JOHN HUDSON ELIZABETH WYANT DR. MIGUEL BAGAJEWICZ APRIL 29, 2008 Economic Potential of Stranded Natural Gas Hydrates

Problem Can gas hydrates be exploited economically?  What are hydrates and where are they located?  What research is going on and what are the problems?  What is the time line for the project?  Where are the wells going to be drilled and how many?  What kind of production can be expected?  What markets can the natural gas from hydrate be sold in?  What is the most economic option to transport the natural gas to the sales market?

Why Gas Hydrates? Conventional oil and gas resources are being depleted Alternatives are becoming more economical  Market prices (NYMEX)  $9.501/MMBTU on 3/5/08  $7.719/MMBTU on 2/1/08  Large proven reserves  Estimated 5,000 to 12,000,000 trillion cubic feet (TCF) 3

Natural Gas Hydrate What is it?  Methane molecule surrounded by water/ice  Found at  F and around 50 atm  Unstable at atmospheric conditions  168 standard cubic feet of natural gas per cubic foot of hydrate Where are they located on land?  Arctic and Antarctic regions  At a depth between 1000 – 5750 feet  Common above conventional gas reservoirs

Where to Drill? Kamchatka Peninsula, Russia

Research and Potential Problems A Canadian and Japanese team worked on drilling  Mackenzie Delta  Continuous flow for 6 days Other countries such as The U.S., India, Japan and China are trying to find them. Potential Problems include:  Produced water  1 cubic foot per 168 cubic feet of natural gas  Produced sediment

Project Timeline Tasks Have Logistic for both the LNG/ Pipeline started Seismic: 5 person team (6-8 weeks)$54 Order Materials for Pipeline/LNG facility Find crew and begin measures to house and feed them Ship Intial Equipment: Build Pad 1 Drill 1st Well, perform core analysis, and other analysis Cap well until Pipeline/LNGbuilding is completed Build Pipeline/LNG: will take years (Assume 4 years) Start building facilities for each location (approx. 2 months per facility) Drill all other wells Start wells to sells If seismic data renders negative project is stopped. Loss is $54 million With a go-ahead, production would start at year 9. Net present worth of investment during first 9 years = -$5 to -25 Billion

Assumptions Potential problems  Large amounts of produced water  Produced sediment (land slides) Assuming:  An ideal situation. (i.e.none of the potential problems occur).  Natural gas hydrates are found at 2000 – 4500 feet below that surface.  Assume 4 total daily natural gas production rates (million standard cubic feet, MMscf) 130, 195, 260 and 390 MMscf

Drilling Specifics

Drilling Operation 6 basic steps 1. Shoot seismic (Geology) 2. Prepare site for drilling 3. Drill well 4. Log well 5. Complete well 6. Produce well 10

Seismic Information 11

Site Preparation Build roads Prepare ground Transport and install equipment (rig up) Drill well 12

Drilling Well Complicated Dangerous Steps to drilling 1. Drill into ground 2. Set casing and cement 3. Repeat until finished 4. Prepare for completion 13

Horizontal Drilling 14

Coring Can look at the subsurface Special drilling operation 15

Logging Well Done after drilling Determines subsurface composition 16

Completions Communication with the formation Three steps  Perforation  Fracturing  Install production equipment 17

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Kamchatka Peninsula, Russia Drilling Location  3000 sq. miles of land

Important Locations Locations  4 wells per pad  1 mile between each pad

Drilling Plan Shoot seismic Drill the first well and take coring samples  Vertical well  Each well at different depths 2500 feet, 3000 feet, 3500 feet, and 4000 feet  Average production per well is standard cubic feet per day Maximum production per well (scfd) Needed Production (MMscfd) Number of wells Number of locations

Production Model

Methods of Production Depressurization Thermal injection Mining

Production Model Wiggins and Shah (OU) model (2001) Reservoir Pressure Dissociation Pressure Flow Properties Distance from well Based on continuity equation. Uses dissociation kinetics. Consider pressure drop in porous hydrate free rock.

Description of Model Assumptions:  Darcy flow (laminar flow)  Radial flow  Homogenous, isotropic reservoir  Hydrate dissociation at interface Limitations:  Cannot model high flow rates  Cannot be used with irregularly shaped reservoirs

Excel Calculations Snapshots

R* increases from 2,000 m to 26,000 m over 20 years. Re = 4,000

R* increases from 5,000 m to 58,000 m over 20 years. Re = 20,000

R* increases from 8,000 m to 83,000 m over 20 years. Re = 40,000

R* increases from 12,000 m to 130,000 m over 20 years. Re = 100,000

Limits of Gas Flow Flow changes from Darcy flow to non-Darcy flow after 25,000 SCMD  Model does not work for high flow rates  New model must be developed and used Reservoir controls the maximum flow rate

Choke Flow (Flow Limits) Flow rate potential in piping is far greater than the reservoir can handle.

Wellhead Facilities Specs# NeededUOMCost Christmas Tree Max P: 10,000 psia4MM$0.2 Vertical 3-phase separator Flow rate: 100 MMscfd2MM$0.15 Diameter: 5.3 m Height: 8.5 m Volume: 326 m 3 Compressors Pad HP1MM$0.875 Pad 2 - ? HP1MM$ Vertical Separator Christmas Tree

Gathering System The gathering system is not just located in one place. Bring wells together to minimize pipe.

Transportation and Markets Transportation Options  Liquefied Natural Gas  Pipeline Three different markets  Japan  Mainland Russia  China at a later date

Important Locations LNG Facility

Liquefied Natural Gas Gas Usage and Value By: Dr. Duncan Seddon

Important Locations Pipeline

Pipeline to Magadan, Russia, and Blagoveshchensk, Russia

Piping Network Simulation

Pipeline Economics Subsea Pipeline Economics By: Palmer

Effect of Changing Royalties Changing royalties can play a major role in the economics!

Future Gas Cost Based on Commercial Consumer U.S. Prices (1980-Present) Found % change Used change and the random function in Excel

Economic Comparison The most profitable option is to transport the natural gas by LNG Vertical Wells ( ft 3 /d) Net Present Worth (MM$)LNGPipeline 130$3,109-$4, $5,063-$3, $7,040-$2, $10,898$545 Return On Investment %1.90% %5.60% %9.77% %18.76% Horizontal Wells (2.6 x 10 6 ft 3 /d) Net Present Worth (MM$)LNGPipeline 130$5,126-$1, $7,951$1, $10,894$3, $16,673$9,963 Return On Investment %7.92% %17.02% %21.83% %29.80%

Another Option

GTL Economics Return On Investment (MM$)20 years30 years %23.35% %23.93% %23.90% %24.20% Net Present Worth (MM$)20 years30 years 130$3,097$4, $4,802$6, $6,428$8, $9,799$12,580

Conclusion It is the most economical to pursue transport by LNG, but if horizontal wells were drilled instead, there are many other options that would make good investments. GTL production is also a possible option! The research that is on going in industry is promising and we are getting close to producing natural gas hydrates.

Questions?