EBF 301
Global Finance for the Earth, Energy, and Materials Industries

Gathering and Compression

arrow flow chart from before (Figure 1) with production & gathering highlighted
Figure 2. Production & Gathering

The first step in the movement of natural gas from the “wellhead-to-burner tip” is to determine the "deliverability," or sales volume of the well and then get it connected to a pipeline. This is normally done by midstream companies who gather wells together and deliver the gas to processing plants or directly into transmission pipelines.

The following mini-lecture explains these concepts in detail.

Key Learning Points for the Mini-Lecture: Gathering and Compression

While watching the mini-lecture, keep in mind the following questions:

  • Why is the "deliverability" of a well important?
  • What functions are performed by the Gatherer?
  • Who are Producers and Operators?
  • What are Compressors and how/why are they used?

Mini-lecture:  Gathering & Compression (9:25 minutes)

Gathering & Compression mini-lecture
Click for a transcript

In this lesson, we're going to talk about the entire logistics and value chain, now, for natural gas since we've already covered the one for crude oil itself. And the phrase we tend to use for this is wellhead to burner tip.

On the left is just a picture of a low-pressure well, kind of a small well. That's known as a Christmas tree-- the configuration of the various valves. And to the right is what's known as an oil/gas separator. First thing that happens when the raw natural gas comes out of the ground is to separate the heavier components, the oily substances, which, in essence, are what we call condensate.

Here's a schematic just kind of showing the overall industry and the different paths that the natural gas goes through. You can see you've got the gas well. You're going to have separation between oil, water, and natural gas. It's going to go through gas processing plants. There are some opportunities for storage here. And then, ultimately, it's going to get to the end users.

Here's sort of another setup of kind of how we separate upstream, midstream, and downstream within the natural gas industry. The upstream is, obviously, the production portion of it. Gathering, processing, and transmission and even storage are considered midstream along with the trading-type functions. And then, ultimately, downstream is going to be the actual end users for that.

Some of the players, some of the labels that we talk about on the various participants-- you've got operators and producers at the wellheads. You have the processing plant, which is your midstream companies-- they're gatherers and processors-- storage operators, which, a lot of times, can be independent storage. Or they can be pipeline and storage operators.

And then we have what's known as the city gate, which, really, is the distribution point, where the gas company, or LDC, picks up the gas from the transmission system and distributes to all of its customers.

So we're going to start at the wellhead. This is the production. This is what we're interested in once the well is completed, starts producing. We're interested in how much volume can be sold on a daily basis. This is known as the deliverability.

Now, this depends on the type of reservoir that you have. Some reservoirs, once they start producing, cannot be shut in. That is, they can't be turned off because you can actually lose the production.

Also the operator of the well. There's an entity or participant who actually operates the well. That means they are responsible for the day-to-day operations of the well. They also have an interest in the well. When we talk about working interest donors, those are the ones who actually have invested in the well and have an ongoing investment commitment to any operational costs. Now, the operator is also a working interest donor.

And then the joint operating agreement, or JOA, is the contract between the operator of the well and the various working interest owners. And it spells out exactly how things are going to happen, shared costs, how revenue is going to be dispersed, and those types of things.

Again, because we're interested in the production of the deliverability-- these are the sales volumes, again, so we want to know what are the ways in which we could actually increase the amount of gas flowing from a natural gas well. Well, I think by now, we're all familiar with horizontal drilling. Horizontal drilling allows you to pull more out of the reservoir than straight vertical drilling.

Another method would be to, basically, drill another well, or what we call in-field drilling-- go ahead and drill an offset well.

Wells that start to decline-- there can be a recompletion. Now, that can be two different things. Recompletion can be where you go down in, and you attempt to do something additional to the existing reservoir. Or you find another reservoir-- another layer, another producing zone-- and you go back down, and you complete that.

Of course, fracking is a form of initial releasing of the production. It can also be done multiple times if you think that there's more to be released.

Acid is one of the ways in which wells are completed. It's an older method instead of fracturing. But if you have a well that's in decline, then you may agree as a producer and an operator together to go ahead and try and use some acid to free it up. This works mainly in places like sand formations.

Compression. Now, compression is going to be another thing where you can use natural gas compressors to draw additional gas up out of the reservoir once the reservoir pressure itself has dropped to the point where the gas can't just free flow into the connected pipeline.

And the other course is to look for what we would call a low pressure connect. This is generally a service that's provided by midstream gatherers and processors, where they have compression at their plant, which can draw the gas from your well if the pressure of your well can't by itself exceed the pressure of the pipeline that it's connected to.

The quality of the gas-- this is very important because it's going to end up in a pipeline, and then, eventually, some type of end user whether it's a power plant, or it's someone's home hot water heater. And so a couple of things here initially.

The Btu value-- this is what we're after. This is what we sell. It's the heating content, a British thermal unit. That's the amount of energy required to raise 1 pound of water one degree Fahrenheit. Again, this is what we are marketing.

Water vapor. We don't want water in the gas stream nor to the pipelines.

Any types of corrosives-- there is sulfur, which naturally occurs in the raw natural gas down in a well. It can actually lead to the formation of hydrogen sulfide, which is a corrosive. That is, it can eat away at the steel pipe.

Nitrogen itself just takes up space. It has, obviously, no heating content. The same thing with CO2. Carbon dioxide just takes up space in the pipe. And so you don't want these inerts in there because you want to fill that pipeline up with as much heating content as you can.

And then the question of whether or not the gas is processable. In other words, can it be processed. Is the Btu content high enough to extract natural gas liquids, which are valuable on their own.

The other side of that question, really, is does it need processing. The pipelines are only going to accept a certain maximum amount of Btu content. If you think about it, something volatile, like propane, which I think we're all fairly familiar with-- you can't have that in someone's home hot water heater. You also can't inject propane into a boiler at a power plant. You will literally have an explosion.

And then any other kind of treatments.

Just some of the folks that I've already mentioned-- these are your wellhead participants. A producer has a working interest in the well. They're known as working interest donors. That means-- let's say, for instance, a particular well-- you had 10 owners. Everyone essentially contributed 10% of capital up front to drill the well. And now, because they're working interest owners, they are on the hook for any additional operating costs or investment of things like the recompletion of a well or drilling an offset well.

So, as a result of that, they're entitled to 10% of the production coming out of the reserves of the natural gas well. And so we refer to that as their entitlement.

As I mentioned before, the operator is also a working interest donor. They've got a percent of reserves, or their entitlement. They are responsible for the day-to-day operations.

They're also responsible for what we call well balancing or allocations. In other words, if you've got 10 owners-- if that well plays out eventually-- in other words, it's depleted-- then every one of those owners should have at some point in time received their 10% of those reserves that are in the ground.

If not, then the operator has to cash balance that out so that everyone is on a equal basis at the end. Otherwise, this is-- we have a considerable number of lawsuits over these types of things.

And as I mentioned previously, the operator initiates this joint operating agreement among all the working interest owners.

Here's just a quick diagram of how these things might be set up in the field. You've got gathering lines. They're going to come to a central point, a common point, and then go into a pipeline. Generally speaking, this pipeline is going to go to a processing plant so that the gas can be cleaned up as well as natural gas liquids extracted.

In terms of how you would connect these, a question might be whether or not you do need compression. And that's going to be a function of the pressure downstream into the pipe in which you wish to flow your gas.

And then we have to also recognize that there's going to be costs. The more compression that you use that you have to boost up the pressure of your well relative to the downstream pipeline-- it's done in stages, and there's going to be a cost. A lot of them run on natural gas. Some run electricity. So there is a cost inherent there, not to mention just the regular O&M-type costs.

Connect costs. You're going to have to eventually connect your well, and there's usually a fee of some kind. These are referred to as taps.

And then most pipeline companies these days require what's known as electronic flow measurement. They want to be able to see from a remote location how much gas is actually flowing in. And then, again, in terms of the point at which you connect to a downstream pipeline, there may be additional treatment that may be needed at that spot. And either you pay for that up front, or the pipeline or a midstream company may do that.

Here's just a quick picture here of some compressors. This is what's known as a horizontal compressor. The actual pistons that draw the gas in and push you back out are, in fact, laid out horizontally.

Compressors themselves-- they are two parts. You've got these large-diameter pistons, and those are the ones that draw the gas in and push it out-- in other words, increase the pressure by using these pistons. And these are driven by a crankshaft.

The other part is, really, an internal combustion engine. A lot of these resemble large diesel engines you might find in a semi tractor-trailer. And as I mentioned before, if you're using natural gas there in the field, then there is a cost of that, the cost of that gas. Because you're not able to market it, you are actually consuming it at your pad site. Or if you're running electric compression, there's going to be a charge by the electric utility.

The best way to think about these is if you've ever seen one of those little electric Black & Decker machines you might have in your garage that inflates car tires, bicycle tires, et cetera. There is literally a little piston in there that's moving in and out at about 1,000 times a second, and it is taking the air at roughly atmospheric pressure-- 14.75 pounds per square inch-- and boosting it up to-- let's say, for instance, in terms of car tires-- it may be anywhere from 32 to 40 pounds per square inch.

And then just here are some more compressors. The upper left and the lower left-- these would be at a well site, at a small well, whereas the upper right would be at a central location, sort of that common point that I showed you in a diagram a few slides back. It would be drawing in gas from multiple wells out in the field.

Now, the lower right-- that's actually a turbine compressor. A turbine compressor is literally a jet engine-type of setup with fan blades and everything else running at a very high speed using natural gas. Now, a turbine compressor generally is going to be used at a processing plant to circulate the gas through it. This would be a very, very large-scale version of little turbines that might be added to car engines or turbo diesel-type of engines.

Credit: Tom Seng, John A. Dutton e-Education Institute

Optional Viewing

A History of Natural Gas by Chesapeake Energy (11:58 minutes)

The History of Natural Gas
Click for a transcript.

Natural gas has enormous potential as a versatile energy source. While it's had a history of powering electric generators and heating stove-tops, it's growing in use as an efficient fuel that also powers cars and trucks. But what exactly is natural gas? Natural gas is a naturally occurring chemical, primarily made up of methane-- CH4. Its purity makes it an environmentally friendly fuel. Methane does not leave a residue when burned, so its emissions do not react with sunlight to create smog.

How Natural Gas is Formed

The natural gas we use today began as microscopic plants and animals living in the ocean tens of millions of years ago. As they thrived, they absorbed energy from the sun, which was stored as carbon molecules in their bodies. When they died, they sank to the bottom of the sea and were covered by layer after layer of sediment. As these plants and animals became buried deeper in the earth over millions of years, heat and pressure began to rise. The amount of pressure and degree of heat transformed the bio-matter into natural gas.

Where Natural Gas is Formed

After natural gas was formed it tended to migrate upward through tiny pores and cracks in the surrounding rock. Some natural gas seeped to the surface, while other deposits traveled upward until they were trapped under impermeable layers of rock such as shale or clay. These trapped deposits are where we find natural gas today. In 1859, Edwin Drake drilled the first commercial well in Titusville, Pennsylvania, striking natural gas and oil. This is considered by many to be the beginning of the natural gas industry.

First Uses of Natural Gas

For most of the 1800s, natural gas was used almost exclusively as a fuel for lamps. Because no pipeline network existed to transport large amounts of gas over long distances, most of the gas was used to light local city streets. It was moved through small bore lead pipe. Then in 1885, Robert Bunsen invented a burner that mixed air with natural gas. The Bunsen burner showed how gas could provide heat for cooking and warming buildings. After the 1890s, many cities began converting their street lamps to electricity forcing gas producers to look for new markets. But the lack of mobility to transport gas to consumers was still an issue.

Transporting Natural Gas

In the energy industry, natural gas was originally obtained as a byproduct of oil production. Since it was viewed as too costly to produce, much of it was burned off by flaring at the wellhead. Improvements in metals, welding techniques, and pipe-making during World War II, opened natural gas to new markets thanks to pipeline networks. Throughout the 1950s and 1960s, thousands of miles of pipeline were constructed throughout the United States.

Although natural gas was becoming economically attractive with a growing pipeline network, crude oil was still far more popular and more widely used as a source of energy. For years, the industry perception remained that supplies of natural gas were limited. Although natural gas had been discovered in tight rock formations called shale, it was deemed too expensive and difficult to harness.

Technology Advances

With advances in drilling technology, new solutions emerged that solved these issues. Horizontal drilling and hydraulic fracturing, commonly referred to as fracking, were introduced as innovative techniques to reach shale deposits and harvest natural gas. Originally pioneered in the 1940s and refined in the 1970s, these processes have revolutionized the industry.

After the well site has been carefully prepared to meet environmental health and safety standards drilling can begin. This is an intricate operation requiring a well-planned infrastructure, a variety of processes, and expert well-trained specialists are used to bring natural gas to the surface. Chesapeake works with these experts during every aspect of the project, while strictly adhering to all individual state regulations.

During the drilling process, the rig is in constant operation 24 hours a day, seven days a week, for approximately 21 to 28 days. As an added precaution in some areas, a protective mat covers 2/3 of the pad site. Utilizing heavy duty industrial strength drill bits, a typical well is drilled in several stages, starting with a large diameter drill bit and then successively smaller drill bits as the drilling has advanced.

After drilling each portion of the well, nested steel protective casing is cemented into place. This will protect groundwater and maintain the integrity of the well. Initially, and prior to moving in the drilling rig, a large diameter hole is drilled for the first 50 to 80 feet. Conductor casing is then cemented into place, stabilizing the ground around the drilling rig and wellhead and isolating the well from most private water wells.

In the Marcellus area, the Freshwater zone extends to approximately 800 feet below ground. The Freshwater zone consists of porous sandstone and rock strata containing water within the pore space of the rock. Chesapeake utilizes air drilling until the hole is advanced to an average of 100 to 200 feet below the base of the Freshwater zone. This provides added protection to the Freshwater zone.

A series of compressors and boosters generate the air that is used to lift the rock cuttings in Freshwater into steel bins. The rock cuttings are then disposed of within state guidelines and permits. The drilling equipment is retracted to the surface and stored for the second stage of drilling. To protect the integrity of the hole and to protect the surrounding deep Freshwater zone, a second layer of steel casing called surface casing is installed and cemented inside the newly drilled hole and conductor casing.

Cement is pumped down through the surface casing and up along the sides of the well to provide a proper seal. This completely isolates the well from the deepest of private or municipal water wells. A blowout preventer is installed after the surface casing has been cemented. The blowout preventer is a series of high-pressure safety valves and seals attached to the top of the casing to control well pressure and prevent surface releases.

Next, a small drilling assembly is passed down through the surface casing. At the bottom of the casing, the bit drills through the float equipment and cement continuing its journey to the natural gas target area as deep as 8,000 feet below the surface. The drilling method employed below the surface casing uses drilling mud, which is a nonhazardous mixture based on bentonite clay or synthetic thickeners. In addition to lifting the rock cuttings out of the hole, drilling mud also helps to stabilize the hole, cool the drill bit, and control downhole pressure. A few hundred feet above the target shale, the drilling assembly comes to a stop.

The entire string is retracted to the surface to adjust the drilling assembly and install a special drilling tool. This tool allows Chesapeake to gradually turn the drill bit until a horizontal plane is reached. The remainder of the well is drilled in this horizontal plane while in contact with the gas producing shale. Drilling continues horizontally through the shale at lengths greater than 4,000 feet from the point where it entered the formation.

Once drilling is completed, the equipment is retracted to the surface. Then a smaller diameter casing called production casing is installed throughout the total length of the well. The production casing is cemented and secured in place by pumping cement down through the end of the casing. Depending on regional geologic conditions, the cement is pumped around the outside casing wall to approximately 2,500 feet above the producing shale formation or to the surface.

The cement creates a seal to ensure that formation fluids can only be produced via the production casing. After each layer of casing is installed, the well is pressure-tested to ensure its integrity for continued drilling. A cross-section of the well below the surface reveals several protective layers-- cement, conductor casing, cement, surface casing, drilling mud, production casing, and then production tubing through which the produced gas and water will flow. Seven layers of protection.

Horizontal drilling offers many advantages when compared to vertical drilling. Since horizontal wells contact more of the gas producing shale, fewer wells are needed to optimally develop a gas field. Multiple wells can be drilled from the same pad sites. For example, development of a 1,280 acre tract of land using conventional vertical drilling techniques could require as many as 32 vertical wells with each having its own pad site. However, one multi-well pad site with horizontal wells can effectively recover the same natural gas reserves from the 1,280 acre tract of land while reducing the overall surface disturbance by 90%.

Fracking is a technique that involves pumping water and sand at high pressure into shale formations. After drilling has been completed in a prospective location, the shale formation is perforated or punctured to prime it for the fracturing process. The area is then subjected to water and sand at high pressure to fracture the shale. Once fractured, sand is used to hold the small cracks and fissures open, releasing natural gas and allowing it to move up the wellbore to the surface. With this new technology, a land rush soon followed by gas producers to obtain the best locations in potential gas shale plays across the nation. More discoveries are made every year and new industry estimates now state that the US has a 100 year supply of natural gas.

Common Uses of Natural Gas Today

Today, natural gas is used all over the world as a versatile form of clean-burning energy. Common uses include heating homes and powering hot water heaters, dryers, and stovetops. But its ability to adapt to so many other needed areas have made it an ideal energy for making plastics, powering electric turbines, and commercial chillers that cool office buildings. When used as an automotive fuel, Compressed Natural Gas, or CNG, is a clean fuel that can power buses, trucks, and compact cars.

Natural gas has proven to be a clean, affordable, abundant alternative to gasoline and coal. 99% of the natural gas used in the US is produced at home in our own nation. With a variety of uses and new technology, natural gas is proving it's the energy of the future.

Credit: Chesapeake Energy