[CAT® OIL & GAS] A Discussion of Flare Reduction

Chris Berrie: Hi, I'm Chris Berrie, a sales manager here at Caterpillar. Welcome to Cat® Power Podcast, a series of podcasts focused on various subjects within oil and gas. Today, we're discussing flaring and exploring various solutions Caterpillar has to reducing flaring. I'm joined today by Derek Kamp from Caterpillar Oil & Gas, who is Caterpillar's well service industry manager. Before taking the role of well service industry manager, Derek spent several years leading Caterpillar's well service product strategy and R&D. Hi, Derek. Thanks for joining us today and welcome to the call.

Derek Kamp: Hey, Chris, appreciate you having me.

Chris Berrie: Anytime. So, let's dive right in with the first question. Most people listening are probably well-acquainted with flaring, but for anyone who's not, can you give a quick overview of what flaring is and why it gets flared in the first place?

Derek Kamp: Yeah, Chris, happy to. Flaring is a natural byproduct of drilling for oil. Typically, in a basin that's very rich in oils or liquids underground, anytime you drill the well and then hydraulically fracture the well, you're going to get a lot of oil and liquids that come out, along with natural gas. Depends on what basin you're in, but the basins that are drilling for oil, typically you have two things you could do with that, with the natural gas that comes with it. One, you either flare it, which means just burning the power source off, right? You're getting rid of the gas, which requires permitting, or second, you need to clean the fuel up. But since it's usually a high-energy content, that can cost a lot of money, and once you clean it up, then you sell it to the market.

Chris Berrie: Thanks Derek. So what's Caterpillar's solution to balancing the economic and impacts of flare gas?

Derek Kamp: Yeah, Chris. Caterpillar Oil & Gas has multiple solutions available. The first is a semi-modular power plant that uses captured flare gas to produce electricity. So, you're able to take natural gas that was going to be flared and wasted, and produce electricity, which all sites need. We've also made an investment into GTUIT, which is a company that provides mobile gas treatment at a lower cost than traditional methods. And then lastly, the new Tier 4 Final DGB engine that's been in production for roughly a year can operate on actual flare gas.

Chris Berrie: Thanks, Derek. Let's talk a little bit more about the DGB you had mentioned there. What's DGB stand for, and what makes this engine special?

Derek Kamp: Yeah, so DGB stands for dynamic gas blending, so it's Caterpillar's dual fuel platform. We have two engines that are DGB for the hydraulic fracturing market, one for our 3512C, which is a Tier 2 engine, and one for our 3512E Tier 4 Final. The technology is quite different between the two, but both can earn 850 to 1250 lower heating value gas with minimal treatment. The primary difference is how that technology's applied. The Tier 2 is a fumigation system, so they can achieve up to 65% diesel displacement, whereas the Tier 4 Final DGB is what I call port-injected gas with air-fuel ratio control. That allows the engine to burn up to 85% of its fuel for natural gas.

Chris Berrie: Okay, so let me know if I have this down right. The environmental benefit is less flare and fewer emissions, right?

Derek Kamp: That's correct. Yes. With the Tier 4 Final, since it's air-fuel ratio controlled and port-injected, we actually can minimize methane slip, so methane slip is down to single-digit percentages, and we can also reduce the overall greenhouse gas footprint. When you compare the 3512E DGB back to the diesel version of it, the 3512E, it has the same or fewer greenhouse gas footprint, which means for operators, right, your overall greenhouse gas footprint is going to be lower.

Chris Berrie: Okay. Well, that all sounds great environmentally, but what about the economic benefits of the DGB engine?

Derek Kamp: Yeah, as I mentioned in the previous questions, the DGB, depending upon the model, the Tier 2 is 65% displacement. The Tier 4 Final is 85% displacement. And so, what this means to an operator is, if you're burning a hundred gallons an hour, let's say of diesel fuel, 85 gallons of that will be converted to using a lower- cost fuel of natural gas. In fact, it's that fuel that you are more than likely were going to flare off and not use anyway. So, it's taking that instead of wasting the energy. It's applying it to some sort of operation that you were going to do. I think it's also fair to point out that we offer DGB in our drilling market as well. I forgot to mention that.

Chris Berrie: No worries. Appreciate you elaborating on that topic. What if you're not using flare gas? Is CNG or LNG a viable option for well service sites?

Derek Kamp: Yeah, Chris, interesting question. There are three types of gas, right, if we just break it into buckets of types of gas that you can bring to location to power a frac site. The first you mentioned, flare gas, right? Obviously that's the most economical, because you're taking gas that's directly off the wellhead, minimal treatment, and using it to power either a DGB engine or a gas turbine for electric frac. No matter what the driver is there, flare gas is going to be the best economical. As you move to CNG and LNG, there's obviously more cost that goes into bringing that gas to site, right? You have some minimal treatment that you have to do to it. You have to compress it down for CNG into the bottle of the transport to site. For LNG, you actually have to put more energy into it to liquefy it, and put it in the container to bring to site. As the price of gas goes up, so as you increase that cost of the CNG and LNG, you really got to pay attention to the fuel efficiency of your DGB engine compared to a gas turbine. And if you look at fuel efficiency, a recip engine, DGB engine, is fairly constant efficiency across multiple RPMs and multiple loads. Even down to an idle, the DGB engine efficiency is fairly constant. For a gas turbine, that's not the case. At idle, and as ambient and altitude vary, the efficiency of a gas turbine at idle goes up significantly. So, you got to take that to consideration when you're looking at CNG and LNG. At a higher price per DGE or diesel gallon equivalent, it could quickly eat the savings that you thought you were going to get with a gas turbine, whereas on a recip DGB engine, since the efficiency is constant, it's less of an impact.

Chris Berrie: And looking at site emissions overall, with or without the use of flare, how do gas turbines and DGB engines stack up against each other?

Derek Kamp: Great question, Chris. To really look at site emissions, you have to put together what you believe, or a service provider believes, a true duty cycle of a frac site is. But if we look at a standard duty cycle, right, most frac companies are pumping 16 to 18 hours a day with the remaining time being at idle. If you take a duty cycle like that, and we compare it down to... I look at the three main constituents that I hear EMPs and service providers talk about are NOx, CO, and greenhouse gas. If we start with the first, NOx, both the Tier 4 DGB and the turbines are really good at reducing NOx. The Tier 4 is obviously certified from the EPA, right? So it's built and it's certified to hit the NOx emissions, whereas gas turbines are in an unregulated market. But they too, across the duty cycle, produce lower NOx than what a Tier 4 DGB can. It's not by much, but it is a slight improvement. When you go to the next constituent I talked about was CO, hands down, the Tier 4 DGB is going to get you the lowest environmental impact there. One of the primary drivers for that is the Tier 4 DGB has a diesel oxidation catalyst, or you'll hear us talk about the acronym DOC. Having that on there, it basically does a chemical reaction of the exhaust gases to pull out CO, so having that on there, the CO is almost zero. It's very low compared to what a gas turbine will get you. And then on the front of greenhouse gas, this is the buzzword in the industry. Everyone is focused on ESGs, and rightfully so, right? It's a environmental social governance, so everyone wants to keep the planet clean. So, as engine manufacturers and turbine manufacturers, we're striving to get the lowest greenhouse gas footprint we can. One area where the 3512E DGB shines is we've minimized methane slip to only single- digit percentages, so the methane emissions are actually very, very low on a Tier 4 DGB. And also, CO2 out of the engine is extremely low. On the flip side, if you're looking at gas turbines, gas turbines are designed to run at steady state high loads. So putting a gas turbine in a frac cycle where it does have extended periods of idle, that's where gas turbines have a lot higher greenhouse gas footprint than a recip DGB.

Chris Berrie: We're hearing a lot about e-frac as well, or electric fracking. How does the DGB engine stack up?

Derek Kamp: Yeah, e-frac is a big buzzword in the industry today. It's really two mindsets, right? E-frac allows you as an operator to burn up to a hundred percent natural gas, so your only fuel source is natural gas. So if that's your primary objective is to remove 100% of the flare gas and consume as much gas as possible, e-frac helps you accomplish this. But with every positive, there's usually a drawback. E-frac's upfront capital cost is a lot higher than a reciprocated engine. So, DGB allows you to get very close to a hundred percent natural gas, up to 85%, but at a significantly reduced capital cost.

Chris Berrie: Appreciate that. What's been the service contractors' response to running a DGB fleet, and how's it impacted the EMPs?

Derek Kamp: That's a really great question, Chris. The feedback on our Tier 4 Final DGB has been extremely positive. The customers that are running a complete spread of Tier 4 Final DGBs are seeing, on average, 75ish percent displacement across an entire day. So, if you look at a typical frac site, it burns 10,000 to 12,000 gallons of diesel fuel a day when in operation. So, if we just take the 10,000 number to keep it simple, that means that 7,500 gallons of diesel fuel that would've been used as diesel is actually natural gas, and this natural gas frac comes directly from flaring. So EMPS are happy because they're reducing their overall amount of flare gas and actually using it on a frac location to help lower their costs.

Chris Berrie: Derek, that was my last question for you. I really appreciate you taking me and the listeners through the solutions to reducing flaring today.

Derek Kamp: Thanks, Chris.

Chris Berrie: For more information about any of the solutions we have discussed today with Derek, please visit cat.com/oilandgas, and follow us on LinkedIn or Facebook at Cat Oil & Gas. Thanks again, and see you soon.