for the huge negative free cash flows over the past 4 years as oil has persistently traded above $90 per barrel?

There is a perfectly valid reason that we saw so much drilling in 2009 and that was because the shale operators had spent an enormous amount of money locking up shale leases when oil surged to $147 a barrel in 2008. In 2009, even as oil collapsed to less than $40/barrel, they faced the choice of either drilling and losing a little bit of money, or not drilling and losing the entire value of any leases which had “drill or forfeit” clauses (which was most of them).  

So maybe the fact that shale operators were drilling like crazy back in 2009, when oil was briefly below $50, isn't the slam-dunk evidence our author hoped it was.  Maybe it was evidence of a 'least bad' decision to drill anyways.

Let’s move on to the next part of his article:

Second, shale production is getting more efficient, which means that profits are possible at prices even lower than today. Smart drilling techniques—horizontal drilling, hydraulic fracturing and information technologies that accurately locate where to place rigs and enable precise steering of the drill through meandering horizontal hydrocarbon-rich shales—are far more productive than when the boom started.

According to the Energy Information Administration, the quantity of shale or natural gas produced per rig has increased by more than 300% over the past four years. This rise in productivity matches (in equivalent terms of capital cost per unit energy out) the improvements in solar power, but it took 15 years for solar’s gains. Solar is now experiencing a slow-down in efficiency improvements; there is no sign of a slow-down in shale technology.

Ooooooh. He mentions “smart” technology, which is everybody’s favorite kind. It's hard to argue with smart technology.   /sarcasm off/

While it's true that there have been improvements in the past few years, the technical efficiencies he mentions here have been with us for many years. Horizontal drilling and hydraulic fracturing are decades old. 

Where he goes completely off the rails is to then ‘prove’ his point by noting that the EIA says that ‘per rig’ drilling productivity has gone up by 300%.  While I have not vetted this number (yet) to ensure it's accurate, it’s a misleading number to cite when talking about the role of technology in oil production.

The "smart" innovations he's touting are used in individual oil wells. But then he cites the ‘per rig’ data, and rigs are used to drill multiple wells per year. Is it that the individual wells are producing 300% more (as he implies), or is it that the rigs are able to drill more individual wells each year?

That is, if a rig used to drill 5 wells per year but now it can drill 15, there’s your 300% increase -- without anything at all changing in terms of how much oil will eventually be extracted from each individual well.

In fact, the main reason that the ‘per rig’ productivity has gone up is because the industry has switched from drilling one well per ‘pad’ to drilling multiple wells per pad. 

A pad is a 1-10 acre flattened, gravel lot upon which the drill rig is parked so that it can bore down into the earth. By not having to move rigs from pad to pad, but just shifting them a few feet in order to drill a new well off in a new direction, has saved a lot of time.

This is a process improvement, not a technology improvement. I think it’s all very well and good that the industry has found a way to be more productive and not move the rigs around as much, but it's absolutely wrong to claim that this is the same thing as proof of the inexorable rise of increasingly superior technology to yield more more petroleum from the ground that other means would give. 

But people love to hear about how technology always saves the day. And so people gobbled this part of the article up, mainly because the assertion fit into their preferred belief system. I wonder how many people have regurgitated these ‘facts’ about the role of technology in boosting shale output?

My guess is quite a few.

On to the third factor: 

The third factor is the profound economic leverage afforded by the enormous scale and diversity of America’s hydrocarbon infrastructure. Many oil-producing nations have only a few big oil fields and a handful of companies, sometimes just one. The U.S. has dozens of world-class fields, thousands of production companies, tens of thousands of related businesses, and millions of miles of pipe and rail.

Among the thousands of shale producers, you can guarantee there are pioneers just like those who started the shale revolution. As profit margins erode due to low or even lower future prices, the pioneers will try out the revolutionary new shale techniques that have yet to be deployed.

I have to confess, I don’t even understand what the third factor is as described.  It’s a lot of jargon and buzzwords put together. What exactly is “profound economic leverage afforded by enormous scale and diversity”?

It sounds good in the same way that Twinkies taste good. Unfortunately both are more than a few ingredients short of a well-rounded meal.

He gets down to it in the last sentence there, which basically boils down to – you guessed it! – another expression of his faith in technology where he states that more companies vying for shale oil means more pioneers to try out the next great technology (which, presumably, we don’t even need because shale oil is profitable at $50, according the author).

When someone claims that any rough spot in the shale patch will be met with “revolutionary new techniques that have yet to be deployed.”, you know you're getting out pretty far on the hopium branch.

I would remind people here that back in the 1700's the South Sea company, the stock shares of which bubbled up enormously -- even causing Isaac Newton himself to lose the then-staggering sum of 20,000 pounds -- was billed as “a company for carrying out an undertaking of great advantage, but nobody to know what it is".

Would it be unreasonable to restate the author's claim as "shale operators to deploy new technology of great advantage, but nobody to know what it is?".  Ungrounded hype is the same thing no matter when or where it happens.

In Part 2: The Hard Facts About Shale Oil we reveal in detail the facts behind the reality within the shale oil industry: the economics of production, the technology (where to place hope and where not to), as well as the impact shale oil production will have on the larger Peak Cheap Oil outlook. Suffice it to say, not only are shale companies not profitable at $50 per barrel oil; most are not profitable at prices nearly 100% higher than that. 

So if they persist much longer, today's lower oil prices are going to create a world of hurt for quite a large number of shale operators. And shale-rich regions like North Dakota and Texas will discover what the opposite of ‘oil boom’ feels like.

Click here to access Part 2 of this report (free executive summary; enrollment required for full access)

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15 Comments

HarryFlashman's picture
HarryFlashman
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JMGreer

The Archdruid himself mentioned this type of desperate hype as a fairly sure sign that the Shale Bubble was about to pop.In fact he warned us to look out for just this type of thing.We didn't have to wait long.It makes sense,lots of people getting nervous about falling prices and wanting to pull money out,so propaganda merchants issue fact depleted nonsense to keep the bubble going just that little bit longer.Expect large bankruptcies and bail-outs to become news again soon.

pgp's picture
pgp
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Conservation by Population Control

I agree whole heartedly with the analysis, the shale oil miracle is more a propaganda miracle.  You asked the question:  Where are the actual profits from the fracking miracle so far and the silent reply from the industry is deafening.

I would only add to your introduction that conservation of resources goes hand in hand with population control.  Anyone adding to the population (i.e. has more than 2 children) is the ultimate energy pirate - the hum-v driving jet-setting bachelor (or spinster) with the fully air-conditioned 10 bedroom house may actually be the more energy responsible individual by comparison.  Anyone adding to declining population by limiting their reproduction to zero or a single child disserves congratulation, they've just saved the future world tons of energy and food/water resources over the next 75 years by doing absolutely nothing but acting responsibly. 

There really is no excuse for having children in an era of radical resource, climate and energy decline.  The unsustainable Keynesian inflationary economic model supporting our God-bless-the-children Hollywood romance culture is about to demonstrate its self-destruction and yet people are still not rushing off to get contraceptive vaccines, patches or vasectomies - they aren't even talking about it !!!!

There is such a disconnect here in the logic of human culture that needs to be exposed.

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4777aggi
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Response to Article

Couple comments from someone in Texas and in the Ag industry. While I hate most of the incredible monopolies created over the last 20 years, the Ag sector has more than their share. I am not hear to debate the virtues of biotechnology, but want to give you one positive thing that has come out of the technology. In 1990"s terms, the ag chemical industry was roughly a $14 billion market. Today, it is half in 2014 dollars. This technology has eliminated hundreds of very deadly pesticides and herbicides sprayed many, many times a year. The savings from these was never noticed, because the profit per acre was pulled into the seed technology.

In regards to shale frac sand, I saw a report where many of the companies are doubling and tripling their rail fleet and possibly 75 new frac mines will open in the next 12 months. So I ask you, is this not a bubble being created by the Fed's loose money? Should we have not seen this massive build out in frac sand at the beginning of shale oil boom and not in the late stages? We are not seeing a massive increase in rig count, so something does not quite match up. When I challenge oil industry people, they remark that the efficiencies and drilling distance have increased and each rig is using more frac sand. If that is the case then why are not the laws of economics working and America should be drowning in oil, right?

Just my 2 cents worth!

 

Doug's picture
Doug
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Further to same

http://www.postcarbon.org/publications/drillingdeeper/

Quote:

Abstract

Drilling Deeper reviews the twelve shale plays that account for 82% of the tight oil production and 88% of the shale gas production in the U.S. Department of Energy’s Energy Information Administration (EIA) reference case forecasts through 2040. It utilizes all available production data for the plays analyzed, and assesses historical production, well- and field-decline rates, available drilling locations, and well-quality trends for each play, as well as counties within plays. Projections of future production rates are then made based on forecast drilling rates (and, by implication, capital expenditures). Tight oil (shale oil) and shale gas production is found to be unsustainable in the medium- and longer-term at the rates forecast by the EIA, which are extremely optimistic.

This report finds that tight oil production from major plays will peak before 2020. Barring major new discoveries on the scale of the Bakken or Eagle Ford, production will be far below the EIA’s forecast by 2040. Tight oil production from the two top plays, the Bakken and Eagle Ford, will underperform the EIA’s reference case oil recovery by 28% from 2013 to 2040, and more of this production will be front-loaded than the EIA estimates. By 2040, production rates from the Bakken and Eagle Ford will be less than a tenth of that projected by the EIA. Tight oil production forecast by the EIA from plays other than the Bakken and Eagle Ford is in most cases highly optimistic and unlikely to be realized at the medium- and long-term rates projected.

Shale gas production from the top seven plays will also likely peak before 2020. Barring major new discoveries on the scale of the Marcellus, production will be far below the EIA’s forecast by 2040. Shale gas production from the top seven plays will underperform the EIA’s reference case forecast by 39% from 2014 to 2040, and more of this production will be front-loaded than the EIA estimates. By 2040, production rates from these plays will be about one-third that of the EIA forecast. Production from shale gas plays other than the top seven will need to be four times that estimated by the EIA in order to meet its reference case forecast.

Over the short term, U.S. production of both shale gas and tight oil is projected to be robust-but a thorough review of production data from the major plays indicates that this will not be sustainable in the long term. These findings have clear implications for medium and long term supply, and hence current domestic and foreign policy discussions, which generally assume decades of U.S. oil and gas abundance.

holdbuysell's picture
holdbuysell
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New WSJ article on this subject today

I'd be interested in hearing the board's (and Chris') perspective on this new piece in the WSJ from today:

Energy Boom Can Withstand Steeper Oil-Price Drop

Some Smaller U.S. Producers Are Likely to Face Pinch From a More-Modest Decline

http://online.wsj.com/articles/energy-boom-can-withstand-steeper-oil-pri...

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David Allan's picture
David Allan
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Sounds just like the fed Harry

Here's a parallel narrative... the economy is doing great ... unemployment is down ... we don't need QE any longer. Perhaps this too is a signal of shaky times ahead.

Michael_Rudmin's picture
Michael_Rudmin
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Need to adjust your own narrative perhaps.

It sounds like you will have to adjust your own crash course narrative: it isn't that oil pricesewon't ever go back to $50 a barrel -- that's a gross approximation.

"But what if oil drops back down below $60 per barrel?  The activity in the shale plays would come to a complete halt because it just wouldn't pay to drill."

It is rather that if they dip below the price of return, then they start using up the assets of investors. when there are no more investor assets to expend, then either the price will rise, or production will end.

And that includes unwilling investors, like Americans who unwillingly fund the Fed, or Iraqis (perhaps it's more popular to say Kuwaitis) who are conquered for their oil.

From mish/Mike Shedlock: When everyone is sure the crash is coming, nonetheless, it can still be shockingly long before it actually happens.

The only thing is, though this version of the narrative is much more accurate and will likely be reflected in reality, it's much harder to explain.

LesPhelps's picture
LesPhelps
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pgp wrote:I would only add
pgp wrote:

I would only add to your introduction that conservation of resources goes hand in hand with population control.  Anyone adding to the population (i.e. has more than 2 children) is the ultimate energy pirate...

I couldn't agree more.

A while back, I saw an article from a news source in Eugene Oregon that praised a religious couple with four children because the had had no automobile.  The reality blindness of the human race simply stuns me.

Dennis Meadows, the driving force behind the Limits To Growth series of books was due to issue another volume in 2014. He decided not to issue yet another book, because he no longer believes that it would do any good.

I did run across a website recently, where someone updated the assumptions in the world3 model, written by the Limits To Growth people, to predict the future once again.  We apparently have reached a point where the only assumption change (model input ) that prevents world wide famine by the year 2040, is one child per couple, starting in the year 2011.

I have seen a graph, plotting what's actually happening in terms of population, etc., over the last 40 years, plotted on top of the limits to growth graphs that were published in the mid-1970s. It's quite remarkable how accurately the Club if Rome predicted the last 40 years.  

The world3 model, has a far better track record, than the global warming models, to say the least.

 

Michael_Rudmin's picture
Michael_Rudmin
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All models are simply approximations.

Got a question for you: suppose in a family, there are 4 grandparents, and in all their progeny only 4 grandkids. Those 4 are from one family. Does that qualify as an energy pirate?

But more than that, consider a Dink who has wisely invested in Halliburton, and every summer flies to Europe or the South Seas or Japan... and compare it to your typical Thai or Bangladesh family with a large size, but also a high mortality rate. Can you really call the second an energy pirate, and the first not?

Thus, war is the ultimate energy pirate; Political power in fact is often the second. Success is a third, Luxury is a fourth. Fecundity is somewhere way down in the list, especially since the powerful play such morderous games. Cut the games, let people profit from their own efforts, and typically the fecundity falls.

LesPhelps's picture
LesPhelps
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Models

All models ARE simply approximations.  Some prove to be far more accurate predictors than others.  World3 has proven to be incredibly accurate given the complexity of the reality it was designed to model.  In fact, it may turn out to be way to conservative.  There is no mechanism in the model that reflects the business cycle.  I don't believe war is adequately covered either.

At this point, nit picking individual cases is a bit ludicrous.  We are already in overshoot.  Every new addition to the population will compete with someone already alive for too few resources.  Some will die from resource inadequacy.  Deciding whether to add to an already critical population problem, does not even require considering the next generation or the generation after to be classed prudent of not.

I worry also about the other inhabitants of the planet as well.  Not worshiping a God who specifically "gave me dominion over animals," I personally believe we are responsible for making sure there is room for and are resources for a few creatures other than humans and our beloved and sacred offspring.

Finally, I think it's time to stop subsidizing children.  If schools were paid for by parents, instead of everyone, if health care premiums went up for the number of children you have, if taxes did not give you deductions for children and if welfare did not go up when you have more children, the situation might change radically.

If people were, in large part, required to fund the entire cost of their children, I believe the decision might receive an entirely different level of consideration.

pgp's picture
pgp
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Pedantic

I think the point made is pretty clear, as is the mathematics. If we're going to argue over just what fraction of children per family brings us to the wire on energy depletion then the point about control has been missed. Anyone who thinks we can just keep adding to the population just isn't thinking straight. Food, water, energy are just the half of it, there's other factors to consider like basic economic infrastructure, land availability, pollution, environment, disease...

Truthfully, people don't have children for the child's sake, we don't dote on zygotes. People have children because of selfish need or desire, and because the current culture dysfunction says its right, good and sweet. If it really was an act of selflessness then how can anyone justify bringing a child into a world which may have a grim future in 40 years when you extrapolate, debt, hunger, water, energy projections. How ignorant is it to create a child knowing it will not have the opportunities we had nor the life expectancy. Hope that the future is prosperous and bucks the projections is hardly reasonable but is the kind of thinking that has led us to this precarious point in time.

HughK's picture
HughK
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To carry the fire...
pgp wrote:

Truthfully, people don't have children for the child's sake, we don't dote on zygotes. People have children because of selfish need or desire, and because the current culture dysfunction says its right, good and sweet. If it really was an act of selflessness then how can anyone justify bringing a child into a world which may have a grim future in 40 years when you extrapolate, debt, hunger, water, energy projections. How ignorant is it to create a child knowing it will not have the opportunities we had nor the life expectancy. Hope that the future is prosperous and bucks the projections is hardly reasonable but is the kind of thinking that has led us to this precarious point in time.

I'm all for reasonable family planning, but I'm not sure that bringing a child into the world is as dark as this picture paints it.  While I don't have any kids (yet...) it seems a fairly natural and good instinct to want to procreate.  Of course, the reason I think it's good, is partly due to some deep instinct and another part is indeed because of socialization, but there is also the idea of passing something along, of carrying the fire of life one more generation, after it having been passed down continuously to us in an unbroken chain that is over two billion years old.  That means that I have very distant relatives that passed through the population bottlenecks that were the five big mass extinctions, among many others.  It probably wasn't very pleasant, but they made it.

While I cannot imagine the alternative, I am glad and grateful to my parents for creating me and to my mother for giving birth to me.  Of course, it's also a wonderful thing to adopt a child that one has the emotional and material capacity to care for

Also, it's worth remembering that the richest 1% of humans alive today, which is anyone who nets about $32,400 per year or more, consume WAY more resources that many entire families in the developing world.  Major cuts in the amount of energy and other resources we consume may be just as much of an imperative as reducing population growth.  The average American consumes the equivalent of over 8 liters of crude oil every day.  The average Nigerian consumes the equivalent of less 1/3 of a liter per day.

 

Adam Taggart's picture
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Validation from a Shale Expert

On my flight back from Peru on Friday, I was seated next to an executive of a shale oil & gas exploration company. His firm does wildcatting in a number of countries.

After he shared his profession with me, I began asking him a number of questions, looking for contradiction or validation of the conclusions we hold here at Peak Prosperity. At this point in the conversation, he had yet to ask what I do for a living. It was a rare chance to get unscripted insight from the shale industry, specifically from an expert with current "boots on the ground" perspective.

For the most part, nearly everything we've concluded in the Crash Course was validated by this man. He shares the opinion that:

  • The age of Peak Cheap Oil is indeed upon us
  • Shale wells deplete MUCH faster than conventional wells, and the "shale miracle" boost in production will be short-lived
  • The world is indeed dependent on oil (specifically cheap oil), and the lack of a new fuel source to replace the availability, yield and economics of hydrocarbons -- especially for transportation -- is a real threat to our future standard of living
  • The recent drop in oil prices is very concerning to shale producers like his company. Should prices persist below $80-90, his industry will see huge contraction as drillers go out of business.

The only point of difference I noted was that he thought our estimate that it takes 25% of the embedded energy contained within natural gas to liquify it into LNG was "too high". He didn't have a hard counter-estimate to offer, but Chris and I are researching the matter further (the 25% stat we've been using comes from Texas-based providers in the business of liquifying NG)

Once I shared what I do, he was intrigued to hear more and promised to check out the site. He agreed that the media is often guilty about telling an overly-rosy narrative of the shale story, giving the false impression that it's a panacea to America's energy needs. It was nice to hear a shale insider praise us for striving to tell a more accurate account to the world.

Br3dS01's picture
Br3dS01
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LNG - Liquefaction Energy (or fuel shrinkage) Estimates

Adam, you wrote:

The only point of difference I noted was that he thought our estimate that it takes 25% of the embedded energy contained within natural gas to liquify it into LNG was "too high". He didn't have a hard counter-estimate to offer, but Chris and I are researching the matter further (the 25% stat we've been using comes from Texas-based providers in the business of liquifying NG)

I was able to find some info on one of the LNG projects proposed for Kitimat, BC, Canada at http://bclnginfo.com/images/uploads/documents/LNGCanadaGas-SummaryProjectDescription.pdf under Section 2 Project Information:

  • a natural gas receiving and LNG production facility (“LNG facility”) that, at full build-out, will require approximately 104 million m3/day (3.7 Billion standard cubic feet/day (Bcf/day) or 3.9 PetaJoules/day (PJ/day) of natural gas of which approximately 96 million m3/day (3.4 Bcf/day or 3.57 PJ/day) will be processed into approximately 24 million tonnes per annum (mtpa) of LNG and approximately 8 million m3/day (0.3 Bcf/day or 0.32 PJ/day) will be used for fuel;

and,

  • Depending on final electrical power option selected, the Project may involve construction and operation of a fossil fuel-fired electrical generating station with a production capacity of 200 MW or more,

Translation:

                                        (106 m3/day)           (PJ/day)                             

Inlet:                                    104                       3.89

Outlet:                                   96                        3.57

Fuel:                                        8                        0.32

Fuel/Inlet:                           7.7%                     8.2%

200 MW Electricity:         0.6                         0.022     - assuming power generation @ 80% efficiency

(Fuel+Elect)/Inlet:           8.3%                    8.8%                                  

I have heard of contract inlet gas “shrinkage” estimates in the range of 8-10%, presumably accounting for real world operations, process upsets, maintenance shutdown and startup, etc.

Note: The relatively cool climate of  NW British Columbia offers a couple of advantages over LNG in warmer climates such as the US Gulf Coast, Qatar, Malaysia, N Australia, etc.

  • Lower average inlet gas temperature (i.e. 4-5C ground temperature at normal pipeline depth vs something closer to 20C at equator)
  • Lower ambient air temperatures (significantly less energy/fuel is required to refrigerate gas to -160C while rejecting heat to ambient air temperatures of 0-25C versus 30-40+C)

I have not located similar information for LNG in warmer climates such as the Texas Gulf Coast, but would expect shrinkage estimates in the range of say 10-15%.

25% does seem too high for the liquefaction step alone, even in a warm climate. I wonder if your Texas LNG sources were referring to overall wellhead to burner tip shrinkage (i.e. including total shrinkage associated with extraction, processing, pipeline transportation, liquefaction, LNG shipping, re-gasification and distribution) which could account for an additional 10%.

I hope this helps,

Brad

 

Br3dS01's picture
Br3dS01
Status: Bronze Member (Offline)
Joined: Mar 21 2011
Posts: 27
ĻNG GHG Emission Intensities

The following is from an industry bulletin:

 

B.C. has established a GHG emissions intensity benchmark of 0.16 carbon dioxide equivalent (CO2e) tonnes per tonne of LNG produced. This will include all facility GHG emissions (i.e., combustion, electricity generation, venting and fugitives) from the point when gas enters a facility to where it is loaded onto a ship or rail car to go to market.

The 0.16 benchmark sets a new, recognized global standard for LNG facilities. Through independent studies and government analysis, it was determined that leading global facilities had emissions intensities of between 0.18 and 0.27 tonnes of CO2e per tonne of LNG produced. The benchmark will also ensure that B.C.’s LNG sector maintains its competitiveness in the global marketplace.

 

Assuming 0.18 tonnes of CO2e per tonne of LNG corresponds to 8-10% shrinkage for the lower emission LNG facilities, 0.27 would correspond to 12-15% shrinkage for the higher emission facilities (presumably in warmer climates and or with older technology).

The Pembina Institute has commented extensively on proposed BC LNG projects and regulations @ http://www.pembina.org/lng.

Brad

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