With energy policies weighing in heavily towards a carbon-constrained future, natural gas is emerging as a clear frontrunner, offering benefits for the environment, energy security and trade opportunities. Natural gas produces 97% less carbon monoxide, 99% less particulate matter and 100% fewer evaporative emissions than gasoline, and is also significantly cheaper than oil.
LNG is one of the fastest growing segments of the global natural gas market and since it can be delivered to any destination with an LNG receiving terminal, this fuel is oftentimes more accessible when compared with pipeline gas.
Industry research suggests that LNG demand is forecast to rise by 4.6% annually over the next 15 years, faster than the overall gas market (2.5%), more than twice as fast as total global gas production (2.1% p.a.) and faster than inter-regional pipeline trade (3.0% p.a.). In 2010, LNG’s share of the global gas supply was 9%; by 2030 it is expected to account for 15%.
One of the key sectors that could drive LNG growth in the future is transportation, which is currently the single largest contributor to oil demand in many countries across the world, consuming approximately one-fifth of global primary energy.
Factors driving growth for LNG in this sector include new emissions requirements by governments and a narrowing gap between diesel and LNG vehicle ownership and operational costs.
Mapping diesel out: trucks and tankers take new routes
According to published data, with the price of diesel rising at an average 13% p.a. over the last decade, and natural gas trading at only 20 to 25% of diesel and gasoline prices on a heating value basis, some of the world’s largest energy consumers have recently drawn up new policies and projects to drive greater adoption of LNG for the road transportation sector.
Chesapeake Energy, a natural gas producer, believes that North America could benefit from a 30% drop in oil imports if US trucking companies replaced their diesel vehicles with trucks running on gas.
By November 2012, Clean Energy Fuels Corp. (Nasdaq: CLNE), North America’s leading provider of natural gas fuel for transportation, had completed 68 fueling station projects in 16 states, including five LNG truck fueling stations on America’s Natural Gas Highway. The project aims to offer 150 LNG truck filling stations connecting major transit routes across the US before the end of 2014.
America’s Natural Gas Highway got a further boost as key stakeholders, Clean Energy Fuels and GE, signed an agreement in December 2012 to provide fuel efficient technologies and micro-financing for the ‘Coast-to-Coast and Border-to-Border’ infrastructure.
China, the world’s second largest user of fuel, recently unveiled a natural gas policy advocating LNG for the first time, targeting the transport sector and covering buses, taxis, trucks and ships. The policy sets out the country’s aim to reduce its diesel dependency, the main fuel used in China’s transport sector.
The European Union has also set a target of increasing the share of biofuels and alternative fuels, including natural gas, to 10 and 20% respectively by 2020. In order to achieve these, a European project called the Blue Corridor has established four pan-European routes, with strategically placed LNG filling stations for heavy,
long-distance truck transport throughout the continent. These will guarantee fleets fuel availability along the Mediterranean coast into the inner parts of central Europe.
The wave rises for LNG in marine transport
While road transport is a significant potential market for LNG as a transportation fuel, the marine transportation market could become very sizeable. One of the biggest drivers for the uptake of LNG in marine transportation is the cost effective and fuel efficient technologies now becoming commercially available. Initial studies show that the use of LNG instead of diesel engines can reduce a ship’s CO2 emissions by 25% and cut its sulfur emissions by as much as 80%.
With the International Marine Organisation (IMO) introducing restrictions on emissions that will come into force in 2015 in the Emission Control Areas and 2020 for the rest of the world, LNG could be the leading candidate with a substantial share of the world bunker market given its environmental merits.
“A millennium ago, marine moved from oar to sail, two centuries ago sail to steam, a century ago steam to diesel, and now it’s a new era for gas,” said John Hatley PE, Americas Vice President Ship Power, Wärtsilä North America Inc. and a confirmed speaker at LNG 17.
Classification society Lloyd’s Register believes that LNG could account for up to 8% of total bunker fuel demand by 2025. Five ports are already developing LNG bunkering infrastructure, including Gothenburg and Nynashamn in Sweden, Zeebrugge in Belgium, Rotterdam in the Netherlands and Singapore.
Meanwhile, building LNG-powered ships is also proving to be cost effective. A study by Germanischer Lloyd, on the costs and benefits of using LNG to fuel container vessels, revealed that a payback time below two years is predicted for smaller vessels (using a standard fuel price scenario).
The road ahead
The opportunity for LNG in transportation is huge. Excluding LNG carriers, there are currently only 20 to 25 LNG fuelled vessels in operation, less than 1% of the world’s total commercial marine fleet. The situation is similar for road transportation vehicles where natural gas vehicles make up less than 2% of total vehicles on the road.
While the industry is not without challenges, the various instruments of government, industry, private sector and consumers are coming together to work towards an energy efficient future, thereby paving the path for LNG to be a fuel of the future.
Jay Copan, Executive Director of LNG 17 and Senior Advisor to the American Gas Association, discusses the global market outlook for LNG in transportation and what it will take to drive the industry forward, as will be discussed at LNG 17.
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