Royal Dutch Shell is changing lanes. While oil development will continue to dominate its portfolio, the energy developer is now making plans to invest heavily in liquefied natural gas, or LNG. Shell, and others, see the export of the super-cooled natural gas as a lucrative venture.
The tea leaves would tend to indicate that the transportation sector will increasingly fill up using natural gas: LNG is best with heavy duty trucks while compressed natural gas, or CNG, is used to power passenger vehicles and corporate fleets. The momentum, however, will be slow mainly because of a nascent infrastructure that would support such changes. But some high profile public and private players are working on that, and are expecting success.
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“As global demand for transportation fuel increases, including LNG, Shell is well positioned to meet this demand,” says Marvin Odum, president of Shell Oil Company. “LNG will be a welcome addition to Shell’s portfolio of quality transportation fuels.”
What’s Shell up to? It is working with Wartsila North America to develop larger engines that could run on the fuel. It is also joining with Westport Innovations to co-market the need for new LNG-fueled trucks as well as partnering with GE’s transportation division to assist the rail industry in building locomotive engines that can function on both diesel and LNG.
As for Shell, this year marks the first time that its natural gas production exceeded that of its oil development. Shell says that it expects the global demand for LNG to double to 400 million tons by 2020 and to potentially as much as 500 million tons by 2025.
Meeting this demand will require an industry investment of $700 billion. Right now, Shell has 22 million tons on stream today that is being manufactured in Australia, Indonesia and North America. It is also working with China, South Africa and Ukraine to help those nations maximize their natural gas potential.
The selling point is that natural gas used for transportation cost 25 percent less than petroleum. It’s also cleaner. Consider Weld County, Colorado: It says that it received its first LNG truck in July 2012 and that it has already realized a 22 percent reduction in fuel costs, or $25,000 a year in fuel savings per truck, according to a news story in the Northern Colorado Gazette.
“Right now, it is costing us 20 percent less per mile to run our LNG trucks versus our diesel trucks,” Jay McDonald, a country supervisor, told the paper.
Clean Energy Fuels is a champion of LNG, saying that it costs the equivalent of a $1.50 gallon. The company now has 75 LNG fueling stations but it is in the process of doubling that. As such, it is working with GE to achieve just that.
Clean Energy is buying two LNG plants from GE Oil and Gas., which will provide $200 million in financing. The facilities, which will supercool the natural gas so that it can be transported to the filling stations, are expected to be operational by 2015. They will supply 250,000 gallons per day, or enough to fill 28,000 trucks, says GE.
Both Clean Energy and GE say that the existing market provides a gauge. They point to Fed Ex and to UPS, which are using increasing amounts of compressed natural gas (CNG). They also note that Waste Management has announced that it will use CNG for 80 percent of its new trucks that haul trash. Once those entities start saving money, the partners argue that their competition would have no choice but to make similar business choices.
While CNG is primarily used in cars, buses and smaller trucks, the LNG that is getting rolled out at Clean Energy’s fueling stations is targeting long-haul, heavy-duty trucks, which will have the advantage of longer driving ranges while not impacting tractor weight and incremental costs, says the company’s release. In 2013, four major manufacturers will introduce a 12-liter LNG engine, which is the optimum size for heavy-duty 18-wheeler trucks.
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“As the long-haul trucking industry begins its transition to natural gas, it will be critical to have a reliable supply of LNG,” says Andrew Littlefair, who spoke to this reporter via a conference call.
Cost, of course, is a major consideration. Here, the American Trucking Association is working with U.S. lawmakers to help subsidize this conversion. President Obama is in favor of using government’s levers to help make the transition to cleaner burning fuels but the fiscal hawks say that taxpayers cannot afford it.
What else may block the road? Chemical makers are concerned that an increased demand for natural gas at home and from abroad would drive up their cost of doing business while environmental groups are worried about excessive and harmful drilling. The Obama administration is signaling that it will allow U.S. natural gas, or LNG, to be exported while also saying that the controversial “fracking” techniques can be properly regulated.
“I’m not going get out my crystal ball and say when this will move into the passenger vehicle market will occur,” says Littlefair. “It starts with fleets. The same thing will happen in trucking. But it will take a while to filter through the system. It will be very manageable. So, you can build both power plants and supply transport without significantly affecting prices.”
It would appear that all roads lead to a natural gas-fueled transport sector. But a number of blockades line the route, namely the widening of infrastructure and the cost of conversion. Things will evolve, although the pace of change will be slow and will track the retirement of existing fleets.