Favorable price spreads for U.S. produced liquefied natural gas (LNG) will continue for some time creating an opportunity for LNG to grow in importance in the long-haul trucking sector and other stationary operations, such as oil/gas drilling operations, according to Pace Global, a Fairfax, VA-based energy management consulting business that is part of Siemens.
On Thursday Pace Global conducted the first of three webinars on small-scale LNG applications, the first looking at why it works. In June and July it will explore LNG marine transportation and LNG trucking, respectively, said Todd Thurlow, a Pace Global vice president who conducted the first session.
While natural gas prices generally are important, and their relative levels compared to diesel are key, Thurlow said the “most significant risk factor” for growing LNG in the transportation sector would be sustained low crude oil prices of $50/bbl or lower.
“Our view is that we are not going to see sustained crude oil pricing below the $80/bbl range for a number of reasons,” Thurlow said. “Even with the expected growth in oil shale development here in North America, the federal EIA is forecasting a total increase in OPEC and non-OPEC production of about 8.5 million b/d, which they are forecasting to be totally offset by net global demand growth.
“Further, as we look at the fiscal breakeven point for OPEC reserves, we see the vast majority fall at or above the $80/bbl range. In summary, our view is that the current spread in price between LNG and diesel is durable, and we think it will be sustained over the midterm.”
Besides price advantages, small-scale LNG has the prospects for a large incremental market and also for cashing in on the need for more low-carbon solutions to meet more stringent air emissions standards.
“We’re seeing the producers and the suppliers really pushing the growth of small-scale LNG in response to a large potential market,” said Thurlow, adding that diesel in the United States is a roughly 50 billion-gallon annual market, or the equivalent of 8 Tcf of natural gas, or about one-third of the U.S. gas market.
Long-haul trucking, alone, represents about 36 billion gal./year, or a 4.7 Tcf market.
Thurlow said that these potential market numbers when compared to the slow or very low forecast demand growth in the traditional U.S. residential, commercial and industrial gas markets makes the on-highway trucking market look “very attractive.”
At present, there are only about 5,000 long-haul natural gas-fueled trucks in the United States among a total market of more than 3 million, Thurlow said. “That’s why we are seeing [natural gas] companies like Chesapeake, Apache, Encana and Shell really pushing hard to get traction in the on-highway market.”
Emphasizing the industry is still very early in the adoption of LNG as a vehicle fuel, Thurlow acknowledged lots of challenges remain. “At the end of 2013, we will have about 144 LNG fueling stations operating, and that compares to 120,000 stations providing gasoline and diesel,” he said.
Among the challenges to widespread adoption, Thurlow said, are things such as price uncertainty relative to diesel; limited capital for investment ahead of demand; tension between regulated and unregulated natural gas providers; and high upfront capital costs for switching to LNG.
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