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LNG industry eyes transportation market Viva la revolution: Switches in transportation fuels occur and they can occur quickly, such as the switch to diesel by long-haul trucks Bill White Researcher/writer for the Office of the Federal Coordinator
Transportation revolutions do occur. And they can get traction quickly.
At the LNG 17 conference, two speakers recounted stories of a new fuel overthrowing an older, long-entrenched one thanks to compelling economics and new technology.
Long-haul trucks switch to diesel Before the 1950s, U.S. highway trucks ran on gasoline. Diesel was around and had been tested, but it was more expensive, less available and heavier, said Paul Blomerus, who works for Westport Innovations Inc., a global leader in natural gas engines.
But in the 1950s and 1960s, more efficient engines hit the market and diesel became less expensive and more plentiful.
“The market share of diesel trucks grew from 10-15 percent in 1950 to 100 percent by the 1980s. Even though diesel-powered trucks cost more and were heavier than gasoline-powered trucks, the economic case provided by the increased productivity and lower fuel costs was overwhelming,” Blomerus said in a paper he co-authored with Westport colleague Patric Oulette for the conference.
Power plants embrace natural gas “Recently, an even more rapid transition is taking place in the electricity generation industry, from coal to natural gas,” Blomerus and Oulette wrote.
Coal has been the dominant fuel source for electrical generation for decades. Coal is relatively inexpensive. But natural gas is a cleaner and more energy-efficient fossil fuel.
A new technology In the 1980s helped improve natural gas economics as a power-plant fuel. So-called combined-cycle generation works this way: Gas powers a turbine to make electricity, and the hot exhaust from this process powers a steam turbine also to make electricity. Power utilities using combined-cycle generation get a two-fer out of natural gas, making the fuel more appealing.
In 1986, just 6 percent of new-build power plants burned natural gas. By 2000, 96 percent of new power plants were built for natural gas, Blomerus told the conference.
Favorable economics plus technology that works equals a rapid transition, he said. The same phenomenon has happened in recent years as trash-hauling companies have switched to CNG-fueled trucks, he said. Westport has teamed with Cummins Inc. to develop efficient natural gas-fueled engines.
Railroads move to diesel John Hatley is Americas vice president for ship power at Wartsila, a Finnish maker of ship engines. He discussed how in just 13 years, during the 1940s and 1950s, almost the entire North American railroad industry abandoned coal-fired steam locomotives in favor of diesel fuel.
The economic benefits of diesel overpowered coal for railroad companies after new engines improved the efficiency of diesel fuel, he said.
Will a new revolution led by LNG dethrone diesel? Hatley thinks so. LNG as a locomotive fuel is starting to show the same advantages over diesel that diesel showed over coal, he said. Trains will switch to LNG locomotives even faster than they embraced diesel six decades ago, he predicted.
Steam ships displace sails As for ships, Hatley noted, coal-fueled steam ships took 85 years to knock sails out of the game. Eighty-five years? Well, Hatley said, it took a while to improve steam engines so they stopped blowing up and sinking vessels.
It won’t take that long for LNG to displace diesel as a ship fuel, he said. “It’s a small leap. The technology is available and proven.”
Not all revolutions result in a new regime, however.
In the 1980s and early 1990s, the Soviet Union dabbled with LNG as an aircraft fuel. A converted Tupolev Tu-155 jet (similar to a Boeing 727) took flight in January 1989 with LNG powering one of its three engines, International Gas magazine said in a recent feature on LNG as a transportation fuel.
“The aircraft made a visit to Nice for LNG 9 later that year and to Berlin for the 18th World Gas Conference,” the magazine said.
But the pilot project got grounded when the Soviet Union collapsed.
A 360-degree approach Shell hopes it has the right strategy to crack the chicken-or-egg puzzle: Simultaneously develop all facets of an LNG transportation-fuel industry.
First, Shell will supply the LNG.
Most liquefaction plants are massive, multibillion-dollar factories built to supply huge volumes for the export market. A niche transportation user would be challenged to get such a plant to even return its phone calls.
So Shell developed a Shetland pony version of an LNG plant, one more suited to serving small-scale markets. Shell’s Moveable Modular Liquefaction System aims “to deliver LNG on a smaller scale than would be economic and convenient for use in the transport sector,” James Burns, general manager for Shell LNG for Transport, Americas, said at the LNG 17 conference. Shell’s first mini-LNG plant is under construction outside Calgary.
To give a sense of the difference in scale, consider the Alaska LNG export project under consideration by ExxonMobil, BP, ConocoPhillips and TransCanada. If built as currently conceived, the plant would export 15 million to 18 million metric tons per year, or 2 billion to 2.4 billion cubic feet a day. The Shell Alberta plant’s capacity will be 250,000 metric tons per year, or 33 million cubic feet a day. (GE has developed an even smaller LNG plant.)
For other parts of the value chain, Shell is collaborating with TravelCenters to sell fuel at truck stops, with Volvo to make LNG-fueled trucks, GE to develop locomotives that can run on both diesel and LNG, and Wartsila to speed deployment of LNG-fueled ship engines.
GDF Suez is taking a similar tack in Europe via subsidiary GNVERT (translation “green natural gas”). Gas will come from several LNG importing terminals in Europe. GDF is working with truck makers IVECO and Volvo to develop and test vehicles. Its first LNG refueling station is under construction outside Paris. More are planned along major border-crossing highways. GDF will design, build and finance, if necessary, the refueling stations, said Hubert, GNVERT’s chief executive.
“Our solution is to solve (the chicken-or-egg problem) for all transportation companies,” Hubert said.
Jeffrey P. Beale, president of U.S.-based LNG consulting firm CH-IV International, told the Houston conference an already-existing source of LNG should be considered. U.S. utilities built over 50 small LNG plants during the 1960 and 1970s. The plants were designed to give the utilities extra natural gas during peak winter demand.
But many of these so-called peak shavers are idle or under used because pipeline gas is more readily available to utilities now, Beale said. The transportation industry should look to these plants as a source of LNG fuel for long-haul trucks and ships, he said.
China’s LNG initiative China’s love affair with small-scale LNG plants resembles what happened in North America 40 to 50 years ago.
China’s first commercial LNG plant started up in 2001. By the end of 2012, about 60 plants had been built. Seventeen started in 2012 alone. A typical size is 700,000 to 10 million cubic feet a day, according to the China LNG Association. That’s between one and 10 cargoes a day, as the average 40-foot-long tanker truck can carry about 1 million cubic feet of gas as LNG.
Motivated in part by serious urban air pollution, the Chinese government last year issued a new Natural Gas Utilization Policy. It calls for more dual-fuel cars and LNG vehicles, plus LNG or dual-fuel ships on rivers, lakes and along the country’s coast.
The number of LNG filling stations doubled in 2012, reaching 385, mostly located near coastal cities, the LNG association said.
Winning economics? It’s unclear whether LNG fuel can leverage its two most winning features — a cost advantage and less pollution — into a sizeable market share in the transportation industry.
On price, LNG is about $1.50 a gallon cheaper than diesel at today’s oil and natural gas costs in North America. Clean Energy says its LNG price in California averaged $2.91 per gallon of diesel equivalent last year, compared with a diesel fuel average of $4.23. In Asia, LNG might not have much price advantage because, unlike in North America, so much LNG is sold there at oil-linked prices.
On pollution, new International Maritime Organization rules strictly limit sulfur oxide emissions by ships. Ordinary diesel and heavy fuel oil emit a lot of sulfur oxide when burned. LNG has virtually zero SOx emissions.
In two parts of the world — along the U.S. and Canadian coasts, and in the Baltic and North seas as well as the English Channel — the SOx limits are ultra-strict. As of 2010, the sulfur content of marine fuel in these “emission control areas” must be 1 percent or lower. As of 2015, the sulfur content must be 0.1 percent or lower.
These limits explain Totem Ocean Trailer’s conversion of its Alaska fleet to LNG as well as Shell’s move to make LNG for ships plying the Great Lakes, Mississippi River and Gulf of Mexico coast.
For ships sailing on the open ocean and along other coasts, the sulfur content of their fuel can be 3.5 percent now, a limit that will shrink to 0.5 percent in either 2020 or 2025, depending on cleaner marine-fuel availability.
But neither of these LNG advantages — lower price and pollution — come for free.
Costly conversions For trucks, the build-out of LNG fueling stations has only just begun. For ships, northern Europe has a few LNG refueling ports and a couple other ports there are maneuvering for position. Singapore also hopes to become a refueling hub. But that’s about it.
Further, conversion costs are high.
The Staten Island Ferry system is using a $2.3 million federal grant to help pay for converting one ferry to natural gas, according to the American Gas Association.
American Clean Skies in 2012 estimated the cost of converting a medium-sized tug at $7 million, and a Great Lakes bulk carrier at $24 million.
A variety of reports peg the cost of converting a long-haul truck to LNG at up to $100,000. While UPS and a few other trucking companies have embraced LNG fuel, most others are leery.
“The upfront cost is too high,” one trucking executive told Reuters. “We can’t make the economics work.”
At the LNG 17 conference, Paul Blomerus of Westport Innovations flashed a slide on the screen showing that if the oil, mining, rail and marine industries were consuming LNG instead of diesel, global LNG demand would grow by one-third, or 80 million metric tons a year (almost 11 billion cubic feet a day).
There’s a boisterous debate about how much of that opportunity space LNG can win.
“LNG has become a credible challenger to oil products for marine and heavy-duty transportation,” three market analysts for French oil company Total said in a paper delivered at LNG 17. “However, the lack of infrastructure for LNG retailing and the limited number of LNG-fueled vehicles creates a challenge. Therefore, the emergence of an LNG market for marine and heavy-duty transport depends on powerful drivers being in place to break the stalemate.”
For just marine fuels, forecasts range from 700,000 to 66 million metric tons of LNG demand by 2025, Frederick Adamchak of consultancy Poten & Partners told the LNG 17 crowd. He called it a challenge to get ship owners, ship builders, ports, suppliers and others all moving in the same direction at the same time.
The old chicken-or-egg riddle.
“Someone has to take the initiative,” he said.
Poten’s forecast for 2025: 8.5 million metric tons. Just as turning a ship takes time, getting ship owners to adopt a new fuel occurs gradually, he said.
Poten’s analysis of the market assumes only newly built ships will use LNG. Conversion of existing ships is expensive and technically challenging. It also keeps ships in port instead of at sea making money while the conversion occurs, Adamchak said. Owners of existing ships likely will opt to burn a low-sulfur brew of diesel, which is more expensive than regular diesel, or install pollution scrubbers on smokestacks.
Last year, a Lloyd’s Register study also concluded LNG’s best bet would be with new construction. And LNG might get just a toehold there.
Lloyd’s is one of the big international organizations that establishes technical standards for ship construction and operations. In its report, Lloyd’s predicted just 4 percent of new ships delivered by 2025 — 653 ships total — would use LNG fuel.
LNG’s best bet is as a fuel for container ships, cruise ships or oil tankers, Lloyd’s said.
At LNG 17, Hatley of Wartsila took the long view about LNG’s future as a marine fuel: “Probably within 30 to 40 years a dramatic change will occur.”
Part 1 of this story appeared in the June 9 issue.
Editor’s note: This is a reprint from the Office of the Federal Coordinator, Alaska Natural Gas Transportation Projects, online at www.arcticgas.gov/lng-industry-eyes-transportation-market.
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