According to Canadian economic studies, natural gas prices have fallen far enough to justify fuel conversions of industrial engines, and a top supplier has set out to lure business consumers into making the switch on a large scale.

For an extended trial marketing program, Shell Canada has obtained a two-year license to import up to 10 million liters (2.6 million U.S. gallons) of liquefied natural gas (LNG) from the United States. The permit applies at all truck import points along the Canada-U.S.border.

Shell’s license application told the National Energy Board (NEB), “We need to provide customers with the opportunity to use LNG in various applications — road and rail transport, drilling and so on. And allow them to use this information to determine if LNG is the right alternative fuel for their business.”

The program calls for northbound tanker truck deliveries of LNG from Prometheus Energy Group, a Redmond, WA-based joint venture of Royal Dutch Shell and the Cargill commodity trading house. Prometheus is awaiting approval of an LNG export authorization from the U.S. Department of Energy’s Office of Fossil Energy in Washington, DC. As Shell picked up its NEB permit, the second high-profile Canadian study of fuel-switching prospects in a year encouraged industrial diesel consumers to give natural gas a try.

The latest report, by the Conference Board of Canada, predicts that operators of heavy-duty trucks could save C$150,000 (U.S. dollar at par) per vehicle over 10 years if today’s relationships among gas, oil and diesel prices and taxes prevails. “This saving is nearly twice the cost of installing a natural gas engine — estimated at C$80,000 per vehicle,” the study said. The savings also have potential to double to C$314,000 if the current high in refined oil product prices and the low on natural gas markets turn out to be plateaus rather than temporary spikes, added the board researchers.

Similar projections, differing only in detail due to varying economic trend assumptions, were circulated across Canada last fall in a report by national fuel-switching advocacy group Natural Gas Use in Transportation Roundtable. The study predicted that conversion costs would be recovered in 20-36 months by various varieties of heavy diesel-powered vehicles.

So far, the most enthusiastic response has been in Quebec, where Robert Transport has ordered 180 LNG trucks. The wary transporter predicts recovering the premium sticker prices on the vehicles will take six years because maintenance costs are expected to be 20% higher than for diesel engines.

In Quebec, conversions are encouraged by provincial corporate tax write-off allowances for LNG vehicles. The incentives are part of a declared clean energy strategy that French Canadian leaders are fond of highlighting as the country’s strongest commitment to environmental virtue.

Shell’s priority markets for LNG conversion include Alberta, where natural gas has long been used as a lower-cost substitute for diesel in fossil fuel exploration and production hardware such as drilling rigs and pipeline and processing plant compressors. The top Canadian gas producer, Encana Corp., is expanding its use of its output in field operations (see NGI, March 26).

Heavy hauling by colossal vehicles is also a hallmark of highly mobile field operations across Alberta, which is 95% as big as Texas. Shell is offering to make LNG available at the Flying J chain of truck stops along about 800 kilometers (500 miles) of industrial routes between the oil sands capital of Fort McMurray and Calgary, and eventually on busy roads west into British Columbia.

If the imported diesel substitute attracts steady customers, the program could develop home-grown supplies by building an LNG manufacturing site at a Shell gas plant about 40 kilometers (25 miles) west of Calgary, called Jumping Pound after the site’s original use by aboriginal hunters for rounding up buffalo and stampeding them over a cliff.

The Alberta industry’s response remains far from an LNG rush. But a leader has stepped forward. Ferus Inc., a Calgary supplier of advanced oil and gas field fluids this spring announced putting into service the first LNG-powered heavy duty truck in Alberta.

Industrial fuel users are encouraged to consider the switch by government leaders, who support actions that counter the “dirty-oil” campaign waged against Alberta bitumen exports. Such moral support needs to be backed up by a commitment, the conference board economists said in their LNG conversion report. Prospective switchers have to gain confidence that Canadian federal and provincial governments will swear off their renowned penchant for levying stiff taxes on all staples — from fuels to liquor and tobacco — used in big enough volumes to generate significant revenue, the study warned.

About half of LNG’s price advantage is owed to the absence — so far — of federal and provincial excise or consumption taxes that inflate the cost of diesel and gasoline across Canada, the board report said. “Uncertainty over whether natural gas could lose its tax exemption compounds the disincentive created by the high capital cost of converting to natural gas engines.”

The Canadian addiction to consumer taxes shows in monthly fuel market surveys by MJ Ervin & Associates, a Calgary specialist in the field.

In March the national average price for unleaded gasoline hit C$1.31 per liter, which was equivalent to US$4.98/gal. Diesel tracks gasoline in Canadian fuel markets. At times diesel fetches a premium, depending on the locations of the pumps and the strength of regional industrial fuel demand. The March figure included average fuel taxes per liter of C39 cents, equivalent to US$1.48/gal.

©Copyright 2012Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.