Pioneer Energy sees opportunity in capturing flare gas at wellheads

By: David Wagman Monday December 23, 2013 1 comments Tags: Ceres, GTuit, Justin Kringstad, Lakewood, Pioneer Energy, Robert Zubrin, Ryan Salmon, The Bakken

By David Wagman


Pioneer Energy NEW logoLAKEWOOD -- It's around 700 miles from Denver to Parshall, ND, a town in the heart of North America's largest oil and natural gas fields. It's also a place where Lakewood-based Pioneer Energy hopes to strike it big.

Pioneer's technology would help reduce the amount of natural gas flaring that's taking place in the Bakken/Three Forks field near Parshall. The Bakken, as it's known for short, is on track to produce more than 1 million barrels of oil a day in December, a notable achievement given that production there began in earnest only in 2006.

The Bakken now accounts for just over 10 percent of total U.S. oil production. It's expected to be the fourth region (along with the Gulf of Mexico, Eagle Ford and Permian basins) to produce more than 1 million barrels of oil a day, according to the U.S. Energy Department. The Bakken was first identified by geologists in the 1950s, but its resource remained out of the money until horizontal drilling and hydraulic fracturing found widespread use.

The Bakken's growth has outpaced the pipeline infrastructure needed to collect and move natural gas to markets. This lack of gathering capacity means that around one-third of all the natural gas produced in the Bakken can't be moved to market. Instead, it is burned at the wellhead, a practice known as flaring. Flaring produces carbon dioxide, a greenhouse gas, but industry advocates say that's less harmful than if the methane-rich gas were vented directly to the atmosphere.

"Flaring has been difficult to address for a number of reasons," says Justin Kringstad, director of the North Dakota Pipeline Authority. For one thing, at 15,000 square miles (slightly larger than Maryland) the Bakken is North America's largest oil-and-gas field. Its sheer size makes it difficult to build the needed infrastructure. For another, North Dakota winters freeze the ground rock solid and make it tough to lay pipeline for several months of the year. For a third thing, the field remains in its infancy; there's a lot of catch-up work to be done.

"There's definitely a market" for technologies that capture gas at the wellhead and turn it into a marketable commodity without flaring, Kringstad says.

Economic loss

A common misperception is that natural gas prices are too low to justify much investment. But Kringstad says the price for natural gas out of the Bakken is as much as twice that for natural gas at the benchmark Henry Hub in Louisiana. That's because Bakken/Three Forks natural gas is rich in natural gas liquids (NGLs), which add value.

The North Dakota Pipeline Authority says that 1,000 cubic feet of raw natural gas may hold up to 12 gallons of NGLs, principally ethane, propane, butane, and natural gasoline. All of these have commercial value. Flaring the gas means that royalty owners earn no income on the gas or its NGLs. That economic loss has sparked several lawsuits in recent months.

"The U.S. is now one of the top 10 flaring countries in the world, primarily due to the rapid growth of flaring in North Dakota," says Ryan Salmon, oil and gas program manager for Ceres, a Boston-based group that works with investors to promote sustainable business practices. Ceres published a report in July that said the volume of natural gas flared in North Dakota more than doubled between May 2011 and May 2013. Around 220,000 thousand cubic feet (Mcf) a day is flared across North Dakota, it estimates.

The combination of a wasted resource -- an economic loss -- and additional greenhouse gas led Pioneer Energy founder Robert Zubrin to look for an innovative solution. Zubrin, a former staff engineer at Lockheed Martin Astronautics in Denver, has led more than 30 research-and-development efforts in spacecraft and launch vehicle propulsion systems.

His Lakewood-based Pioneer Energy, in business since 1996, has developed a truck-mounted technology called a mobile alkane gas separator (MAGS), which gathers natural gas at the wellhead, strips out the NGLs for sale, and produces a stream of natural gas clean enough to run an electric power generator.

The technology is currently undergoing testing at the Rocky Flats site northwest of Denver; test results are expected next month. Up to 50 MAGS units a year may be built once the technology is proven and orders begin to arrive, Zubrin says. Production could create 30 jobs at the company's Lakewood facility.

Truck-mounted technology

All the equipment used in the MAGS system sits on a single flatbed trailer. That includes a compressor, a dehydration unit, two separators, a refrigeration unit, and an electric power generator. At a wellhead site, the natural gas is compressed, then dehydrated. This dry compressed gas then is chilled so that components having a high molecular weight can liquefy.

A distillation column next separates the chilled, compressed natural gas into three streams: methane for power generation, ethane for the MAGS' internal power needs, and NGLs that can be transported by truck or pipeline to market.

Zubrin says a MAGS unit can process 200 Mcf of raw natural gas a day. Expectations are that the system will produce enough methane to generate 450 kilowatts of electrical power and strip out 1,700 gallons of natural gas liquids per day.

At recent prices, Zubrin says the natural gas liquids produced by a single MAGS unit could have a market value of about $1,700 a day. Subtracting transportation costs, the NGLs could generate $1,000 a day in revenue. Additional revenue could be generated if grid-supplied or diesel-generated electric power was replaced by electric generators that run on natural gas produced by the MAGS.

The Pioneer Energy Web site estimates the total value delivered by a single MAGS unit could range from $730,000 to $1.8 million a year.

Zubrin declined to discuss the price tag for a MAGS unit, but says users will be able to make money on the first day the system is in place.

Competition opportunities

Pioneer Energy isn't the only company offering a flare gas recovery system. GTuit, a Billings, MT, based company, started business 2011 with a product that also strips out NGLs from flare gas at wells. The company reportedly has sold several systems already and has orders for around 18 more. Zubrin says his company's technology could have a wider market appeal because it is designed to process as little as 200 Mcf a day, while the GTuit system is optimized to process 1,000 Mcf a day.

"Wells don't tend to stay at 1,000 Mcf a day," Zubrin says. A well may start there, but may deplete rapidly and produce just half that amount within six months. Zubrin says his technology should remain viable for a longer period given the field's production decline profile.

Production growth in the Bakken should offer market opportunities for multiple technologies aimed at capturing flare gas and making it economically viable, Kringstad says. "There are numerous companies looking at traditional gas gathering technologies as well as alternatives."

All that spells opportunity for Pioneer Energy's Zubrin, who says "There are thousands of wells in the Bakken" and the pressure is on for producers to curtail flaring and make money on the energy resource. "This is a very big market."
David Wagman

About the Author: David Wagman

David Wagman is a Denver-based analyst and journalist who has covered most aspects of the electric power and oil-and-gas industries, and has written broadly on topics that range from international trade to commercial real estate to homeland protection in a career that spans more than 20 years.

The market for off taking the associated gas captured and liquefied at wellhead is the show stopper for investors, the technology is available long time ago, the capital is now available too. We are looking for off takers to consume the gas and NGL. Please contact us at [email protected] Charles HU

- Charles HU