Energy Market Turns to HDD

The demand for energy coupled with rising gasoline prices has led to a boom in oil and gas pipeline construction in North America. Increasingly, project owners and contractors have turned to trenchless methods, specifically horizontal directional drilling (HDD), to complete these projects.

It’s no surprise that the oil and gas sectors have relied on HDD, especially when you consider that horizontal directional drilling was born from the gas industry. One of the first recorded river crossings ever done by directional drilling was a 4-in. gas installation done for Pacific Gas & Electric in 1971.

Since that time, the sophistication of the method has grown by leaps and bounds. That first river crossing consisted on 500 ft of 4-in. line; now diameters of 42 in. and distances of 3,000 ft and more are commonplace.

“Pipeline work ebbs and flows, but recently it has mushroomed, particularly for natural gas pipelines,” said John Hair of J.D. Hair Associates, a 34-year veteran of the pipeline industry.

“Activity for large diameter HDD work has been through the roof,” said Eric Skonberg of Trenchless Engineering Corp. “Over the past few years, there have been more 42-in. crossings than I could have imagined.”

As an indication, Skonberg cites that in 2005, the record crossing for a 42-in. diameter pipeline was 5,000 ft. In 2008 alone, there have been at least seven crossings of 42-in. pipe in excess of 5,000 ft.

Expanding Market

The growth of large diameter HDD work in the United States has been largely linked to the expansion of the natural gas infrastructure, both from developing well fields and the construction of Liquefied Natural Gas (LNG) terminals. As new wells or LNG facilities are built, a need is created to be able to move the gas to existing pipeline infrastructure.

According to statistics from the Energy Information Administration, natural gas production in the United States grew 3 percent from first quarter 2006 to first quarter 2007, followed by a steep 9 percent rise from first quarter 2007 to first quarter 2008. This period of explosive growth followed nine years of no net growth through 2006.

For pipeline and large-diameter HDD contractors alike, this has been a boom time. “Most of the HDD work is related to right of way work, crossings, permitting or work in environmentally sensitive areas,” Skonberg said. “It mostly involved the installation of 30-in. diameter pipe and up to bolster existing transportation infrastructure.”

In these cases, HDD is far from the novelty that it was in its infancy. “It’s gotten to the point where it’s almost used as a reflex when you encounter difficult conditions. Early on in the evolution of HDD it was viewed as an expensive alternative. Now it’s becoming the method of choice unless you’re in a greenfield where you can open-cut.”

One of the most beneficial impacts of directional drilling for pipeline owners is that it can reduce the time to construct. Permitting and right of way issues can be long, drawn out processes, but the minimal impact of HDD makes it easier for permitting agencies to allow construction. Additionally, pipeline owners are seeing the contractors themselves opting for directional drilling as a sort of value engineering proposal.

Naturally the growth of HDD is an extension of the growing pipeline need on a large scale. “We’re seeing growth across the board, both in terms of our trenchless equipment and our trenchers,” said Ed Savage, trenchless segment manager for Vermeer Corp.  

A great deal of the activity in the United States has centered around new developments in the Barnett shale region in the Dallas-Fort Worth area, one of the largest onshore natural gas deposits in the country, as well as new LNG facilities along the Gulf Coast and Atlantic Coast. Additionally, work in the Upper Midwest has contributed to the growth, with new pipelines bringing gas from western states and Canada to eastern markets.

State of the Market

As the market has evolved, so have the tools and techniques used to complete the projects. HDD projects have in general gotten bigger — both in terms of length of pipeline being pulled in and the diameter. Diameters of 42 in. are fairly common whereas 30- and 36-in. had been previously typical.

To handle the large pipelines, large drill rigs and experienced contractors are a must. Rigs have been classified into three categories — mini or compact, midi and maxi. The rigs used for large diameter pipeline projects are maxi rigs — those with 100,000 lbs or more of pullback force.

To meet demand, rig manufacturers have increased their offerings in the maxi class. For example, Vermeer, a leading rig manufacturer in the compact and mid-size classes, recently purchased big-rig builder HRE to enter into the maxi market. HRE was a producer of rigs in the 500,000-, 750,000- and 1 million-lb classes. “The increasing use of trenchless for projects of this magnitude really drove us to get into the big rig market,” said Savage.

With all the demand and construction activity over the last three years, one limiting factor has been the availability of experienced crews to complete these technologically challenging projects. “There aren’t nearly enough engineers and construction crews to do the jobs available now,” Hair said.  

“We are maxed out to capacity,” said David Haynes, manager of business development for Mears Group Inc. “When we would take calls, the first question was ‘Are you available?’ Price was secondary.

“The shortage of labor has been the big thing. We have the equipment we need, so we are constantly recruiting and training people to do the work.”

Uncertain Future

While the industry has been riding high over the last few years, and demand shows little signs of easing, the overall state of the economy is a cause for concern. Tightening credit markets are making the availability of capital more difficult to come by, potentially limiting some of the proposed projects.

“Everyone is unsure of what will happen in the next six months,” Haynes said. “We don’t see any reason to expect a big slowdown, but we have seen a few projects shelved. It remains to be seen how the credit crunch may affect some of the companies that may not have a lot of cash.”

“As prices fluctuate, that could affect the market and the way people invest,” Savage said. “It could lead to some projects being delayed.”

However, demand remains high and projects on the books are lined up through 2012 and beyond. “The outlook for pipeline work remains strong if the financial markets stabilize,” Haynes said. “2008 has been a strong year and we’re hoping it continues as we move forward.”

Another recent development has been a drop in oil prices after reaching an all-time high of nearly $150/barrel in July. In late October, oil was trading below $70/barrel. Part of the demand for alternative energy sources, and hence pipeline work, was a result of the increase in oil prices, so there is concern over how that will impact the pipeline work. “If oil stays below $70/barrel for an extended period of time, how will it affect the thinking of energy companies?” Haynes said.

However, with the increasing sentiment among Americans for energy independence, as well as cleaner burning fuels, the demand for natural gas isn’t likely to dissipate soon. “I’m optimistic that natural gas will continue to gain in the overall energy mix in the future despite falling gas prices,” Skonberg said.

John Barbalich with Hatch Mott Macdonald concurs. “The natural gas industry has not followed the poor economy as closely as some other infrastructure sectors. We see future growth in this area.”

With its track record of success and increasing popularity, HDD will no doubt play an integral role in oil and gas pipeline construction well into the future.

James W. Rush is editor of Trenchless Technology.

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