As midstream companies scramble to build and expand large pipeline systems across the country, their counterparts in the energy logistics sector are working quietly to provide complementary services that can't compete with those kind of volumes, but can instead help get natural gas to a growing list of end-users.
Virtual pipelines, said a group of panelists speaking at Penn State's Natural Gas Utilization conference in Cannonsburg, PA, are growing increasingly important as onshore natural gas output keeps rising, acute bottlenecks in areas like the Appalachian Basin pose logistical problems and more customers turn to natural gas for their energy needs.
Defined as a supply chain that moves natural gas from its source to the end-user with alternatives to pipelines such as ships, rail cars or trucks, virtual pipelines, the panelists said, provide customers other than power generators, public utilities or large industrial customers, with an attractive, quick and low-cost alternative to high-volume pipelines.
"There are strains on the existing pipeline infrastructure; there is time and expenses required to build those out," said Praxair Chief Scientist Dante Bonaquist. "Volumes are really the key, so small-volume pipelines are really not economical. At $200,000 per diameter inch mile, these large pipelines also face routing and permitting issues -- the cost structure is not insignificant. Virtual pipelines, on the other hand, can be implemented on a relatively short time scale."
Although compressed natural gas (CNG) can be transported via rail, ship or truck, and technology is being developed to reduce fill times, liquefied natural gas (LNG) currently makes more sense for long-haul transportation users, Pennsylvania-based REV LNG LLC CEO David Kailbourne said.
Bonaquist offered an example of a project in Brazil, where international gas distributor Praxair was able to establish an LNG virtual pipeline for 26 industrial customers in less than two years. The gas is sourced at a liquefaction facility and then trucked and stored on site. Those facilities, he said, each use 500-15,000 gallons/d of LNG.
Kailbourne said LNG is safe, abundant, economical, local and environmentally friendly. Even in a condensed state it retains its energy content, has a low flammability, and if spilled, it vaporizes.
"With characteristics like this, it's made LNG one of the safest fuels in the last 60 years around the globe," he said.
More importantly, virtual pipelines make more sense than pipelines for some customers, he said. A recent report from Navigant Research estimates that worldwide annual medium- and heavy-duty natural gas vehicle sales and conversions will grow from the current 4.3 million to 7.1 million vehicles by 2035 (see Daily GPI, July 14). Although on-road applications represent an opportunity for the virtual pipeline industry and natural gas producers, Kailbourne said off-road applications represent one of the fastest-growing markets for virtual pipelines and LNG.
Railroads, he said, have become more interested in using the fuel to power their fleets, with advanced engine tests ongoing. But marine applications, Kailbourne said, are the biggest opportunity. There are currently more than 120 ships running on LNG in Europe, with substantial orders pouring in to run U.S. ships with LNG as well, he said.
Kailbourne said some of the foreign ships that will begin arriving to take Appalachian ethane overseas next year are dual-fuel, which presents another opportunity for LNG. In Pennsylvania alone, Marcellus Shale gas could be used to power vessels in three major ports in Erie, Pittsburgh and Philadelphia, he said.
For now, Kailbourne said his largest customers are exploration and production companies themselves. REV LNG, which sources and delivers the fuel, supports about a dozen natural gas powered rigs from Pennsylvania to West Virginia, while hydraulic fracture fleets consume 10,000-20,000 gallons of LNG on a typical job.
"Some of these industries will have to be served by virtual pipeline. [LNG] will have to be made, trucked in and bunkered in some capacity," he said. "Parts of this business are going to start evolving in the next couple of years. In our point of view, the virtual pipeline industry is going to have to solve this and serve these customers. You can't put a liquefaction plant in every single one of these locations. So, you'll have to build it out in a hub-and-spoke manner."