Edge LNG Capitalises on US Wells: CEO
Small-scale gas liquefaction company Edge LNG is adding to its customer base, the latest counterpart being Exco – one of the bigger shale gas producers in the Marcellus in the northeastern US and Edge’s biggest win so far.
The agreement will see Edge LNG deploy three truck-delivered Cryoboxes to the Marcellus site, where it has the potential to expand by adding units. Overall, it has two in the Bakken shale, five in the Marcellus and four in the Permian with a fifth expected in July.
The agreement gives Edge LNG the right to buy and liquefy gas from a stranded well and to truck to its own customers for sale. Initial operations are underway and are expected to continue through 2022. Edge LNG is hoping to sign more such deals in the coming months, although negotiations with customers are being hampered by the Covid-19 pandemic.
CEO Mark Casaday told NGW: “The coronavirus slowed us down, communication with the customer is a lot slower and we have to be in front him. But the tremendous pick up in the oil price this quarter has triggered a lot of proposals from well operators looking to make money.”
Edge LNG expects the deal to generate surplus LNG beyond these agreements, allowing it to expand its customer base. It has to displace existing suppliers of gas or suppliers of other fuels, which in most cases is liquid petroleum gas.
The Cryoboxes, created by Galileo Global Technologies and used only by Edge LNG in North America, can be delivered to any site accessible by road. After set-up and safety checks, production can begin within hours.
Casaday said there were a large number of stranded wells in Marcellus and Edge LNG helped its customers to make money from wells that would otherwise remain dormant. “In a challenging operating environment, we can help operators by maximising the value of their assets and providing new sources of revenue,” he said. “We expect to have our technology producing LNG in the Permian and the Bakken, in addition to the Marcellus, before the end of this year. The environmental and cost efficiencies the Edge LNG solution can bring are considerable and it is great to see producers recognising this.”
For the producer in the Bakken or the Permian, the deal offers an alternative to flaring while it is producing oil; and it is also a cheap alternative to paying pipeline operators, which typically need a long-term commitment for a firm daily volume. This is not always possible, Casaday told NGW: in this business model, Edge pays all the costs. Adding a Cryobox is a “pretty good deal for both sides.” Cryoboxes can produce 10,000 gallons/day of LNG although the actual liquefaction process uses 15% of the input. They are running at 95% utilisation, he said.
However there is a bit of juggling to be done matching the customers with the product. Customers in New England are on a firm contract and if Edge does not deliver it has to pay the customer liquidated damages – ie reimburse it for all costs incurred sourcing an alternative quantity of gas. Also there are also some long journeys involved, going a few hundred miles one-way with the containers: “This is part of the cost of doing business,” he said. “Ideally we would like the market as close as possible to the production site.”
LNG or diesel
The Bakken and Permian basins are a simpler market than the northeast utilities, as the buyer – normally a rig operator – can switch to diesel for powering the rigs if there is no LNG delivery for any reason; and there is no long-distance trucking involved. And a lot of gas is flared in both basins, so this technology will cut greenhouse gas emissions. Political pressure to penalise flaring is mounting, Casaday said, and producers can earn money instead of flaring associated gas. On the other hand, they know that Edge can move the cryobox away if not enough gas is flowing and this gives Edge an advantage in negotiations. “I have the flexibility to be short term,” he said.
Many of its customers are producers who use the LNG instead of diesel, or alternating with it, to power their rigs, and it can move from flare stack to flare stack in turn to capture the gas. So the market price drop is bad news as the rig count falls. At sub $20/barrel nobody could focus, the market was collapsing in the Permian and the Bakken, he said.
“If diesel becomes too cheap, then we are squeezed; but politically there is a lot of pressure to stop flaring and building pipelines is the only alternative. That is a huge capital cost for the producer, something like $150-$200mn. But there is no other use for the LNG in the Bakken so if the rigs go away, so will we,” he said.
Another demand source should be vehicle fuel, but diesel is still popular and a known quantity so that is not on the horizon yet. “There ought to be a lot of demand for LNG in the heavy duty vehicle market but truckers are resistant to change; added to that, there is a suspicion that LNG vehicles lack horsepower. That is a tougher nut to crack than diesel rigs: truck fleet operators are fighting legislation to tighten fuel regulations,” he said.