American Oil and Gas Reporter - October 2015 - 58

SpecialReport: LNG & Market Update

Factors Critical In LNG, CNG Adoption
By Rafael McDonald

CAMBRIDGE, MA.-Power generation
generally is regarded as the primary
growth market for natural gas, but the
transportation sector offers an emerging
market with potentially even more value.
Crude oil will remain the dominant source
of transportation fuel in the United States
and abroad, but significant growth is expected for both compressed natural gas
and liquefied natural gas.
The shift to natural gas as a transportation fuel has slowed considerably
with lower oil prices, but it is expected
to continue, based on expectations that
oil prices will rebound, environmental
regulations will continue to grow more
stringent, and less volatile end-user pricing
will be easier to manage. But transportation
fleets-whether on land or at sea-will not
take the risk of converting to a "new"
fuel unless fleet operators believe it is
safe, low-cost, reliable and available.
While the expanding market share for
natural gas in transportation applications
will have a comparatively minor impact

on oil demand in the foreseeable future,
it could prove quite meaningful to the
LNG industry, given the number of liquefaction facilities preparing to come on
line-including multiple U.S. export terminals.
The liquefaction capacity in various
stages of construction is leading to a
global oversupply, which will persist over
at least the next five years. Increased
transportation-related LNG consumption
in Asia, Europe, the United States and
other regions can help alleviate oversupply
concerns. Within 15 years, the trucking
and marine sectors are expected to account
for nearly 10 percent of all LNG traded
around the world.
The market for natural gas as a transportation fuel is still small, but the growth
opportunities are real for LNG as well as
CNG. By 2030, usage in three primary
consuming sectors-trucking, marine and
rail-are forecast to represent 3.25 trillion
cubic feet of annual global demand (Figure
1). At that level, natural gas would displace
as many as 1.5 million barrels a day of
diesel. Current world diesel demand is

FIGURE 1
Global CNG and LNG Demand in Trucking, Rail and Marine
3,500

200

150

2,500

2,000
100
1,500

1,000
50
500

0
2015

2020

2025

2030

2035

LNG - Trucks

LNG - Bunkers

LNG - Rail

CNG

Approximate diesel displacement

58 THE AMERICAN OIL & GAS REPORTER

0
2040

BCM

1,000 bbl/d Diesel Gallon Equivalent

3,000

about 26 MMbbl/d, with transportation
accounting for 70 percent of that consumption, according to the Fuels Institute.

Drivers Of Change
A combination of environmental, technological and commercial/economic variables is influencing the transition to
natural gas in the transportation sector.
These factors impact trucking, marine
and rail applications in unique ways, and
likely will lead to very different longterm outcomes in each segment. In addition, country-specific issues such as taxation policies and the development of
CNG/LNG fueling infrastructure also will
shape the CNG and LNG adoption curves.
The major rationale for converting
diesel engines to natural gas has been
the high cost of diesel. Not surprisingly,
the economics that work so well at oil
prices of $85-$100 a barrel are totally
different at $45-$60/bbl. On an energy
equivalent basis, however, natural gas is
still a bargain. Even at $45 oil, the natural
gas equivalent cost of diesel is about
$7.75 MMBtu. Low oil prices may diminish the economic merits of using natural gas as a vehicle fuel, but there are
still some fuel cost savings and environmental benefits.
The considerations for whether to convert to LNG or CNG are distinctly different
for trucks, ships and trains, and tend to
vary by region/country. But the engines
used in all three segments have at least
one characteristic in common: they use a
lot of fuel. That is key, because the higher
the fuel consumption, the better the conversion economics tend to work, especially
at lower diesel prices.
Ocean shipping favors LNG over
CNG, and one of the reasons is available
onboard fuel storage space. The volumetric
energy density of LNG is lower than
bunker oil, so it takes 1.6 times more
LNG by volume to get the same amount
of energy. That means 1.7 times more
physical space is needed to store the energy-equivalent as LNG onboard. CNG
requires even more space-on the order
of 3.8 times the same space as diesel.
Both CNG and LNG conversions are
still in early pilot testing phases in the
railroad segment, but natural gas appears
to be a good technological solution. CNG
is more applicable to locomotives that
run short-haul regional or "switching"



American Oil and Gas Reporter - October 2015

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American Oil and Gas Reporter - October 2015 - Cover1
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