A STUDY of SHALE GAS PRODUCTION and ITS SUPPLY CHAIN by Yuwen Yang Bachelor of Engineering, Beihang University, Beijing, 2013 Su
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A STUDY OF SHALE GAS PRODUCTION AND ITS SUPPLY CHAIN by Yuwen Yang Bachelor of Engineering, Beihang University, Beijing, 2013 Submitted to the Graduate Faculty of Swanson School of Engineering in partial fulfillment of the requirements for the degree of Master of Science in Industrial Engineering University of Pittsburgh 2016 UNIVERSITY OF PITTSBURGH SWANSON SCHOOL OF ENGINEERING This thesis was presented by Yuwen Yang It was defended on June 23, 2016 and approved by William E. Hefley, Ph.D., Clinical Professor, Naveen Jindal School of Management, The University of Texas at Dallas Bopaya Bidanda, Ph.D., Professor, Department of Industrial Engineering Thesis Advisor: Jayant Rajgopal, Ph.D., Professor, Department of Industrial Engineering ii Copyright © by Yuwen Yang 2016 iii A STUDY OF SHALE GAS PRODUCTION AND ITS SUPPLY CHAIN Yuwen Yang, M.S. University of Pittsburgh, 2016 Over the last few years, shale gas has become one of the most important energy sources in the United States, and advances in related technologies have led to an unprecedented economic boom in several parts of the country. On the other hand, the shale gas sector and its unique extraction technologies are still relatively young, and there are a number of concerns from the public about several aspects of the shale gas industry such as hydraulic fracturing, methane emission and waste management. The objective of this thesis is to present a comprehensive and objective study of shale gas and its entire supply chain, including the various material flows within it, in order to motivate safety, cost-savings and operational efficiency improvement. The study begins with an introduction to the basic background of the petroleum, natural gas and shale gas industry and goes on to describe the process of shale gas production and map its supply chain, starting with initial exploration to identify a potential drilling location and ending with the delivery of the natural gas to end-use customers. We present detailed flow of various materials and when possible, costs in the shale gas supply chain as a first step toward planning for its efficient operation. We also span a wide range of topics including environmental effects and safety, public health implications of unconventional gas extraction, the upgraded equipment and techniques to reduce environmental pollution, the use pattern of shale gas, fluctuations in its price, and its implications on sustainable energy. We end with a detailed case iv study of distributed power generation from Marcellus shale, and discuss how natural gas can play a key role in bridging the gap between coal/petroleum based energy and renewable energy. As a more reliable and cheaper alternative to renewable energy today, and as a more environmentally friendly alternative to other fossil fuels such as coal and petroleum, shale gas has the potential to be a solution to the energy gap in the near future. v TABLE OF CONTENTS PREFACE .................................................................................................................................. XII 1.0 INTRODUCTION ........................................................................................................ 1 1.1 PETROLEUM AND NATURAL GAS .............................................................. 1 1.2 SHALE GAS......................................................................................................... 5 1.3 HYDRAULIC FRACTURING ........................................................................... 8 1.4 THE SHALE GAS INDUSTRY ....................................................................... 11 2.0 SHALE GAS SUPPLY CHAIN ................................................................................ 15 2.1 THE TRANSIENT SUPPLY CHAIN .............................................................. 18 2.1.1 Leasing, Acquisition, and Permitting ........................................................ 19 2.1.2 Site Construction ......................................................................................... 19 2.1.3 Drilling ......................................................................................................... 21 2.1.4 Hydraulic Fracturing.................................................................................. 25 2.1.5 Completion................................................................................................... 29 2.2 THE STABLESUPPLY CHAIN ...................................................................... 30 2.2.1 Production ................................................................................................... 31 2.2.2 Processing .................................................................................................... 34 2.2.3 Gas Distribution .......................................................................................... 36 2.2.4 Storage ......................................................................................................... 43 3.0 FLOWS IN THE SUPPLY CHAIN ......................................................................... 46 vi 3.1 MATERIAL FLOWS ........................................................................................ 48 3.1.1 Site Construction ......................................................................................... 48 3.1.2 Drilling ......................................................................................................... 50 3.1.3 Hydraulic Fracturing.................................................................................. 52 3.1.4 Completion................................................................................................... 57 3.2 FINANCIAL FLOWS ....................................................................................... 59 4.0 DISCUSSION AND SUMMARY ............................................................................. 61 4.1 METHANE EMISSION .................................................................................... 61 4.2 USAGE AND PRICE FLUCTUATIONS OF NATURAL GAS ................... 64 4.3 BRIDGING THE GAP ...................................................................................... 73 4.3.1 Background ................................................................................................. 77 4.3.2 The Supply Chains with Distributed Power Generation......................... 79 4.3.3 Economics of Distributed Power Generation ........................................... 81 4.3.4 A Case Study ............................................................................................... 92 4.3.5 Discussion................................................................................................... 105 4.3.6 Limitations ................................................................................................. 107 4.3.7 Conclusion ................................................................................................. 109 4.4 SUMMARY AND CONCLUSIONS .............................................................. 110 4.5 CONTRIBUTIONS AND FUTURE WORK ................................................ 111 APPENDEX A. CHEMICALS IN HYDRAULIC FRACTURING FLUIDS ..................... 114 BIBLIOGRAPHY ..................................................................................................................... 119 vii LIST OF TABLES Table 1. Typical Composition of Natural Gas ................................................................................ 3 Table 2. Material Flows in Site Construction ............................................................................... 49 Table 3. By-product in Site Construction ..................................................................................... 50 Table 4. Material Flows in Drilling .............................................................................................. 50 Table 5. By-product in Site Construction ..................................................................................... 52 Table 6. Materials used in Slick Water ......................................................................................... 55 Table 7. Material Flows in Hydraulic Fracturing ......................................................................... 56 Table 8. Material Flows in Completion ........................................................................................ 57 Table 9. By-product in Completion .............................................................................................. 59 Table 10. Estimated Total Cost of a Marcellus Shale Well .......................................................... 60 Table 11. Natural Gas Consumptions by End Use in 2009 and 2015........................................... 67 Table 12. Average Fossil Fuel Power Plant Emission Rates ........................................................ 76 Table 13. List of Notations ........................................................................................................... 84 Table 14. The Gas Supplier/DPP Interface Efficiency ................................................................. 96 Table 15. Electricity Demand Estimates at DLC .......................................................................... 98 Table 16. Each Component of Estimated and Actual Billing ..................................................... 101 Table 17. The DPP/DLC Section Saving .................................................................................... 103 viii Table 18. Estimated Levelized Cost of Electricity for New Generation