During Liberty Energy’s 4th quarter 2023 earnings conference call, the company stated that they plan on having 90% of their frac crews powered by natural gas instead of diesel by the end of 2024. Halliburton also plans on converting 50% of their frac crews to electric by the end of 2025. An electric frac crew will generally be powered by natural gas indirectly. Although there hasn’t been any indication of rigs switching to natural gas from diesel, many of them could switch to much cheaper natural gas to fuel the rigs. The great majority of frac crews and rigs are still powered by diesel due to the flexibility in dealing with diesel and not having to rely on a pipeline.
The question now is how much would Lower 48 natural gas demand increase if all or a certain percentage of total frac crews and rigs switched to the much cheaper natural gas fuel compared to the much more expensive diesel fuel. On a heat content dollar per MMBtu basis, natural gas is much cheaper than diesel, which makes for a large incentive for frac crews and rigs to fuel switch to using natural gas instead of diesel. Additionally, natural gas is a cleaner fuel to burn than diesel.
Frac crews on average use about 20,000 gallons per day of diesel. The table below shows how much additional natural gas demand there would be if certain percentages of frac crews switch to natural gas from diesel. Current assumptions use 254 frac crews for the Lower 48 based on the latest Hyperion data, 20,000 gallons per day of diesel for each frac crew, 5.8 MMBtu per barrel of diesel heat content, and the same level of heating efficiency between natural gas and diesel.
If all the frac crews in the Lower 48 switched to natural gas from diesel, it would result in about 0.7 Bcf/d of additional natural gas demand. While not a large increase, it is still a decent amount of incremental natural gas demand.
The table below shows how much incremental natural gas demand there would be if a certain percentage of rigs in the Lower 48 US switched to natural gas from diesel. Rigs on average use about 9,500 gallons per day of diesel. Lower 48 rig data is based on the most current Hyperion data.
If all rigs switched to natty from diesel in the Lower 48 US, there would be a 0.78 Bcf/d demand increase. Once again, not a huge amount of new demand, but still a significant amount of incremental demand.
Summary
Much cheaper natural gas prices relative to diesel fuel prices are incentivizing frac crew and rig operators to switch to using natural and electric from diesel. It also helps that natural gas is a cleaner burning fuel. The great majority of frac crew and rig operators still use diesel for powering their operations and they use a significant amount of diesel fuel. The full switch to natural gas will bring a decent amount of incremental natural gas demand of up to 1.48 Bcf/d (0.78 Bcf/d plus 0.70 Bcf/d) in the Lower 48.
