LNG industry eyes transportation market

Bill White

Researcher/writer for the Office of the Federal Coordinator

Bets are being placed that natural gas can make inroads as a fuel powering trucks, ships and trains, as well as the big workhorse engines of mines and oil fields.

This would be a significant new market for the liquefied natural gas industry, which has been defined for 50 years by big LNG plants sending product aboard big oceangoing tankers to major utilities in gas-starved countries around the world.

It’s by no means clear that LNG will get far as it navigates into this new frontier. Questions hover about who will supply the fuel, what its price will be, where it will be available, how many new users might move to LNG and whether players in a new distribution chain can handle LNG safely.

But petroleum companies, fuel franchisers, engine makers, truck builders, ship owners and others all are positioning themselves for LNG’s move into new arenas, particularly as a fuel for long-haul trucking and near-coast shipping.

LNG event alternates between importers and exporters

LNG 17, which was held April 16-19 in Houston, is short for the 17th International Conference & Exhibition on Liquefied Natural Gas.

The conference is held every three years, alternating between a LNG importing country and an exporting country.

Six years ago, when Houston was selected as this year’s site, the United States was expected to be a major importer. Didn’t happen.

In a sign of how much the LNG world has changed, the United States is on the cusp of becoming a major exporter due to an abundant supply of shale gas that was not foreseen six years ago.

The 2016 conference will be held in Australia, an exporter, followed in 2019 by China, an importer. The United States has hosted the conference four times, including this year’s event and the inaugural meeting in 1968. The other two times were in 1972 and 1986.

Their optimism was palpable at the huge LNG 17 conference April 16-19 in Houston. The conference, held every three years, is the industry’s biggest show, with thousands of players attending: producers, plant and ship builders, buyers and regulators.

LNG’s potential as a transportation fuel was a theme that arose in seminars throughout the conference, including one seminar devoted exclusively to the topic. At the conference trade show — an affair as big, bright and dazzling as a carnival midway — large floor space was devoted to LNG’s transportation future. This swath of the trade show featured hands-on displays of LNG-powered trucks, delivery tankers and fuel pumps, demonstration videos and many hours of presentations on a dedicated stage where vendors touted their technology breakthroughs.

The LNG industry is at the “beginning of the golden age of gas,” said Charlotte Hubert, chief executive of GNVERT, the arm of French energy conglomerate GDF Suez involved in an ambitious effort to build natural gas fueling stations along highways across France.

Lower price, less pollution

First, there’s the availability and affordability of natural gas, particularly in North America. The surge of shale-gas production has brought abundance and low prices. This coincided with an oil-price surge that boosted the cost of oil-derived fuels — such as diesel for trucks and diesel and heavy fuel oil for ships.

Second, stern international rules on smokestack pollutants from ships are kicking in. LNG burns very cleanly — much lower sulfur oxide, nitrogen oxide, carbon dioxide emissions. LNG can meet the new standards. But building new vessels to run on LNG or installing LNG-fueled engines on old ships isn’t the only option available to ship owners for cutting their emissions. They can burn a pricey clean diesel or install scrubbers on their smokestacks.

Despite the broad lane these two drivers have cleared for LNG, skepticism abounds that natural gas as a transportation fuel will catch on.

Skeptics cite the chicken and egg conundrum: Truckers and ship owners won’t embrace LNG fuel without convenient places to tank up, and refueling stations won’t get built without customers for them.

They also note that oil refining, which dominates the transportation-fuel market, won’t cede ground without a fight. In the United States, 99.86 percent of vehicle fuel came from refined crude oil in 2011, the Energy Information Administration’s most recent figure.

Most companies involved with LNG for transport are moving ahead cautiously but steadily. They want to be positioned if LNG fuel is their industry’s next big thing. They don’t want to be the 21st century’s version of the movie studio that kept pumping out silent films in an era of talkies or the mini-mainframe computer maker that missed the move to PCs.

Optimists note that although the figures are small, U.S. demand for natural gas as a vehicle fuel has more than doubled in the past 10 years.

Much of that growth has come from urban bus and trash-hauling fleets, which have migrated to compressed natural gas fuel as the oil-gas price gap widened in recent years.

Compressed natural gas is less expensive to make than LNG, but it also packs less energy; CNG is gaining popularity in fleets that return to a home base for refueling every night. LNG works better for long-haul trucking because vehicles can be driven farther on a full tank — roughly 500 miles per tank vs. about 200 miles for CNG trucks.

Diesel fuel beats both on stamina: A long-distance truck can get about 1,000 miles on a tank of diesel.

The early movers

•On April 23, package-delivery company UPS said it planned to buy 700 LNG trucks and invest more than $18 million to build four fueling stations in the Midwest by the end of 2014. The company’s U.S. fleet already includes 112 LNG tractor trailers operating in the West.

•On April 15, the day before LNG 17 began, Shell announced it will install LNG fueling stations at up to 100 TravelCenters of America truck stops along freeways across the United States. Three weeks earlier Shell said it will partner with Volvo on developing heavy-duty LNG-fueled trucks.

•Shell also is working to build small-scale LNG plants outside Baton Rouge, La., and Calgary, Alberta, and in Sarnia, Ontario. Each plant will supply truck stops in its region with LNG. The Sarnia plant also could fuel Great Lakes ships, and the Louisiana plant could fuel Mississippi River and Gulf of Mexico vessels, Shell said.

Shell won’t have this business to itself.

A Chinese-bankrolled, Utah-based company called Blu LNG has a couple stations and ambitions to open many more.

California-based Clean Energy has promoted natural gas fuels by building CNG and LNG fueling stations in the United States. It hopes its “America’s Natural Gas Highway” will encompass at least 150 LNG fueling stations along main highways, many at Pilot-Flying J Travel Centers truck stops. The company has about half that number built already, although not all dispense LNG because of a lack of traffic. Clean Energy runs two small LNG plants, one in Texas, the other in California.

Other recent headlines include:

•Washington State Ferries and New York’s Staten Island Ferry system separately are assessing LNG ships, according to the April 2013 issue of American Gas magazine.

•On April 3, Stabilis Energy of Beaumont, Texas, said it plans to build five small LNG plants in North America to serve high horsepower oil field, marine and railroad markets. Stabilis hopes to start up the plants in 2015 and 2016.

•On March 6, Texas-based BNSF Railway said it is working with engine makers GE and Caterpillar to develop the engine technology to let it launch an LNG-locomotive pilot project. BNSF noted that the rail industry unsuccessfully tried natural gas fuel in the 1980s and 1990s. “Improved economics and technology make the use of natural gas in long-haul service more operationally feasible today,” the company said.

•Cargo carrier Totem Ocean Trailer Express in August 2012 said it will convert two ships that sail between Washington state and Alaska so that LNG is their primary fuel. The converted engine rooms will meet tighter emissions standards for ships in North American coastal waters that begin in 2015.

•In Alaska, a small utility called Fairbanks Natural Gas recently bought two LNG-powered trucks and is considering buying more. The trucks can haul LNG about 350 miles from a small plant near Anchorage to the utility’s operations in Fairbanks. The company hopes to expand its business by trucking LNG about 500 miles from a proposed larger plant at Alaska’s Prudhoe Bay oil field south to Fairbanks — up to 40 tanker loads a day.

•Europe has been a groundbreaker for LNG fuels aboard ships. About 40 vessels in the Baltic and North seas — mostly ferries and work boats — primarily burn LNG. Government incentives helped the ship conversions and fueling stations. Public subsidies also are pushing along the LNG highway fueling stations that GNVERT is involved in.

•China is a leader in Asia. The country has about 60 small LNG plants supplying the market, according to the China LNG Association.

Still, it’s a steep mountain climb to take significant market share from oil-based fuels.

“Of the nearly 3 million Class 8 trucks (large highway trucks) operating in the United States and Canada currently, fewer than 5,000 are LNG-fueled vehicles,” Tom Campbell, a LNG fuel analyst at Texas-based consultancy Zeus Development Corp., noted in a recent essay for International Gas magazine.

Of the roughly 160,000 U.S. gas stations, just 71 have LNG pumps, according to the Department of Energy.

Shell, Clean Energy, GDF Suez and other companies involved are what business analysts call the early movers.

The industry is too new to have touched off the next wave on the road to success — the early followers.

Part 2 of this story will appear in the June 16 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.