DISTRIBUTED ENERGY RESOURCES IN THE OIL PATCH

Based on a workshop sponsored by PTTC's Central Gulf and Texas Regions on May 15, 2000 in Houston, Texas

BOTTOM LINE

By placing power-generating units capable of running off of field gas onsite, an operator can lower lifting costs substantially. In addition, locating Distributed Energy Resources (DER) in areas where excess power can be sold into the grid could produce a substantial new revenue stream. 

PROBLEM ADDRESSED

DER are small-scale onsite power generation and storage devices. Use of these devices can lower lifting costs and they can lead to power sales to the electrical supplier. DER has not been successful in the past primarily because regulations have not been conducive to selling power to utilities, there were no coordinated efforts by independent power producers (IPP), and the utilities did not want producers to generate power. But this climate is changing with the coming of electric deregulation. As overall power demand continues to rise, the current natural gas infrastructure will change. Small independent power producers (SIPP) using DER will be in a position to take advantage of the electricity supply gap at a profit, double energy efficiency, lead to lessened emissions, and help lower their own and overall public energy costs.

KEY WORDS:

Distributed Energy Resources, Interconnection Issues, Lease Gas Applications, Micro-turbines/Reciprocating, Engines, Power Marketing, Turbines

SPEAKERS

Electric Prices for DER
John Kelly, GTI

Micro-Turbines
Hans Mertens, Williams Energy

Reciprocating Engines
Garfield Miller , Aegis Energy Advisors Group

Turbines
Pete Parkin, General Electric Industrial Turbines

Interconnection Issues
Bill Saylor, ENCORP Inc.

Interconnection Issues
Nat Treadway, Texas Public Utilities Commission

Combustion
Shannon Vinyard , Vinyard Technology Co.

Gas Composition
Tom Welker , Welker Engineering Company

TECHNOLOGY OVERVIEW

DER are small-scale power generation and storage devices (typically under 10MW) that are located onsite or near the customers' loads. These devices can be isolated or can be connected to the main power grid. They are resources that have value greater than grid-connected power. The goals of DER are to help the operator make money.
DER provides two primary potential areas of help: onsite power generation and power generation for sale to the grid. For onsite consumption, DER can help reduce costs for marginal wells, it can allow you to avoid flaring or venting gas, and DER may provide pricing leverage to use with the current electric supplier. For selling to the grid, DER can provide another revenue stream. It may allow you the option to decide when to produce gas and when to produce power, and it may also provide you (along with other producers) leverage to reduce overall electrical prices.

Examples of DER technologies include reciprocating engines, microturbines, and turbines. The functions of these technologies can be compared:

• Reciprocating Engines are the easiest equipment to install. Their cost is less than $500/kw; they are rugged, portable, and can handle some poor quality gas (400-1700 Btu/Scf gases) without fuel processing. Non-hydrocarbon content of fuel, such as H2S, N2, CO, CO2, etc., is a consideration, as is elevation and ambient temperature. Turbocharging can counteract the effects of high altitude and it improves fuel efficiency. Higher operating speeds and compression ratios are generally more efficient for reciprocating engines. Induction generation offers several advantages over synchronous power generation, including: (1) utility excitation does not increase potential for voltage frequency fluctuations; (2) in parallel operations with a utility, no switch gear or synchronizing controls are required, nor (3) is an automatic disconnect required. Reciprocating engines can be used for one-well or multi-well applications. The technology is well proven.
• Microturbines are more expensive, more than $600/kw, but their price performance increases with online time. They can handle poorer quality gas (up to at least 7% H2S gas). Microturbines are portable and usually smaller (<100kw), which makes them suitable for one- or two-well applications. This technology has been proven in the oil field.
• Turbines are larger units (typically greater than 1 mw). Depending upon the type, expense is usually around $500/kw. Turbines are suitable for multi-well applications for reselling to the grid. An interconnect is required. Turbines can be portable; they are rugged and usually can handle larger quantities of poor quality gas-but they are more difficult to work on. Interconnect is required.

Rules Of Thumb for Distributed Energy Resources

• For every mw of power generated, about 350 Mcf/day of gas will be required.
• Gas must be treated if it has more than 4 ppm H2S.
• Most DER technologies require separating liquids from the gas.
• Some DER units require compression. Large machines require higher pressures.
• Sufficient gas reserves with little H2S are required to produce power for your own lease. The gas does not have to be of pipeline quality, but the operator needs to calculate all current costs and electrical needs to determine if DER is economical.

UTILITY GRID INTERCONNECTION ISSUES

The Texas Public Utility Commission (PUCT), which regulates 8% of the U.S. electric market, has adopted a set of technical standards for the speedy interconnection of distributed generation (DG) (up to 10 MW) to utility transmission and distribution grids under open access transmission rules. In addition to the technical standards, the PUCT has adopted a standard DG interconnection application form and standard DG interconnection agreement that are to be used by all DG applicants and all utilities within Texas. These documents can be downloaded at:

http://www.puc.state.tx.us/rules/rulemake/21220/21220arc/21220arc.cfm

The PUCT is now developing a procedure for pre-certification of DG units to assure that, once a DG technology or unit has been tested and verified with respect to performance and safety, it can be interconnected to the Texas grid with a minimum of hassle. Pre-certification is being developed by a collaborative working group of participants from the DG and utility communities. Where consensus agreement cannot be reached, the Texas Commissioners will decide any unresolved issues. DG operators who wish to comment on the pre-certification process to assure that the outcome reflects their interests and concerns can contact Ed Etheridge (email ed.etheridge@puc.state.tx.us).

POWER MARKETING

Power demand continues to grow. Over the last three years, demand for power in Texas has grown between 4-6%/year and growth is forecast to continue at current levels for the foreseeable future. Most utilities stopped building new generating sites in 1996 with the prospect of deregulation. The utilities have avoided taking on new debt associated with new generation almost across the board. Independent power producers have met the demand for new power generation in the wake of utility reluctance to undertake new generation.

In the past, utility cooperation in some regions was difficult to gain. With the approach of deregulation, however, the playing field is changing. There is great risk in short selling. Consider selling only "non-firm". With the risk comes opportunity for gain during periods of extreme price volatility. There is no guarantee that the Small Independent Power Producer (SIPP) will get his energy into the grid during periods of price volatility. One must remember that power has no shelf life and that demand is instantaneous.

SIPPs can lessen some risks by forming or joining associations of similar small power generators that will provide leverage in negotiations with local utility or power marketers. Because utilities are typically slow to act and are very cautious, power marketers offer a possible alternative for power sales. New aggressive power marketers are buying or building generation assets in the region that they target.

LESSONS LEARNED

DER has not been successful in the past primarily because the regulatory climate has not been conducive to selling power to utilities, there were no coordinated efforts by independent power producers, and the utilities did not want producers to generate power. Other reasons for failure included poor marketing, poor relationships with utilities, failure to organize with other producers and share information, and a lack of understanding of all aspects of the problem, including politics, regulations, and vested interests.

However, the political and economic climate may be changing. Electrical shortfalls are commonplace in recent years. Regulatory climate is shifting as deregulation efforts take hold. Also some environmentalists and politicians from energy producing states are showing interest. For future efforts to succeed it will be necessary to organize efforts between many groups, to make DER an economic development and environmental issue, and to coordinate efforts by letting legislators and regulators know that there is interest. It is necessary to know your vendors' strengths and limitations.

At this time there appears to be an opportunity to develop DER and that opportunity should increase with time. Current trends in electrical power generation are toward insufficient supply and increasing emissions, particularly in urban areas. Current market condition favor large power generation facilities (>100Mwe). The distributed generation market is less than 2% of planned capacity additions.

The current natural gas infrastructure will be challenged in the near future. Although there have been significant interstate capacity additions, residential and commercial usage has been flat for gas over the past 30 years and is predicted to decline. At the same time, electrical usage had doubled. The majority of DG and conventional power generation stations are being located in urban areas. DER could help reduce emissions at some of these plants because it has twice the efficiency. For example, DER could help curb expected emissions increases from coal (20 vs. 137 millions of metric tons/year). By 2020, emissions increases from DER will pale in comparison to those from vehicles (88 vs. 826 millions of metric tons/year).

If developed, DER could fill the electricity supply gap, slow increased demand on the conventional system, double energy efficiency, lead to lessened emissions, and help lower energy costs. As an example of the potential for DER, if the 300 Bcf natural gas that was vented/flared in 1998 could have been converted into electrical power, it would have provided over 2,700 MW of baseloaded power.

CONNECTIONS:

John Kelly
GTI
1700 S. Mount Prospect Rd
Des Plaines, IL 60018
Phone: 847-768-0665, Fax 847-768-0510, E-mail john.kelly@gastechnology.org

Hans Mertens,
Williams Energy
P.O. Box 3102
JTulsa, OK 74101
Phone: 918-573-4885, Fax 918-573-0828, E-mail hans.mertens@williams.com

Garfield Miller
Aegis Energy Advisors Group
152 W 57th St., 29th Floor
New York, NY 10019
Phone: 212-245-2552 Fax: 212-582-0386
e-mail: glmiller@aegisenergy.com

Pete Parkin
General Electric Industrial Services
2381 E. IH-20
Odessa, TX 79766
Phone: 915-333-4444 Fax: 915-333-4448
e-mail: peter.parkin@ss.ps.ge.com

Bill Saylor
ENCORP Inc.
P.O. Box 269
Windsor, CO 80550
Phone: 888-362-6771
e-mail: saylorbw@encorp.com

Nat Treadway
Energy Resources Associates LLC
5731 S. Braeswood Blvd.
Houston, TX 77096
Phone: 713-729-6244
e-mail: treadway713@yahoo.com

Shannon Vinyard
Vinyard Technology Co.
200 E. Mill St.
Hartford, AL 36344
Phone: 334-588-6644 Fax: 334-588-6602
e-mail: svengine@aol.com

Tom Welker
Welker Engineering Company
P.O. Box 138
Sugarland, TX 77487-0138
Phone: 281-491-2331 Fax: 281-491-8344
e-mail: twelker@welkereng.com

For information on PTTC’s Central Gulf region and its activities contact:
Bob Baumann, Director, Central Gulf Region PTTC
One East Fraternity Circle, Baton Rouge, LA 70803-0301,
Phone: 225-578-1804, Fax 225-578-4541, E-mail rbaumann@lsu.edu

Disclaimer: No specific application of products or services is endorsed by PTTC. Reasonable steps are taken to ensure the reliability of sources for information that PTTC disseminates; individuals and institutions are solely responsible for the consequences of its use.

The not-for-profit Petroleum Technology Transfer Council is funded primarily by the US Department of Energy’s Office of Fossil Energy, with additional funding from universities, state geological surveys, several state governments, and industry donations.

Petroleum Technology Transfer Council, 2916 West T. C. Jester, Suite 103, Houston, TX 77018
Toll-free 1-888-THE-PTTC; Fax 713-688-0935; E-mail hq@pttc.org; web www.pttc.org