American Oil and Gas Reporter - October 2015 - 62

SpecialReport: LNG & Market Update
FIGURE 5
U.S. Heavy-Duty Truck Fuel Demand
2,000
1,000 bbl Diesel Equivalant

1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
2000
Diesel

2005

2010

2015

CNG

of 50,000 trucks converting 2,000 (4
percent). For that reason, large trucking
companies that can manage the risk and
centralize the knowledge from adopting
CNG and LNG will be the prime movers.
The more new trucks that enter service,
the more learning opportunities will occur
across both the trucking and engine manufacturing industries.
Fleet operators report plusses and minuses in their early experiences with natural gas-fueled engines. Power-intensive
methane detectors have to be installed in
the cab since natural gas is odorless, and
they can place a noticeable load on batteries. More expensive-and in some cases
more frequent-oil changes also are needed,
since natural gas engines' higher running
temperatures require a different type of
motor oil. More frequent tune-ups are
reported also, as technicians and drivers
work up the learning curve in how to optimally tune the engine.
Once tuned properly, however, maintenance requirements decline below that
of diesel engines, and everything else
appears to run almost flawlessly. Trucking
companies report breakdown or off-line
rates for trucks with natural gas engines
are less than half that for diesel trucks,
and natural gas engines may have longer
service lives.
Fueling infrastructure is essential to
putting more CNG and LNG long-haul
trucks on the road, and a certain level of
infrastructure is necessary to enable widespread adoption. States such as California
and Texas have been proactive in developing CNG and LNG stations, but most
62 THE AMERICAN OIL & GAS REPORTER

2020

2025

LNG

2030

2035

2040

Biodiesel

areas lack connected fueling networks to
support interstate trucking. Clean Energy
and Blu LNG are among those trying to
change that, but there is still much work
to be done. Nationwide, some 2,500
filling stations will be needed by 2040 to
support the anticipated level of CNG and
LNG trucking activity. That sounds like
a large number, but there are more than
10,000 diesel fueling stations in the United
States.
China already has more than 1,500
LNG and 3,000 CNG filling stations in
operation, At a minimum, the U.S. market
needs 250-300 accessible LNG stations
to fully cover the interstates.
Other Sectors
Infrastructure development also is critical for opening opportunities for LNG
and CNG outside the three main market
segments. One such potential opportunity
is LNG or CNG industrial applications
in areas that do not have access to gas
pipelines. In these cases, LNG or CNG
could be trucked to "stranded" hospitals,
paper mills and other smaller-scale industrial plants.
Other examples familiar to oil and
gas companies are drilling rigs and pressure pumping equipment. The option to
use field gas to power drilling and fracturing operations can create particularly
strong economics, considering that the
fuel cost is essentially the value of the
gas at the wellhead plus a marginal
treating cost. Moreover, the producer
gets a tax benefit by using field gas as
opposed to buying fuel from a third party.

If there is no sale, no buyer or seller, and
no custody transfer, then there is no tax.
Global LNG prices tend to track oil,
but not in United States, where both LNG
and CNG are based on Henry Hub natural
gas prices. Given U.S. natural gas prices,
CNG remains economically competitive
as a transportation fuel even at lower oil
prices. However, to cover the additional
cost of liquefying and transporting LNG
to fueling stations, the economics of using
LNG as a transportation fuel require
diesel prices of $2.50/gallon or higher,
equating to a minimum oil price range of
$80-$85/bbl. Lower oil prices may slow
the adoption of LNG and CNG in global
trucking fleets in the short term, but it
will not halt it.
The shift to natural gas as a transportation fuel will continue, based on the
expectations that oil prices will rebound,
stricter environmental compliance will
be required, and less volatile end-user
pricing will be easier to manage.
❒
RAFAEL MCDONALD is director
of global gas and LNG at IHS Energy
in Cambridge, Ma., where he provides
insights into critical long-term global
natural gas and LNG supply and demand issues. Before joining the company in 2007 as associate director of
global gas and LNG, McDonald served
as an environmental analyst in the
office of research and standards at
the Massachusetts Department of Environmental Protection, a research
assistant at Washington University in
St. Louis, and a consultant at Accenture. He holds a B.S. in chemical engineering from Princeton University
and an M.S. in environmental engineering, sustainable technologies, from
Washington University in St. Louis.

Coming In November

AOGR's Northeast Activity profile turns to leading Marcellus and
Utica players to identify optimal
drilling and completion practices.
Reports also feature a Marcellus case
study of applying advanced rock
properties to engineer staged completions, and optimizing horizontal
Utica wellbore orientation to improve productivity.

American Oil and Gas Reporter - October 2015

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