Design and Analysis of a Natural Gas Micro-Grid in Clearfield County, PA Case Histories

Example #1
Principal Investigator: Dept. of Energy and Mineral Engineering. Penn State 

Project Proposal
An alternative business strategy for gas producers that cannot secure transmission pipeline access would be to sell natural gas locally, direct to selected end-use customers under long-term contracts.  Depending on the location of the gas wells and the end-use customer, such a business strategy would require a traditional gathering system, but the gathering system might feed into a distribution pipeline, or direct to a customer co-located with the natural gas producing area.  Following a similar system in the electric power sector, we will refer to such a local gas production and distribution system as a “micro-grid” for natural gas.

Introduction
First, gas transmission capacity through Pennsylvania has become scarce, and smaller producers (producing from the Marcellus or from shallower gas resources) have had difficulties securing gas transmission capacity.  In addition to being economically dis-advantageous for these companies and the natural gas market, companies without firm pipeline access may choose to abandon their wells for economic reasons (rather than end-of-life abandonment).  This type of economic abandonment can create economic and environmental problems since such wells are not always properly plugged.  

Second, export demand for Pennsylvania Marcellus gas has bid up natural gas prices in Pennsylvania.  Whether market prices for natural gas remain high or decline (as in many other shale-gas producing areas) depends on the speed of Marcellus development and the speed of new gas pipeline investment.

The scenario we propose to investigate would involve the delivery of shallow gas owned by a partner of Little Pine Resources in Clearfield County to a large industrial consumer (such as a metals plant or industrial park) within the County.

While the Little Pine field in Clearfield County will act as a convenient case study, the project aims to develop a general model to evaluate the economics of natural gas micro-grids, and to devise general engineering principles governing the design of this emerging potential system architecture.  Our study could thus be used as a framework for evaluating other potential natural gas micro-grids in Pennsylvania and in other states facing similar issues related to the rapid development of natural gas resources.

We propose to perform the following tasks:

1. Resource Assessment: We will provide an engineering-based assessment of the shallow gas potential in the relevant areas within Clearfield County where Little Pine owns shallow mineral rights. This portion of the project will require working closely with Little Pine personnel, and gathering data on shallow-gas wells and production. Using available surface production data, we will estimate decline curves for shallow gas production in the relevant area. Decline-curve analysis is appropriate for the scope of this project, since volumetric or material balance methods of resource size estimation would require significantly more time and data.
2. Distribution System Configuration and Delivery Cost: We will analyze the development of a pipeline distribution network to deliver gas from Little Pine shallow wells to a defined end-user. This analysis will use production estimates from Task 1 as well as estimates of market saturation levels as an indicator for the required network size. These data may be available for existing end-users. A number of different system configurations are possible, depending on the end-use and the location of the end user. Locating a large end-user near the point of production would minimize pipeline costs, but would incur other infrastructure costs to transport workers, materials and finished products between the facility and transportation infrastructures such as Interstate 80. Conversely, locating the end-use customer near the highway would incur larger pipeline costs (including permitting and siting in addition to construction and maintenance) but would reduce the costs of other required infrastructures. The locational cost tradeoffs will be mapped out as part of our analysis. Using the levelized cost of energy ($/kcf of delivered natural gas) as the relevant metric, we will estimate the system cost of delivering natural gas from the Little Pine shallow fields to end-use customers in different locations. 
3. Scenario Analysis of Future Natural Gas Prices: The natural gas micro-grid concept will be successful if it saves money for end-users of the natural gas. Natural gas prices in Pennsylvania have remained higher than the national average in recent months, but future prices are highly uncertain, as the development of the Marcellus Shale plays out in Appalachia. 
4. Environmental Benefits: The premature abandonment of natural gas wells can create environmental and economic problems, since these wells are not always properly plugged. The well creates escape vectors for oil and natural gas, posing risks to public health through potential groundwater contamination. In some cases where operators cannot be held liable, the public must pay for abandoned in this way generates a public benefit. We will review the existing literature and experience with abandoned oil and gas wells to provide an order-of-magnitude estimate of the environmental benefit associated with the natural gas micro-grid.

The final report will be made public. In addition, the economic analysis performed in the project will be the basis for an undergraduate honors thesis in the Energy Business and Finance program.