Thrifty drillers go electric as low natural gas prices spur fuel switch

From WorldOil.com

NEW YORK and HOUSTON (Bloomberg) — Thrifty drillers have found a new use for the glut of natural gas that’s sent prices for the fuel below zero in America’s biggest shale patch: Use it to power fracing operations.

For decades, explorers have used massive diesel engines mounted on tractor-trailers to shoot a mixture of water, sand and chemicals down wells and blast open layers of oil-soaked shale rock. That’s changing now that soaring output has crushed gas prices, especially in West Texas’ Permian basin, where the fuel is a byproduct of crude oil extraction.

Explorers are switching to so-called e-fracing, using gas from their own wells to run turbines for electric motors that power drilling pumps. The move helps in two ways: It cuts about $1 million a month in fuel costs for a set of fracing equipment by 90%, according to Wells Fargo & Co., and it lessens the excess gas burned off at the well site, a practice environmental groups frown upon. Tudor Pickering Holt & Co. predicts electric pumps will represent about a third of the market in roughly the next five years, from about 3% now.

The e-frac movement is “probably going to have some legs,” Jud Bailey, a senior equity analyst at Wells Fargo in Houston, said in a phone interview. “It’s clearly a movement by some major operators to experiment with it,” though it’s not clear how quickly a shift would happen, he said.

The savings could be a boon for an industry pressed to trim spending and return cash to investors amid crude-market volatility. Halliburton Co., the world’s biggest provider of fracking gear, and a unit of Royal Dutch Shell Plc are already taking advantage.

Halliburton plans to deploy fleets — the term for rigs, pumps and other equipment that’s generally brought by truck to the well site — powered by electric motors in the third quarter. Shell subsidiary SWEPI LP signed an electric fracking equipment contract with U.S. Well Services Inc. in March, while oilfield service provider ProPetro Holding Corp. has said it plans to deploy two e-fracking fleets by the end of the year.

A conventional fracing job involves using about 20 giant diesel-powered pumps, each the size of an 18-wheeler trailer. In e-fracing, a small-diameter gas pipeline shuttles the fuel from the well to a turbine powering an electric motor.

Though the electric pumps are still mounted on trucks, they’re smaller than their diesel counterparts. Some e-frac models can carry two pumps, significantly reducing the number of trailers and traffic and lowering labor costs. They’re also more reliable than diesel engines, according to U.S. Well Services.

‘‘I liken it to a diesel-powered car with all the parts moving and the susceptibility to failure versus the electric motor that runs in your refrigerator,’’ Josh Shapiro, V.P. of investor relations at the Houston-based fracing gear provider, said in a phone interview. ‘‘You’ve probably never thought of replacing that.’’

Switching to gas-powered electric motors could reduce flaring, which releases carbon dioxide into the atmosphere. The practice has reached record levels in the Permian as the oil boom leads to escalating output of gas. The total amount of gas burned off as waste worldwide in 2018 would have been enough to supply all of Central and South America, according to the World Bank.

Still, there are hurdles to widespread adoption. Oilfield service operators struggling with a glut of gear may be reluctant to shoulder the upfront cost of deploying e-fracing, which Tudor Pickering estimates at $50 million to $60 million, compared with $30 million to $40 million for diesel fleets. Producers, meanwhile, are focused on capital discipline and pipeline constraints that keep wells from being completed.

Higher initial capital costs, the early-stage nature of the technology and commitment to generating free cash flow are adding to e-frac ‘‘hesitation,’’ which may lead to slow adoption and capital deployment, Wells Fargo’s Bailey wrote in a June 13 note to clients.

But there may be no turning back now. E-fracing will likely allow the best pumpers to differentiate themselves from the rest of the pack the same way land drillers did with their higher-technology rigs at the turn of the century, according to Wells Fargo.

‘‘Broadly speaking,’’ Bailey wrote, ‘‘we think ‘the horse has left the barn.’’’