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What Are We Going to Do With All This Gas?

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What Are We Going to Do With All This Gas?

Now that we know we can successfully produce gas from U.S. shale gas plays, the question remains: What do we do with all this supply?

Price differentials between the low U.S. natural gas prices versus diesel, gasoline and propane are providing incentives for fuel-switching in other demand areas aside from the electric power and industrial sectors, and the abundance of U.S. natural gas has prompted some oil and gas companies to find new ways to use gas.

The U.S. trucking sector offers the greatest opportunity for gas to substitute transportation fuels. Prior to the economic downturn, approximately 65 billion gallons a year were consumed by diesel vehicles; two thirds of the vehicle segment is comprised of large semi tractor trailers, said David Schultz, vice president of fuels at Pivotal LNG, a subsidiary of Atlanta-based AGL Resources. Through Pivotal, AGL is positioning itself using its existing gas liquefaction capacity to capture the growing market opportunities for switching to gas from other fuel options.

Liquefied natural gas (LNG) is a viable, economic and environmentally beneficial substitute for heavy duty truck and competes attractively with propane. Propane prices, which track oil prices, have risen along with crude, giving LNG a competitive cost advantage. Opportunities for fuel switching to natural gas will likely continue as U.S. gas prices and crude oil prices trade at a widespread, as demand for crude oil is enormous worldwide, and the amount of U.S. gas that can't participate in the international gas market is enormous, said Schultz.

LNG, which is a denser energy source than compressed natural gas (CNG), works best for heavy duty fleet vehicles, while CNG makes more sense for lighter vehicles such as personal cars or garbage trucks that require less energy density.

After trucking, the drilling rig sector is the second largest potential market for fuel swapping, with approximately 1 billion gallons of diesel consumed a year. Pivotal is selling LNG to EnCana to power rigs drilling in Louisiana's Haynesville shale play.

EnCana also has utilized gas-powered drilling rigs owned by Calgary-based rig provider Ensign Energy Services to drill at its Jonah field in Wyoming's Green River basin. The company, which owns 350 rigs worldwide, has a fleet of 16 rigs that can be powered by LNG or wellhead gas.

The company, which drilled the first well with a gas-powered rig in 2007, has received numerous calls from operators and producers interested in utilizing the rigs, said Will Matthews, vice president of marketing at Ensign.

"We see it as a three-legged stool of benefits. It saves operators a lot of money, it's significantly better for the environment and it utilizes a fuel that's domestically produced," Matthews said.

Beyond vehicles, rigs and marine vessels, new markets that represent new gas demand continue to emerge. In Minnesota, one company switched from using propane to dry corn to natural gas. In less than one corn drying season, they were able to pay off the dryers.

According to a 2010 IHS CERA report, Fueling North America's Energy Future, as much as 36 Bcf/d of gas would be required to displace transportation fuels if all North American light duty vehicles were converted to gas. If all diesel trucks converted to gas, 13 Bcf/d of gas would be required, or 6 Bcf/d if only heavy duty vehicles switched. An estimated 0.5 Bcf/d of gas would be needed to displace transportation fuels if all diesel buses switched to gas.

America's Natural Gas Alliance (ANGA) has touted the use of natural gas vehicles in the U.S. as a means of weaning U.S. dependence on foreign energy imports while creating jobs in the U.S. The organization said natural gas vehicles outperform conventional vehicles with a significantly higher octane rating, and provide better fuel efficiency and lower operating costs while reducing emissions. –

According to ANGA press materials, gas vehicles run 25 percent cleaner than vehicles powered by gas or diesel, and can help curb U.S. carbon dioxide emissions, of which transportation accounts for 30 percent. Gas-powered vehicles also can reduce smog-producing nitrous oxide pollutants by up to 95 percent.

Growing the infrastructure to support natural gas as a transportation fuel will be critical to growing the fleet of gas-powered vehicles on U.S. roads. Some efforts have been made to increase the usage of natural gas in transportation, such as natural gas corridor highways and fueling stations in California, Utah and Texas. Public bus fleets in cities such as Los Angeles, Boston, Dallas and Washington D.C. also have been converted to gas-powered buses.

Growing widespread use of gas in this sector is a chicken and egg situation, said IHS CERA Director of Global Gas and LNG Rafael McDonald.

"Why build a retail fueling station when you have no trucks on the road, and why would you buy a gas powered truck if you have nowhere to refill it?" McDonald questioned.

To lock down demand, cooperative efforts for gas consumption in the transportation sector likely will continue. One example of these efforts is Chesapeake Energy and GE's March 7 announcement of an alliance to promote the use of natural gas as a fuel for cars and trucks.

ANGA reports that 112,000 gas vehicles are on the U.S. roads today, and about 1,000 gas fueling stations in existence, mostly of which are concentrated in New York and California. Globally, more than 12 million gas vehicles are in use, according to the American Gas Association website.

McDonald said IHS CERA is even more optimistic on marine bunkers for gas demand in the transportation sector, particularly heavy duty marine bunkers, which use even more fuel than the trucks.

The ability of marine bunkers to burn LNG is critical in emission control areas in parts of the world where emissions of sulphur and nitrous oxides must be controlled, such as Northwest Europe, the Baltic Sea area and the U.S. East Coast; similar rules are expected to be adopted in the Caribbean and Mediterranean regions.

Farther out at sea, polluting fuels can be used, but some are deciding it's easier to go with a straight LNG ship. Scrubbers, which are used to curb emissions from power plants, also can be used on vessels to reduce emissions.

Shell's Efforts to Find Markets for Gas

Global efforts to develop the gas value chain are also underway. Royal Dutch Shell CEO Peter Voser told attendees at the IHS CERAWeek conference earlier this month that the company is working hard to find ways to use abundant gas supplies.

The use of liquefied natural gas (LNG) as a transportation fuel holds tremendous promise as a cleaner transportation fuel.

"As an alternative to diesel, it's a smart way to reduce emissions of sulphur-oxides and particulates," Voser said.

Shell is looking at using LNG as a marine fuel in Singapore and the port of Rotterdam, The Netherlands. The company also is preparing to make LNG available this year to fleet operators along the busy truck route from Calgary to Edmonton, Voser said.

The company will also install a small-scale gas-liquefaction plant in Alberta and dispense LNG at Shell/Flying J truck stops throughout western Canada.

"Drawing on the region's natural gas to produce to LNG, we believe fleets on this route could see a reduction in greenhouse gas emissions of up to 20 percent on a well-to-wheels basis," Voser commented.

Additionally, Shell is investigating ways to use LNG as a transport fuel in the rail and mining sectors, as well as in oil and gas drilling, Voser noted, adding that gas can provide "a cleaner source of electricity than coal for the world's growing fleet of electric vehicles, which would further reduce many countries' need to import oil."

Gas-to-liquids technology, in which gas is transformed into higher value liquid fuels and chemicals, is another area in which Shell is expanding the value chain for gas. In 2011, Shell opened the Pearl GTL plant in Qatar, the world's largest GTL plant. Pearl produces GTL gasoil, a clean-burning diesel-type automotive fuel, GTL kerosene that can be used for jet fuel, and a variety of chemical feedstocks for lubricants, detergents and petrochemicals.

"We think GTL technology could make a lot of sense in North America," said Voser. "It would further reduce the need for imported oil while deriving greater value from this region's natural gas resources."



Karen Boman has more than 10 years of experience covering the upstream oil and gas sector. Email Karen at kboman@rigzone.com.

WHAT DO YOU THINK?

Post a Comment Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
REB | Apr. 5, 2012
I worked on cng powered buses. Until they create a better pump system and a better way to store cng on a vehicle the consumer will not benefit from cng. The heavy duty tanks to hold the cng fuel due to compression will be very big. The buses I worked on had 5 tanks approx.4 feet long and twice as big as a divers tanks. cng compressed to approx. 8000psi. The buses were in the shop more than on the road. there is more I just ran out of time.

alex mtz | Mar. 25, 2012
What resources are being implimented for present vehicle owners to utilize lng?

Will | Mar. 24, 2012
seen many vechicals in Thailand running on LNG, the taxi driver said it cost him about 800$ to convert his cab, also he could still switch back to gas at the flick of the switch. Surprised this is not happening here yet.

Bob Rakestraw | Mar. 23, 2012
A company I worked for years ago operated a number of oil field trucks that operated on either LPG or gasoline and the drivers prefered to use gasoline rather than LPG as gasoline developed much more power which was important with heavy haul or off road duty - I never see any mention of relative power developed with other fuels

Barbara Saunders | Mar. 23, 2012
I don't think there will ever be serious worries about too much oil, but gas could become a problem ...

Víctor Silva | Mar. 23, 2012
I think, shell is doing what have to be done. The right questión is: What are we going to do whit all that oil? I am think in Venezuela, my country.

cpatton | Mar. 20, 2012
It all sounds good when will someone actually do something about it? where have these guys been? wasn't this what "T Boone Pickens" was saying 5-6 years ago? Its no wonder the US can't get ahead of these upcoming 3rd world countrys, it take 20 years for US to get anything in place, and by that time,it`s time to do another study, lets get this done, I'm sick of paying $4.00 for Diesel fuel

Don R | Mar. 20, 2012
Based on my recent conversations with two inviduals whose company paid for the conversions, an SUV runs between $8000 and $11,000. An individual who did his own conversion spent about $2200. The differential is attributeable to some gouging but mainly the EPA. I saw it done to a taxi cab in Venezuela in 1997 and he told me spent about $200.

Phil Eyler | Mar. 20, 2012
What am I missing here? How do you compress, super-chill, distribute, and carry LNG in small volumes for trucks? The amount boiled off in long distance tankers is already huge.

bob | Mar. 19, 2012
I would like to convert my vehicles to CNG, I am a consultant in the oil field and can see that converting to CNG would be a great benefit. The cost of conversion is an issue but with gasoline prices continuing to increase the offset just might be worth it. I do know some fuel stops in the Oklahoma City area already have filling ports for CNG. So, where would I get a conversion? An estimate maybe?

Jamesvslowey | Mar. 19, 2012
I think that with all the gas around they need to gear up to gas to fuel Options.

MrColdWaterOfRealityMan | Mar. 19, 2012
A back of the envelope calculation tells me that 1 trillion cubic feet of NG is energetically equivalent to about 166 million barrels of oil. Depending on whose resource/reserve numbers you believe, converting this gas to oil and petroleum products could extend the oil supply for the USA by as much as 20 years. Thats a lot more than exists in Anwar or the GOM. The questions, as always, are how much of it can be made economically and energetically profitable and in what timeframe? NG could be critically important for keeping the energy supply chain itself self-sustaining for a longer period of time.

Mike Foster | Mar. 19, 2012
Realisticly it seems that outside of bus fleets one could assume a maximum 2 to 3% percent gain of the total in the most promising of the categories ove rthe next 5 years. How could the rate of gain be bigger than that? Thus are we to expect a few million cubic feet of incremental daily demand at best?

Thomas Thornton | Mar. 19, 2012
Well written article. Keep up the good work!

Jay Beigh | Mar. 19, 2012
I keep hearing that the audited reserve estimates show that the numbers are overblown by 1/3rd to 1/2? Still a lot of it, no doubt. Who is going to fund and build all the pipeline to get it unstranded? Ben Bernanke?

Eric Hevle | Mar. 19, 2012
How can LNG be used as transportation fuel when it is not liquid phase at ambient temperature? Are you talking about NGL, GTL or LPG when you refer to using "LNG" as a transportation fuel? What are the economics associated with these technologies which would require capital investment in plant and consume energy in process but would result in stable liquid fuels to compete with diesel and gasoline?


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