SemCAMS

Source: Exec Digital Canada

Date :5/25/2007 4:11:47 AM

SemCAMS: Getting Natural Gas to Market

Written and produced by James Buchanan & Michael Townsend

Calgary’s SemCAMS is the critical link in getting natural gas products from the original source to the eventual consumer

It may take a lot of work to draw the raw ingredients for gas, sulfur, butane and propane from the ground, but it also requires a tireless perseverance to refine natural gas into these products in a safe and economical way.

“For the safety of the surrounding communities, the environment and our employees we have to do regular inspections while in operation, or inspections which require periodic shutdown of our facilities,” says Chris Hayes, senior VP of operations for SemCAMS. “This means going inside particular vessels to make sure what we measure from the outside is what we find to be the case on the inside.”

For Calgary, Alberta-based SemCAMS, these periodic self inspections are a necessary interruption to business, which is based on carrying natural gas from the field to one of the company’s gas plants, and then ultimately on to market. While the company is based in Calgary, its operations are centered approximately 300 miles to the northwest and cover an area of roughly 20,000 square miles.

“We take natural gas and associated products from producers, oil and gas companies you may be familiar with such as BP, Apache, Devon, as well as numerous other smaller companies,” says Hayes, “and transport the gas through a number of our pipelines, and process that gas and associated products to sales products such as natural gas that goes into your house to fire the furnace or cook with.”

Obviously, moving raw gas through various segments of its 600 miles of pipelines to one of its three gas plants has its risks, which is why the company takes its inspections as seriously as it does.

To enhance the effectiveness of its maintenance and safety inspections—while at the same time lengthening the time period between inspections— the company has developed a risk based inspection process (RBIP).

According to Hayes, the company has traditionally performed its shutdowns every three years, which requires shutting down an entire plant. However, over the last few years – with the help of some new and emerging technologies – the company has done work to better understand potential failure mechanisms in its equipment and vessels.

The net result is a lengthening of the time period between shutdowns by a year in the near term, and perhaps a couple more years in the long-term. Keeping the plants online for a longer period of time reduces the cost to its customers and will increase the amount of gas the company can process for its customers, says Hayes.

Under the RBIP, the company takes data on past repairs and inspection records and couples that with an examination of all the ways a particular piece of equipment or pipe could fail – stress points, corrosion points, critical mechanisms, and the like. Added to the analysis is information derived from the company’s monitoring systems.

All of this is used to develop a picture of where maintenance issues may exist, which enables the company to then develop mitigation solutions. According to Hayes, these could include the use of a different material such as stainless steel instead of regular steel, which may last years longer. The company could also look at substituting various chemical treatment programs to reduce corrosion of the pipes and equipment.

Another solution, which also helps with data collection, is better monitoring equipment, which enables the company to x-ray a particular vessel to assess what is happening within it without having to shut down and look inside it.

“As we move forward on this project the staff wants to move cautiously,” says Hayes. “They tend not to want to jump too far out on a limb. They want to make sure the limb is strong and supportive, so we’ll take little steps by moving a year at a time.”

The company rotates shutdowns among its three facilities in order to keep two plants online at any one time. The RBIP was begun three years ago, says Hayes.

“We have another cycle of shutdowns between now and 2009,” he says. “This year we are shutting down a plant that was last shutdown in 2003. So if the data corroborates what we have done between 2003 and now, we can potentially push back the shutdown period another year.”

Hayes adds, “We need to be sure that the data collected internally supports the data we gathered externally to show that our mitigation efforts are working.”

Being a Midstreamer

SemCAMS does not extract the natural gas from the ground, nor does it take the refined product and deliver it to a retail customer. Rather, the company operates in the midstream of the chain by carrying the raw gas through its network of pipelines to one of its three gas plants. Through its sister companies it can also arrange delivery of products to the various consumer distribution utility companies.

At the gas plant, the gas is separated into distinct products that include refined natural gas, natural gas liquids — which includes butane (used in lighters) and propane (typically used in BBQ grills), and sulfur — which is used as a component of fertilizer. The gas plants also produce a product called “condensate,” which is a form of gasoline. As is, condensate could be used to run a pre-1960s car or truck, but to run modern cars it has to be refined further.

According to Hayes, the process generally starts with taking the raw gas from the well operator and removing any water from it. “Water freezes, could stop our production, and we don’t want to transport ice-cubes,” he says.

The gas is then compressed and pushed through the pipeline system to one of the company’s gas plants.

In the gas plant, the first step is to remove the sulfur from the gas, which is done via a process that bubbles the gas through a liquid chemical (amine) that removes the hydrogen-sulfide and any carbon dioxide. The chemical is water-based so the resulting moisture is removed through a chemical or cooling process. As part of that cooling process the natural gas liquids – butane and propane – are removed.

The hydrogen-sulfide is processed by a catalyst-type reaction with heat, which causes the sulfur molecules to crash into each other to form liquid sulfur. This liquid sulfer can be sent to the Gulf Coast of the U.S. or formed into sulfur pellets that, according to Hayes, look something like yellow Tic-Tacs. The sulfur is used for fertilizer or to vulcanize rubber.

Once the natural gas liquids, condensate, and hydrogen-sulfide are removed, what’s left is natural gas that is ready to be sent into a gas sales pipeline, says Hayes, and on to Ontario, eastern Canada, and the U.S. Midwest and east coast, or the Northwest U.S. and California.

The condensate is essentially boiled to a form that resembles gasoline and is sent to gasoline refineries to get it to the point where it is a usable form of gasoline for automobiles.

Competing geographically

While Hayes says SemCAMS does not compete with companies in the Middle East or South America, there are a number of regional players the company must win business from.

“Competition for what we do is geographic driven,” he says. “We move products that travel a great distance, but because we are providing services to a specific location we are not competing against a company physically located in the Middle East that is providing a similar service there.”

Competitors in the company’s geographic market include Spectra (formerly Duke Energy) and some of the more local companies such as Keyera, and in some cases, well operators that may have integrated pipeline and gas plant services. Examples of this latter group include Devon Energy and Talisman Energy.

Hayes says the company’s primary distinguishing characteristic is its size. “We are an extremely large processor, midstream business, in the middle of this geographic area,” he says. “We have three separate large gas plants that are interconnected to some degree by various pipelines, which means if there is a process or other issue at one plant, we can offer the option to move gas to another plant.”

Compared to other plants in its area, SemCAMS is able to process approximately 1 billion cubic feet of gas, and is currently using 60 percent of the company’s capacity,

“If you look at most other plants in the area the biggest one is probably around 25 percent of our size, so we are almost four times larger,” Hayes says. “After that there are a number of smaller plants that are down around 5 to 10 percent of our plant capacity.”

Further, because SemCAMS can processes all of the products from the raw gas – sulfur, condensate, natural gas, butane and propane – and does not compete directly with the producers.

“We can offer a service to many different producers and customers,” he says, “where they may be reluctant to deal with other producers who may not treat them as equitably as we can.”

Other competitive advantages, says Hayes, include the wide geographic area served by the company’s 600 miles of pipeline; the ability to handle hydrogen-sulfide —which many other plants don’t have the ability to convert to sulfur; its extensive pipeline runs in areas that would be topographically difficult for others to access due to steep inclines and rivers; and wide flexibility in the type of gas refined.

“Also, our extremely large infrastructure and capacity means we can offer a number of different options and flexibility in processing the gas,” Hayes says. “That flexibility leads to extremely high reliability. For example, in 2006, we processed 98.9 percent of all available gas, which means we had very little downtime.”

One other area where the company distinguishes itself is in its ability to handle hydrogen sulfide and do it safely.

“It is a deadly gas,” says Hayes, “so one of our areas of expertise is to safely handle this gas in an environmentally sound manner by capturing this gas so it is not released into the atmosphere where it could harm the environment or people.

“Very small amounts of this gas – .07 percent is lethal – could do great harm, so it’s key from a design, operational, and monitoring standpoint that we maintain very good control in processing the gas through our pipelines, equipment and through our plants.”

Hayes goes on to say that safety begins with very stringent engineering and design standards. The company does a lot of specification and preliminary engineering in-house, but then contracts out the detailed engineering. Generally, the company manages and directs these contractors, as well as setting the design expectations they would be required to meet.

From an operational standpoint, Hayes says the company and industry operate in a very tightly regulated environment. There are entities similar to those found in states agencies that monitor the company’s activities.

“They examine the environmental issues to make sure we have effective processing and recovery processes to ensure that we are not losing or emitting products into the environment that could harm the communities in which we operate,” Hayes says. “There are also tight regulations in terms of construction and land use through the Alberta Energy Utilities Board. They facilitate processes to ensure adequate design for the protection of land, environment, and the public, and to make sure we meet safety standards.”

These regulatory agencies check for adequate emergency planning on the part of SemCAMS and other companies in the industry, Hayes explains.. “However, I should note that we have a very good record on this and haven’t had any major accidents in our history.”

Further, and this gets back to the company’s periodic inspection shutdowns, Hayes says the company spends a lot of time on inspection work planning and monitoring of equipment to make sure all aspects of the company’s functions are ready to work on a continual basis.

This includes regular scheduled maintenance of the company’s equipment – oil changes, examine pumps, change bearings, etc. – which adds to the company’s overall reliability.

SemCAMS also takes steps around work scheduling in terms of managing and coordinating people between various plants and pipelines. Employees in plant A may go to plant B or C to do some work, he says.

“Rather than prioritizing servicing in one plant,” says Hayes, “it is prioritized across the company to make sure the highest priority equipment is being taken care of.”

The company also keeps a common inventory catalogue, or system, across its plants so that if one doesn’t have a particular part or material, it can potentially get it from another plant.

“Not all of the plants we operate were built at the same time or by the same people,” says Hayes, “but there is a large amount of equipment and material that is common.”

Revenues

A midstreamer, says Hayes, generates revenue generally through building a gas plant or pipeline and collecting a fee for its use. Essentially, bringing in gas from companies that want to focus on drilling wells and not transport or refining.

SemCAMS negotiates fees and services with its customers to move the gas they pull from the ground and move that gas to gas plants and then can return the processed gas back to the customer or will take it and distribute the gas to distributors who service end user retailers.

In this capacity, SemCAMS works for 100 to 120 different companies, says Hayes, with approximately 900 to 1,000 wells connected to their system of pipelines and plants. Where the company moves the natural gas products to distributors it does so through a handful of pipelines serving various regions of Canada and the U.S.

The first is Alliance Pipeline, which transports down into the Chicago area, where gas is then distributed to points in the Midwest. Then there is Trans Canada Pipelines, which also drops gas off into Wisconsin, New York, and Massachusetts.

The above are the two large east bound lines, says Hayes, but there is another set of lines that can carry gas to the Pacific Northwest into California called the PG&E Northwest pipeline.

Liquids, such as propane and butane, are carried primarily by Enbridge Inc to central Canada. According to Hayes, companies such as BP take some of that product off and deliver it to the Superior, Wis., area, Minnesota, and Michigan while processing the remainder in Ontario.

Condensates can be further processed into gasoline in Alberta or be sent down into the Midwest or the Ontario area.

To grow the company, Hayes says they have looked at several projects to extend the company’s 600 mile pipeline system.

“It could be as short as a 15 mile extension to 100 plus miles to service producers within our service area,” he says, “but we are also looking to extend into British Columbia. We’ve been looking at several large pipeline projects over the last year or two, which would make us a more significant competitor to Spectra.”

Hayes says the company’s growth plans would potentially double it in size in the next two to four years.

“It’s ambitious, but remember we are only using 60 percent of our total plant capacity,” he says. “We would have to spend some money in the gas plants, and also add new pipeline, but we do believe it is possible to increase the company’s income substantially.”

One of the biggest challenges to make that growth happen, he adds, is finding enough trained workers.

“With the large gas and oil needs of the U.S. there are large demands on people with the skill sets,” he says. “The biggest challenge is getting qualified people up here to handle the construction and operation of our facilities.”