Thursday, November 7, 2013

Potential of Natural Gas As Transportation Fuel in the US

Thanks to the US fracking energy revolution, US natural gas prices are about 3 to 4 times cheaper than the rest of the world.  US natural gas prices (at the wellhead) are running at about $3.6 per 1000 cubic feet.   On a BTU energy basis, natural gas is 5 times cheaper than oil.  In other words, oil would have to be priced at $22 per barrel to match the cost of natural gas' energy content. 

With that differential, you would think that there would be a big movement to use natural gas for transportation fuel.  There is movement in that direction, but it's been quite slow.  In contrast, natural gas is used widely for bus and automobile fuel in Asia, especially in Thailand (and Pakistan).  There are numerous filling stations there for CNG re-fueling (CNG=Compressed Natural Gas) in Thailand.  Most of the buses in Bangkok, for instance, use CNG.

Several things have inhibited the use of CNG for truck, fleet and auto fuel here in the US:  1) the price of CNG at the refilling station is only 2 to 2.5 times cheaper compared to natural gas wellhead prices.  This is due to transportation and marketing costs added to the wellhead price.  2) there hasn't been an CNG engine with enough horsepower to convert large tractor trailer trucks, 3) the build-out of CNG fueling stations has been slow despite widespread natural gas pipeline infrastructure in the US. 4) the conversion of automobiles to CNG is slow due to the limited filling stations.

A New Natural Gas Truck Engine Changes the Game

Now, I'm reading on Seeking Alpha that Cummins and Westport Innovations have come out with a new 12 liter natural gas engine that is suitable for large trucks.  This is a big game changer for the long haul industry.
Cummins Inc. recently announced its new ISX12-G engine, a 12-liter natural gas engine that delivers 400 horsepower and 1450 ft-lb of torque. It can run on either compressed ("CNG") or liquid ("LNG") natural gas and meets all 2013 U.S. Environmental Protection Agency (EPA) and California Air Resource Board emission standards. It also meets 2014 EPA and U.S. Department of Transportation fuel economy and greenhouse gases regulations. This is the engine the long-haul trucking sector has waited for and it is an absolute game changer.

Kenworth has already delivered its first truck based on the new ISX12-G engine.

In the past, some long-haul fleet managers were reluctant to begin using natural gas engines because of the need for a large and powerful engine. The new Cummins 12-liter engine solves this problem while delivering reduced fuel costs and emissions and enabling an ROI in as little as a year and a half.
This new engine is a game changer for the substitution of natural gas for diesel fuel.

In the meantime,  Clean Energy Inc and General Electric plan a further build-out of a retail natural gas fuel distribution network (click to enlarge):

US Natural Gas Filling Stations and Transportation Corridors

GE is also providing financing to long haul carriers. They are targeting an overall 1 year pay-back period for trucking companies to convert to CNG or LNG (Liquified Natural Gas) engines. They are doing so to promote their investment in the distribution network shown above.

US Oil Imports and Impact of CNG Use As Transportation Fuel

The US net import of petroleum is down to only 6 million barrels per day. Interestingly, we import about 9.3 million barrels per day of petroleum but we then re-export about 3.3 million barrels of refined products---mostly diesel fuel and gasoline.

The US uses about 9.5 million barrels per day of oil for gasoline consumption and about 2 million barrels per day in diesel consumption. There are already natural engine cars on the market and conversion kits are available from Westport Innovation. If long haul truckers convert to CNG or LNG and the number of filling stations increase as forecast, then more automobiles will convert to natural gas as well.

You can see that US imports of petroleum could easily drop by 2 or 3 million barrels per day in the near future. Our nation's net imports of oil could therefore drop to only 3 or 4 million barrels per day. This would further improve our nation's balance of trade and improve our balance of payments too--which is a very good thing. 

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