COLUMN-Shell plants LNG at truck stops along the interstates: Kemp

Reuters

By John Kemp

LONDON, Nov 4 (Reuters) - In the decade to 2013, shale gasand oil transformed the U.S. and global energy markets. The nextrevolutionary development over the decade to 2023 is likely tobe the widespread use of gas as a transport fuel, starting inthe United States.

Freight trucks powered by liquefied natural gas (LNG) ratherthan diesel could become a common sight on the U.S. interstatehighway system under plans being developed and financed by RoyalDutch Shell.

Shell has reached an agreement with TravelCenters of America, a major truck stop operator, to run two LNG fuellinglanes at up to 100 of its sites along the interstates.

Shell will fund the construction of fuelling lanes andassociated storage capacity and supply the fuel, assuming mostof the financial risk associated with the venture.

In exchange, the oil and gas major gets access to primefuelling locations along the most heavily used trucking routesto help realise its vision of making LNG a transport fuel.

TECHNOLOGY

Switching the trucking fleet from diesel to natural gascould produce substantial cost savings and reductions ingreenhouse emissions.

One barrier is the high upfront costs of new LNG ordual-fuel engines. But some of the larger fleet operators arealready converting trucks to LNG to take advantage of loweroperating costs.

The bigger barrier has been lack of convenient fuelstations.

"Natural gas retail refuelling infrastructure is inearly-stage development and will require major expansion andinvestment," according to a report published last year by theNational Petroleum Council, the industry committee that advisesthe U.S. Department of Energy.

"The transition to a fully scaled and mature retailinfrastructure system ... will take time and investment" it wenton. ("Advancing Technology for America's Transportation" 2012)

Shell's partnership with TA is likely to solve therefuelling problem and herald the next big shake-up in the oiland gas markets after the shale revolution.

INTERSTATES

Most existing LNG filling stations are owned by theoperators of transit buses and waste collection vehicles. Thereare currently just 42 refuelling stations dispensing LNG open tothe public, according to the U.S. Department of Energy'sAlternative Fuels Data Center (Map 1).

It should be possible to fuel a significant part of thetrucking market from a relatively small number of stationsplaced in strategic locations.

The vast majority of long-distance road freight moves alongthe interstate highway system, according to an analysis by theNational Renewable Energy Laboratory in 2007 (Map 2).

With LNG stations on or close to the interstate network,hauliers could be guaranteed reliable and convenient access tofuel for long-distance routes.

For Shell, the advantage of a strategic partnership with TAis the company's network of 244 refuelling stops along theinterstates (Map 3).

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Many existing LNG stations are already clustered along tworoutes: interstate 15 (I-15) between San Diego and Los Angelesin California to Salt Lake City and Tremonton in Utah and I-84between Portland, Oregon, Boise, Idaho and Tremonton.

In the United States, it is common for major logisticscompanies and retailers to practice a "four corners"distribution strategy. Manufactured items, whether produceddomestically or imported, are first sent to a transloadingcentre in one of the four corners of the United States beforebeing dispatched to a final destination.

Four corners facilities are usually established in thePacific Southwest (California), Pacific Northwest(Washington/Oregon), Northeast (New Jersey/Pennsylvania/Ohio)and Southeast (Georgia).

Stations placed on the main freight corridors leading to andfrom these transloading centres would be able to capture a largeshare of the fuel market. Both I-15 and I-84 serve thefour-corners system. TA has many other prime locations.

Establishing up to 100 refuelling stations along theinterstates would be enough to serve a significant share of thetrucking market.

TRANSFORMATION

For a company the size of Shell, the investment is modestbut could bring enormous rewards. Shell's production was split50:50 between oil and gas in 2012, and it is keen to monetiseits gas reserves by developing new uses for them in thehigher-value transportation market.

"Shell has been working to develop the LNG for Transportmarket globally," the company said in a press release in April.

Shell has the financial muscle to help overcome thetechnological inertia that would otherwise hamper switching fromone fuel system (diesel) to another (natural gas).

North of the border, Shell has started selling LNG totrucking firms via selected Flying J fuelling stations inCanada's oil-and-gas rich province of Alberta.

Shell and TA have pledged a "phased approach" to rolling outtheir network of LNG fuelling lines, subject to customer demand.

On Oct. 31, Chart Industries, a major supplier ofgas storage, transportation and dispensing equipment announcedit had secured a contract to "build and commission 20 retailnatural gas fuelling stations across North America" from anunidentified "major oil company".

All 20 fuelling stations are due to be completed and inservice by mid-2015, Chart revealed. That one order alone willincrease the number of fuelling stops with LNG available by 50percent.

If Shell's planned network of 100 stations is built, itwould cover almost all the major freight routes in the UnitedStates, essentially eliminating the biggest obstacle towidespread use of LNG as a road fuel (Map 4).

If gas prices remain competitive compared with diesel, theinfrastructure for widespread switching could be in place asearly as 2016.

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