LNG as a Fuel: Isolating "Sweet Spots" in Demand
In a session dedicated to “LNG as an alternative fuel” at the World Gas Conference in Paris, France, Richard Lammons, Manager, Commercialization, Chevron, who chaired the session, noted that a success factor in the evolution of LNG as fuel is growth in the availability of small scale LNG facilities, with the business developing rapidly across the globe.
The session, he said, would explore the evolving role of LNG as a fuel across all industries that consume hydrocarbon energy, especially transportation – road, rail, marine or aviation, heavy machinery, mining, drilling, agriculture and power generation.
According to him, it is possible to witness real-time evolution of LNG as a fuel. “Every day you see another opportunity that is being captured, another business that's being expanded,” he observed.
One of the session's speakers was Michael Stoppard, Chief Strategist, Global Gas, IHS Energy, who outlined the market and economic prospects for LNG as a transportation fuel. He noted that there is much talk of a revolution on the supply side of the production of natural gas, which he said is about the development of sweet spots of shale gas.
“I'd like to suggest that if we're to find markets and value for gas we need to develop sweet spots on the demand side; that we need to do a better job of developing the market and demand for natural gas,” he offered, adding this it is possible to do this in the space of LNG as a fuel for trucks.
Noting the drastic change in oil prices, he said it is a tough market with serious headwinds for those operating in the heavy duty vehicle market for alternative fuels relative to oil at this time. Still, Mr. Stoppard contended that for the medium and long-term market perspective the prospects remain strong, so it is good to look beyond the short-term cycle.
The global outlooks for gas, he observed, are very much focused on the power sector. He commented, “Power is seen as the key big growth market for gas; transport's something of an afterthought, something of a niche market.”
He asked whether more value might be achieved by turning the focus away from power and more toward the transport market, trying to get the full value of the oil-diesel value chain.
“We do believe that the value of gas in transport can be stronger than in power, as the oil price recovers, as it will, and as natural gas vehicle truck costs decline in retail infrastructure expands,” he opined.
The medium-term outlooks, he offered, remain very positive. Meanwhile, according to IHS global gas is set to increase from 125 TCF to up to 180 TCF by 2030. “Almost 50% of that growth is expected to be in the power generation market; the industrial market is expected to be the second main driver of growth; and a smaller, but I think very important market, for transportation with significant potential upside if we can crack some of the key challenges.”
He showed how the industry is facing a “value squeeze” in the power sector, under pressure from low cost competitive coal. “We expect the differential between coal and LNG to remain at at least the $4-6 level – that's a big premium to ask people in the power sector to pay to use LNG versus coal.”
The sector also faces competition from the renewable sector, with costs from onshore wind and PV coming down already below or less EUR 100/megawatt hour and likely to fall less rapidly than in the past, “but surely they can go only one way – renewable costs will continue to come down.”
Alongside the enormous pollution advantages of gas for transport there are also developments on the engine and tank storage side of the business, according to him. In terms of historical price relationships, the gas versus diesel price has come down significantly as of late last year, he said. While bearing a lower price advantage in Asia, it is still significant and likely to grow.
In China, an action plan for air pollution prevention has transportation prioritized for gas use. He commented, “In Europe, this is still seen as a very early opportunity, but I think we need to keep our eye on the European Commission Power for Transport package. The European Commission policy is now beginning to look beyond decarbonization within the power sector and beginning to focus on the environmental challenge and policy challenge within the transport sector.”
Mr. Stoppard broke down the global oil market into sector: heavy goods vehicles (HGV), shipping and rail. He explained: “These are sizeable areas which the LNG industry can go after.”
He showed that the consumption used for HGV (12 million barrels/day) is not that much different than the demand for cars (15 million barrels/day).
“If LNG could just get 10% of the HGV market we're up to over 50 million tons of LNG – a very significant potential incremental demand that would be for the LNG industry. The entire global LNG industry in its traditional form is somewhere in the equivalent of 6 million barrels/day – only half the size of the truck fuel,” he explained, underlining the importance of the heavy truck market, which has far more consumption than for the use of busses.
In connection with changing truck fleets to gas, he showed the average life of trucks in China, the US and Europe, explaining the average life of a truck in China is 4 years. “Most of the trucks on the road in 2020 have not yet been ordered or built,” he said, “so the chance to get a transformation in the technology and the fuel use.”
Successful penetration of gas engines into the truck market, getting into China and a quick turnover in the US – 7 years for a truck, and maybe more like 10 years in Europe.
By 2040, according to the IHS study, LNG will win approximately 13% (80 BCM) of the global market for heavy freight from diesel; CNG winning approximatly 10% (60-70 BCM).
Ralf Grosshauser, Senior Vice President, Ramp-up Management Gas, MAN Diesel&Turbo SE, said his company is a worldwide producer of diesel engines, and the company's applications are typically diesel driven, things like trucks and busses, 4-stroke engines in propulsion and power plants.
Noting the forthcoming population growth and resulting energy demand growth in transportation, he said that MAN, as a manufacturer, feels the need to contribute to improving the greenhouse gas emissions situation. As gas is the cleanest fossil fuel, for example a gas-driven power plant is more optimal in a rural situation than a diesel one, Mr. Grosshauser admitted.
“Today about 50% of seaborne transportation of goods is propelled by 2-stroke engines, so we have a huge responsibility to offer those opportunities related to gas to our customers, to our markets,” he opined.
For these reasons, he said MAN has developed a huge portfolio of gas-driven engines.
He said that the company's engines have tremendous field experience in the diesel world, with 150,000 hours operating per piece being “nothing special.”
“That's our world,” he remarked, explaining that all this experience has been transferred into gas engines complemented with new technology on the gas trend side, including the combustion chamber.
Mr. Grosshauser described the “chicken and egg problem” of using gas as a marine fuel, requiring 20-25 years of investment into a ship, making it difficult to take such risks. Given that, about 2 years ago the first pure gas-driven 2-stroke propelled ship was unveiled, he recalled.
“It's soon to be commissioned and it was quite surprising and promising that in the meantime about 130 gas engines of that size are on order; it sounds like a small number, but not when you consider that about 6-700 2-stroke engines are produced per year, then it's quite a good start,” he said.
This is a signal, he said, that the market believes in gas. Still, marine transport is still dominated by duel fuel, which is more accepted, he said, for example, for LNG carriers.
In power generation, he reported that MAN is offering the biggest 4-stroke gas engine with more than 20 megawatts of power; an engine to be soon released, he added, had 49% power efficiency, including all pumps and supply systems.
He described a “power ship” which is transported to different areas for operation. “And the owner never knows whether the next job he has to fulfill is in an infrastructure where gas is available, so duel fuel is the option to go with.”
Combined heat and power, according to Mr. Grosshauser, enabled the use of heat emanating from the generator making it is possible to get an efficiency of 90% or more, depending on the ratio of gas, steam and hot water. “The advantage compared to more standardized gas turbine applications is that a diesel engine offers relatively more electricity compared to the steam produced, so the ratio is one to one; compared to a gas turbine, it's one to two.”
CHP, he explained, is a baseload application, but more and more peak load requirements are emerging. He offered, “International power producers want to participate in the spot market for electricity in order to balance the instability of renewables. Here it is necessary and relevant that power can be supplied within a very short time.”
Now, he added, modern gas engines do not have the reduced torque like those of days gone by.
“If the command comes from net management to supply power it takes about a minute to accelerate the engine up to full speed and synchronize with the grid and, after 4 and a half minutes the engine is available in full load,” he explained, “giving a much higher flexibility than a typical gas turbine application can ever provide.”
For transportation, Mr. Grosshauer said it is a question of infrastructure. MAN, he said, has recently won an award for LNG bus of the year. For trucks, rural application is less developed – middle and long-haul transport are challenges. MAN is using LNG and CNG in order to offer flexibility.
MAN, he said, is able to provide a huge range of gas engines. “All the application segments – marine, power, transportation – can be fulfilled with these gas engines without problem seen from the gas engine point of view, and certainly the big benefit is the local combustion creates less pollution than diesel oil does.”
However, he offered the caveat that at present, based on the example of a 40-ton trailer truck, the overall relative CO2 emissions related to using LNG as a fuel are higher than those from a diesel engine, due to the production and transportation of LNG. “The engine is there, but we have to improve the infrastructure. We have to make the whole picture look attractive," he said.