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Transport's energy of the future

Cheap oil is stalling LNG’s growth in transport. But the opportunity remains great

THE GROWING glut of liquefied natural gas supply should be good news for consumers, and help expand the fuel’s use in both road and marine transport. Ever-tougher emissions regulations around the world is another spur that will help jostle it into mainstream markets.

The problem, for now, is that cheap crude – itself a reason for cheap Brent-indexed LNG – is making the short-term case for switching away from gasoline, diesel and other oil products less of an option for now.

In road transport, the main impetus for truck-fleet owners has been the differential between the cost of diesel and the cost of LNG, while in the marine sector it is environmental legislation that has been the driving force in maintaining the pace of adoption. LNG for road use is growing in China, North America and Europe; while Europe has very much been the trailblazer in the maritime sector.

Cedigaz, a forecaster for natural gas, reckons that LNG as a road transport fuel could absorb as much as 45m tonnes a year (t/y) of LNG globally by 2025, with that figure jumping to 96m t/y by 2035, while bunkered LNG for use as a fuel in ships could account for around 35.7m t/y in 2025 and 77m t/y in 2035.

That’s significant growth for a fuel mainly used at present as feedstock for power generation.

Substitute commodities

But these assumptions are based on oil prices being much higher than they are now – and at the moment LNG’s cost advantage over diesel is being eroded by cheap oil. For a number of potential users of LNG, this clearly makes the up-front investment needed to switch to the fuel look unnecessarily costly.

That should, though, be a short-term problem. Most analysts anticipate an oil-price recovery in the coming months. On the road, and especially in trucking, LNG’s market share should rise with that recovery. LNG-fuelled trucks produce around 20% less CO2 than diesel ones and were a third cheaper to run before the oil price crashed. They can also carry around twice as much fuel as compressed natural gas trucks.

LNG’s share of the transportation segment should rise with any oil-price recovery

China is estimated to have more than 175,000 LNG-fuelled vehicles on the road already. The US only has about 3,500, but has been quickly expanding its refuelling infrastructure over the course of the last few months. Europe is another major battleground. The European Union is set to make a significant play, with its increasingly tight environmental regulations and abundant LNG import capacity offering real potential.

The Japanese government is pushing the fuel hard too. Last year, the trade ministry’s director of oil and gas Ryo Minami said the government wanted at least 10% of the country’s 300,000 long-distance trucks to switch to LNG in the near-future, without setting a specific timeframe for making progress.

On the marine side, the drive to reduce SOx, NOx and CO2 emissions by introducing emissions control areas in regions across Europe, North America and the Caribbean has encouraged uptake of LNG fuel, which burns much more cleanly than heavy marine oil. Using LNG fuel almost completely eliminates emissions of solid particles and sulphur oxides, reduces nitrogen oxides by around 85-90% and cuts CO2 emissions by as much as 20-25%, though it does increase emissions of methane, which is a prevalent greenhouse gas.

Europe has led the development of LNG ship-engine technology, and through EU-level and government financial and political support for infrastructure development.

No post-mortem

Uptake has not been as rapid as was anticipated prior to the oil-price crash. At one point, DNV GL, an advisory and certification firm, said that up to 1,000 vessels would run on LNG by 2020. But with only 75 in operation at the moment − mostly in Norwegian and European waters − and a further 84 confirmed orders, that high-end forecast looks far too optimistic.

The sector is far from dead in the water, though. Further planned tightening of emissions rules around the world should increase uptake. Technological improvements are also improving cost effectiveness and engine efficiency, such as dual fuel engines that enable ships to run on LNG fuel in emissions control areas and use oil, as needed, on the high seas. Small-scale LNG production, which will make refuelling possible at more ports, and at more filling stations on land, is sure to help uptake.

Technological improvements are improving cost effectiveness and engine efficiency, such as dual fuel engines

The biggest driver could come from producers eager to find new customers for surplus LNG. In February, Qatargas 4 – a Qatar Petroleum-Shell joint venture – signed a deal to provide LNG from Ras Laffan to Maersk, owner of the world’s largest container vessel fleet, to fuel its ships in the Middle East. The project, which is due to be operational by 2020, could pioneer a new direct link between producers and end-users in transport. Analysts expect other such partnerships to emerge over the course of the next few years.

“Greater collaboration is needed among industry players in order to see the sector develop further,” says Martin Layfield, global gas segment director at DNV GL. He says deals of the Qatargas 4-Maersk kind need to be replicated in other regions, like the Americas and Asia Pacific. “Greater visibility of world-wide bunkering facilities and LNG availability is also important to stimulate the industry further,” he adds.

 This article is part of an in-depth series on offshore production. Next article: Floating LNG is drifting along.

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