Tough times generate energy efficiency

When energy innovations catch public attention, they generally involve alternatives to fossil fuels: a wind turbine blade that is 290 feet long, or a station that can recharge an electric car in 30 minutes.

While there are impressive advances being made in renewable energy, reflected in the plunging costs of solar and wind power, there is also impressive progress in some of the processes for the extraction and use of fossil fuels.

The economic impact of refinements in the techniques of horizontal drilling and hydraulic fracturing, which made it possible to produce gas and then oil from shale reserves at commercially viable rates in the US and beyond, were arguably the most significant innovation of the past decade in any industry, not just energy.

And even as US shale producers have struggled to stay financially afloat following the slump in oil prices, they have cut their costs by 30-40 per cent just in the past two years, according to Wood Mackenzie, the research company.

Some of that cost reduction is likely to prove only temporary, because it comes from production companies driving down the rates they pay their contractors. The precipitous decline in oil and gas drilling activity in the US, with the number of active rigs dropping by 77 per cent since October 2014, has made it possible for operators to cut contractors’ margins to the bone, but that will not be true forever.

Some of the cost savings, however, have been the result of genuine improvements in efficiency rather than the short-term financial distress of suppliers, such as cutting the number of days needed to drill a well.

The first rigs that have been taken out of service were the older, less efficient ones, and the newer generations that are still running are typically faster and cheaper to run.

Schramm, a rig manufacturer based in Pennsylvania, says its latest rigs are “highly mobile”, reducing the time needed to set them up and take them down between jobs and offering new ways to run drilling operations.

“It’s a manufacturing approach,” says Mike Dynan, Schramm’s vice-president of strategy. “You want the most efficient tool for the job, and you don’t need to be using the most expensive rig to drill the whole well bore.”

Smaller and cheaper rigs can be used to drill the vertical part of a shale well, which is the easiest section, generally about 5,000-15,000 feet straight down. Then a more powerful and expensive rig can be brought in for the curve that takes the well round to the horizontal, and then out to the full lateral extent, which in the longest recent wells is almost 19,000 feet from the vertical section.

Another emerging trend in shale production is the use of data analytics to refine production techniques. The oil and gas industry has always exploited the latest applications in information technology; it was pioneering work with computers to analyse geological data at the end of the 1960s that enabled the oil discoveries in Alaska, for example.

Now cheap and robust sensors and wireless communications make it possible to collect a vast amount of data on everything from pressures, temperatures and vibration down a well to the condition of equipment.

“It’s not just a bunch of guys out in the field any more,” Mr Dynan says. “Now there’s real data, and it allows us to maximise returns, in terms of production and for investors.”

Bill Briggs, chief technology officer for Deloitte Consulting, says the oil and gas industry has “led the field for years and years”, in terms of its investment in data visualisation and analytics.

But there is still plenty of room for improvement. One example is logistics: operators need to manage the complex movements of rigs, pumps, trucks and other equipment, as well as the sand and water used for hydraulic fracturing, to make sure they are all available to be used on a well at the right time.

“The job isn’t fundamentally changing, but the way we do it is being reimagined,” Mr Briggs says.

There is a parallel in the development of technologies used to cull energy from fossil fuels. Manufacturers of turbines for power generation, including General Electric and Siemens, fit them with thousands of sensors that enable their performance to be monitored and analysed to improve efficiency.

GE recently launched new technologies for coal-fired power plants that include 10,000 sensors in each system.

Ganesh Bell, chief digital officer at GE’s power equipment division, argues that making coal-fired plants more efficient is going to be an essential part of controlling greenhouse gas emissions.

“Coal is the main source of power in the world, and it will be for some time, so we have to optimise it,” he says. “We believe that by 2030, something like 30 per cent of the world’s power will still come from coal.”

Just using GE’s software to analyse a coal plant’s performance and run it better, he says, can cut greenhouse gas emissions by 3 per cent. Other technologies can raise the efficiency of a coal plant’s conversion of heat into electricity, which is typically about 33 per cent in the US today, to 49 per cent, reducing emissions by about 30 per cent.

The falls in renewable energy costs have been so steep that, in many parts of the world, wind and solar power are now more cost-effective for countries adding electricity generation capacity than new coal or gas-fired plants.

The continuing improvements in fossil fuel technologies, however, are a reminder that for renewables to keep on gaining market share, they will have to continue cutting costs to keep up.