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Liquefied Natural Gas (LNG) Capsule Summary

LNG is the alternative fuel closest to competing with diesel in the marketplace. However, it is proving very difficult to line up all the many factors that must be aligned for LNG to get a commercial start as a motor fuel. Discouragement is spreading among the stakeholders. However, all is not lost, and determined crisp execution can still make LNG successful.

Executive Summary

Natural gas takes a liquid form at low temperatures and moderate pressures. Liquefied natural gas is used for peak shaving at some natural gas utilities and a world trade in liquefied natural gas allows gas in remote locations to reach major markets, shipped by special LNG tank ships. Either the existing LNG trade or new liquefaction facilities could supply LNG for use by motor vehicles.

LNG, like compressed natural gas, offers low NOx and particulate emissions. A number of demonstration projects have been undertaken to test the use of LNG in bus and truck fleets. A number of manufacturers currently offer heavy-duty engines capable of using either LNG or compressed natural gas. Some truck builders are now prepared to build trucks to order that have natural gas engines and fuel storage and delivery systems for LNG. Available horsepower ratings cover the needs of typical trucking applications.

Several suppliers of LNG have indicated an interest in supplying LNG as a motor fuel. Price is a matter of negotiation, but recent discussions indicate that LNG might be able to compete on a price basis with diesel fuel, at least if air agencies provide some financial incentives to help the initial projects. In California, LNG is available for vehicle refueling at 6 sites already.

Nevertheless, LNG faces obstacles that must be overcome if LNG is to obtain an important market share. A key problem is a federal excise tax treatment that currently puts LNG at a much higher tax rate, on a per mile basis, than diesel fuel or the other alternative fuels. This tax treatment is a major barrier to the expanded use of LNG as a motor fuel. Also, it will be important for LNG suppliers to provide credible long-range business plans to fleets that are considering using LNG as a fuel. Early deliveries of LNG will often be made at a financial loss. Fleets will be expecting the LNG supplier to become profitable and have staying power, and must be convinced before embracing a technology that appear to have a chance of becoming an abandoned orphan technology in the future.

General Description and Status as a Vehicle Fuel

Natural gas takes a liquid form at convenient handling pressures around 50 psig if the temperature is very low, around -220 degrees Fahrenheit. This requires cryogenic operations of the type similar to other liquefied light gases such as nitrogen and oxygen. Approaches include storage in insulated double wall ("thermos") storage vessels and specially designed valves and connectors that avoid loss of cold and prevent heat leaks.

Liquefied natural gas (LNG) has been used for decades by some natural gas utilities as a way of storing natural gas for peak demands. Also, very large gas liquefaction projects have been used as a way to convey remote supplies of natural gas, such as in Algeria and Indonesia, that cannot reach large markets by gas pipeline, to overseas markets by ship.

Motor vehicles used in the U.S. could be supplied with LNG either through the existing LNG trade or new liquefaction facilities. Burlington Northern, Santa Fe, and Union Pacific have demonstrated the use of LNG in locomotives as an alternative to diesel fuel, and studies show that LNG can offer lower operating costs for locomotives than diesel fuel. Since LNG, like any other form of natural gas, offers very low emissions from motor vehicle engines, a number of demonstration projects have been undertaken to evaluate the use of LNG as a clean motor fuel in buses and trucks. One major bus fleet, in Houston, operates a large number of dual-fuel LNG/diesel buses. Another, in El Paso, Texas, operates over 40 buses dedicated to LNG fuel. At the Los Angeles airport (LAX), 14 Gillig buses with Cummins L10 engines operate on LNG. The total number of LNG buses operating at LAX is expected to grow to 46 in the near future.

Engine and Vehicle Technology Issues and Commercialization STATUS

Some engine manufacturers currently offer natural gas heavy-duty engines suited for various vehicle applications. The same engine may be used regardless of whether the delivery of gas to the engine is from compressed natural gas cylinders or from liquefied natural gas storage tanks. Other manufacturers offer conversion kits for existing gasoline and diesel engines to convert them to use natural gas.

Engines from manufacturers are usually "lean burn" engines, that offer low-NOx emissions (about half those of diesel engines) without the need for a NOx reduction catalyst. In demonstration fleets and early commercial applications, the natural gas engines have shown adequate performance, although engine thermal efficiency (or fuel economy) cannot reach diesel levels and the NOx emissions have not always reached the low levels expected. No manufacturer yet offers a natural gas engine certified to the California optional reduced-NOx standards. (These are optional tailpipe NOx standards, below the basic heavy-duty NOx emission standard. If the manufacturer elects to certify to an optional low-NOx standard, the low-NOx standard becomes enforceable in the same way as the basic standard. Therefore it is accepted as the basis for mobile source emission reduction credits. It is also preferred by air agencies as a basis for emissions reductions credited to an air quality program.) Thus "officially" none of the commercial natural gas engines qualifies as a reduced-NOx engine from the point of view of emissions regulations or for the purpose of generating mobile source emission reduction credits.

Available engines cover horsepower ranges suitable for vehicles from the size of pick-up trucks to a size suitable for a large over the road truck. However, trucks built to date have been limited in number and really represent demonstration quantities. An exception is the operation of two LNG fueled trucks in regular delivery service by Cummins West in San Leandro, California. Only recently have large truck builders such as Peterbilt, Kenworth, and Freightliner agreed to respond to commercial orders for large trucks fueled by LNG, although the manufacturers wish to avoid selling in small quantities and are looking for a substantial order (20 or more vehicles) to justify the expense of commercial engineering of the on-board fuel supply and delivery systems. The first commercial scale truck order is reported to have been placed by Jack B. Kelley for 10 Kenworth LNG trucks powered by the Cummins L10 engine rated at 300 hp. These trucks have not yet been delivered.

No manufacturer of large locomotive engines currently offers an LNG version, although some locomotives such as 2 switch engines in the Los Angeles basin, operated by Union Pacific, are running on LNG at this time.

Availability of LNG as a Motor Fuel

Amoco and Exxon in Wyoming and Mesa Pacific in Kansas are prepared to offer supplies of LNG for motor fuel, and have supplied LNG for the initial demonstrations in California. Various gas and electric utilities are also prepared to offer LNG, and Liquid Carbonic has one smaller LNG production facility in Texas. Price is a matter of negotiation, but "gate" prices in the range of 30 to 40 cents per LNG gallon are typical. An LNG truck might use two gallons of LNG for each gallon of diesel fuel used by a corresponding diesel truck. Therefore, LNG might appear to be competitive with diesel fuel. However, after costs of delivery and dispensing, and after federal and State excise taxes, these prices do not allow LNG to be competitive with diesel fuel on an operating costs per mile basis, unless the user fleet is within a few hundred miles of the LNG production facility. (Higher costs for the LNG truck, compared with the diesel counterpart, also add costs. Hence LNG rarely is able to compete with diesel at the present time.)

New LNG production facilities could be built in the neighborhood of new customer fleets if the number of customer vehicles is large enough. Commercial firms have offered to build such liquefaction facilities and supply LNG for sale. The Liquid Carbonic facility in Texas was constructed on this basis.

In Southern California, LNG is available at 4 locations: the Los Angeles airport, a site in downtown Los Angeles, the Union Pacific rail facility in the Los Angeles basin, and a facility in Porterville, California. At present all of these are private-access facilities only, although the LAX facility will soon be open to the public. LNG is also offered at two locations in Northern California, one of which is a public-access site. A new major public-access facility is expected to be built in the near future at the Ontario airport in the South Coast air basin.

Key Stakeholders in Commercializing LNG as a Motor Fuel

Some Pluses and Minuses of LNG as a Motor Fuel
 
Supply & Distribution 
Pluses
Minuses 
  • Adequate domestic supply of LNG at relatively low price (compared with diesel fuel) at the production facility 
  • Experience in transport, storage, and some approaches to dispensing 
  • LNG can be supplied as a high quality consistent fuel ;this avoids some operational problems sometimes encountered in vehicles using compressed natural gas 
  • LNG storage and dispensing facilities can be designed to dispense both LNG as well as compressed natural gas, making it possible to recruit CNG customer vehicles to increase loads and improve economics 
  • Existing production or large LNG storage facilities are far from major urban areas. Distribution of LNG in small volumes over long distances has high costs, so that LNG cannot gain cost advantage over diesel except when demand can be focused at a few sites and made to grow quickly - requires precise execution of business plan to avoid unacceptably high early losses 
  • Economical local production of LNG can only be created with a substantial sized customer set, difficult to organize; small local production plants are not yet cost-effective 
  • New large-scale LNG production facilities would face significant local safety fears and permitting difficulties 
Health & Safety 
Pluses
Minuses 
  • Overall, this fuel is safer than gasoline but less safe than diesel - no major safety risks for large frequently-used vehicles 
  • Poor safety image stemming from one accident (tank rupture and fire) in 1944 at a large bulk storage facility 
  • Indoor maintenance facilities and garages housing LNG vehicles require customized ventilation and monitoring, and hence some investment and training - any fuel boil-off from out-of-service vehicles must be detected and managed 
Engine & Vehicle Technology Issues 
Pluses
Minuses 
  • Several commercial natural gas heavy-duty engines are available 
  • Truck and bus builders can offer commercial LNG vehicles, at least if orders are large enough (perhaps 10 or more vehicles at a time) 
  • The efficiency of natural gas engines is lower than that of comparable diesel engines, especially at low loads, and prospects for improving fuel economy are remote; therefore LNG applications are best for line-haul trucks with minimal amounts of operation at low load 
  • Although LNG offers much more compact energy storage than CNG, practical tank configurations still do not allow trucks to match the range of diesel trucks. A typical range for an LNG truck might be 500 miles. Ranges this short may limit applications or increase costs due to frequent refuelings. 
Cost Issues 
Pluses
Minuses 
  • LNG is available at production sites at costs considerably lower than rack diesel prices 
  • Lubrication oil, maintenance and repair costs of natural gas engines my be lower than costs for comparable diesel engines, when the technology is mature 
  • Transport of LNG by truck over distances of over 1000 miles adds enough cost than LNG cannot compete with diesel fuel on the basis of operating costs per mile 
Cost Issues (cont'd) 
Pluses
Minuses 
 
  • For customer fleets remote from LNG production facilities, achieving cost parity with diesel and gasoline requires high volumes and efficient operations, not easy to achieve in the early years of a strategy to sell LNG as a motor fuel. Generally at least 40 or 50 heavy-trucks or buses (corresponding to a demand of 2000 to 3000 gallons per day) using LNG constitute a minimum customer base for a refueling facility unless the fleet refueling site is relatively close to the LNG production facility 
  • Poorly designed federal excise and energy tax rate for LNG results in roughly double the per-mile federal tax burden for LNG compared with diesel - a serious and nearly fatal cost obstacle even in States with favorable State and local tax treatments 

Strategic Opportunities

Strategic Threats Suggested Key Elements of a Commercialization Strategy for LNG

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June 08 2002