Infrastructure Development, Customer Attitudes Challenge LNG for Off-Road Uses

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Researched by Industrial Info Resources (Sugar Land, Texas)--Makers of liquefied natural gas (LNG) products for off-road industries continue to face a number of challenges, ranging from customer attitudes to infrastructure development. Opinions among the industry differ regarding which is the greatest hurdle.

Matt Thayer, global mining manager for Air Products (NYSE:APD) (Allentown, Pennsylvania), attended last week's "Natural Gas for Off Road Applications USA" conference in Houston. The conference covered natural gas use for mining, oil and gas exploration and production, railways, and marine vessels.

Industrial Info is tracking $192 billion worth of LNG-related projects, including Cambridge Energy LLC's (Bermuda) $6 billion Port Fourchon Grassroot LNG Offshore Liquefaction and Export Terminal. The Louisiana facility will include two LNG barges (pre-fabricated) with an inlet capacity of 1.07 billion cubic feet per day. It will be able to produce 8 million metric tons per year. The project's estimated completion is March 2018.

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"Infrastructure will be the biggest driving factor within the industry, between pipelines and the ability for liquefaction," Thayer told Industrial Info. Air Products designs, manufactures and exports coil-wound heat exchangers for LNG projects around the globe, as well as process technology and equipment for natural gas liquefaction.

Much of the conference focused on the availability of LNG fuel for remote sites, as well as new LNG engines and conversion kits for existing engines.

For the mining industry, heavy equipment manufacturers such as Caterpillar (NYSE:CAT) (Peoria, Illinois), Volvo (Gothenburg, Sweden) and Komatsu (Tokyo, Japan), "are being very meticulous to ensure their equipment is not damaged [by LNG], or that it does not adversely affect the longevity of their equipment," Thayer said, adding at least one of the big equipment manufacturers is likely to start rolling out new LNG-fed products by 2017. "They want to ensure they don't have a misstep, because you can't afford a misstep in this industry."

Caterpillar and Shell Canada, part of Royal Dutch Shell (NYSE:RDS.A) (The Hague, Netherlands), signed an agreement late last year to test a new engine and fuel mix using LNG at Shell's oil sands operations near Fort McMurray, Alberta, with the goal of reducing operating costs and greenhouse gas emissions. Field testing of dual fuel (LNG and diesel) mining trucks was expected to begin in 2016, with the trial expected to last up to one year.

Others at the conference said the biggest challenge for the industry is the willingness of customers to adopt LNG-driven technology. Those customers who have used diesel-fuel technology for the better part of a century often do not see the need to change.

Use of natural gas offers a significant cost advantage over diesel fuel, delivering an advantage of as much as 30% to 60%. Mining projects often run into the billions of dollars, Thayer said, and while not much can be done to reduce capital expenses for such projects, the use of LNG can greatly reduce operational costs.

Speaking at the conference, Sara Van Der Paelt, director of sales business markets for Union Gas Limited (Chatham, Ontario) said LNG also offers more price stability than diesel. Only about 30% of the price of LNG is directly tied to natural gas costs, with the other two-thirds tied to liquefaction and transportation costs. In comparison, roughly 65% of the price of diesel fuel is tied to crude oil costs, she said.

Using natural gas in vehicles and equipment also is touted as a way for various industries to meet government air emissions standards. Developing the technology to meet current and future U.S. air emissions standards is another challenge, according to some at the LNG conference. Countries in places such as South America have used LNG to power vehicles and equipment for years, one conference attendee said, but many countries do not have as stringent air quality standards as the U.S.

Public perception, or misperception, of the safety of LNG is another issue. Conference attendants cited news reports and an accompanying video of a fatal explosion in China in 2012 as an example of how such misperceptions can be fueled. The video shows of the explosion of a tanker truck, which killed three people. Initial news reports said the tanker contained LNG. It was subsequently confirmed that the tanker instead contained liquefied petroleum gas (LPG), a mixture of propane and butane. The Center for Liquefied Natural Gas (CLNG) said at the time the properties of LPG are very different from those of LNG. LPG is heavier than air, while LNG is mostly made up of methane and, at room temperature, is lighter than air. In addition, LNG is not explosive in an unconfined space, CLNG said.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.