Rail, Road, and Marine: Natural Gas as a Transportation Fuel

Transportation_Frame7The use of natural gas as a transportation fuel has been bandied about for decades in North America, more recently by producers struggling to find new markets for the abundant resource. Today cleaner burning natural gas may soon find a strong foothold in the railway and marine industries as deadlines on stringent emissions regulations approach, but the fuel continues to struggle to find a home on the road.

Factors such as potential higher maintenance costs of natural gas engines, lower efficiencies and lack of infrastructure are tempering expectations of wide-spread on-road adoption. Plans to invest billions in hundreds of refueling stations across Canada and the United States have been geared down as companies such as Clean Energy, Royal Dutch Shell and China’s Blu LNG wait for the truck market to catch up.

truckYet many key players in the industry remain confident natural gas will find its way to the market, propelled by the fuel price differential between oil and natural gas, which can be as much as $2 per gallon less than diesel.

“We have seen fuel transitions before in transportation – heavy trucks shifting from gasoline to diesel between 1950 and 1980, and in rail from 1940 to 1950, when it switched from steam power to diesel,” said Karen Hamberg, vice president of strategy at Vancouver-based Westport Innovations, one of the global leaders in natural gas engines.

“The challenge and the opportunities for natural gas then is to introduce engine vehicle systems that are comparable or better than what is currently on the road today,” she said. “This opportunity for reduced fuel cost, comparable diesel-like performance, and environmental benefit really does introduce another opportunity for another significant fuel transition in the transportation space.”

transportation - Sutco-IMG_3122_web

Courtesy FortisBC

When the price of oil and refined products shot up in the mid 2000s, the development of natural gas engines intensified. Soon after crude hit the $100 US/barrel mark, the price of natural gas plummeted as technologies unlocked vast reserves, making the resource even more attractive as an economic alternative to oil-based fuels such as diesel.

Gaz Metro, Quebec’s natural gas distribution company, created Solutions Transport in 2010 to focus on LNG fuel for on-road, rail and marine transportation, building two LNG fueling stations in Eastern Canada. Three years later, in 2013, Royal Dutch Shell launched its first Canadian liquefied natural gas refueling station for trucks in Calgary, Alberta.

Courtesy BC Ferries

Courtesy BC Ferries

Ferus Natural Gas Fuels is completing a 190,000 litre per day liquefaction plant near Grande Prairie, AB, to provide fuel for drilling rigs and heavy duty trucks working in the oilfields, and plans for five more in Western Canada.

The oil patch offers potential significant demand for both off-road vehicles and drilling operations. Investments to bring LNG into these markets will also benefit on-road transportation. While  transportation is a large market using a third of all energy in Canada, it is also a challenging market to transform given how many vehicles need to switch to natural gas to achieve material changes in the energy demand mix, noted Alicia Milner, president of the Canadian Natural Gas Vehicle Alliance.

“Transportation is a large market using a third of all energy in Canada.”

The pace of private sector infrastructure investments coupled with uncertainty around taxes for natural gas as a fuel are constraining market development, she said. On the highway tractor side, the challenge is lack of infrastructure along Canada’s two key transportation corridors, Windsor, Ontario to Quebec City, Quebec, and the Edmonton, Alberta to Vancouver, British Columbia run.

However, there are now two public stations for heavy trucks in Alberta, three in British Columbia, and four between Ontario and Quebec, compared to none in 2012.

“There are things happening, albeit what we find is it is at more a trickle,” Milner said.

transportation - WasteManagementHauler_edit_webMost early adopters have fleets of garbage trucks or transit buses which refuel at their bases at the end of shift, such as the 300 or so natural gas vehicles in British Columbia. Companies such as Robert Transport in Quebec, which runs 125 rigs on natural gas, and Bison Transport out of Manitoba with 15 heavy trucks are among the largest for-hire trucking firms to adopt the technology in Canada.

“On a cost basis, LNG holds its own as a fuel in marine applications.”

For them, one of the big advantages natural gas has in Canada is the fuel cost savings which, at present, includes tax savings compared to diesel. There is no federal excise tax and most provinces exempt natural gas from fuel taxes, a levy worth anywhere from nine cents in Alberta to 16 cents in Quebec for diesel.

“U.S. Energy Information Administration predicted LNG would replace diesel in most of the country’s freight locomotives within the next 30 years.”

“The tax part of the savings is important for early adopters who are bearing 100 per cent of the risk. The challenge we have right now is everybody is wondering when the government is going to change the rules,” Milner said. “If I invest tomorrow and I have a four-year pay back, and halfway through the payback the government says ‘Oh, we’re going to start taxing this effective tomorrow,’ there goes your payback. You’ve taken a risk as a business, you’ve tried to be more environmentally progressive, but unfortunately what you didn’t get is any risk sharing on upfront costs to move in this direction.”

The Association believes fuel tax certainty for a fixed period of time, about seven years to 2021, could be a very important enabler in Canada.
Early adaptors of any technology usually pay a premium for it, a reality representing anywhere from $40,000 to $80,000 more for a natural gas-powered truck over an equivalent diesel vehicle.

But as climate change issues move toward the forefront of government agendas, the use of natural gas as a transportation fuel is gaining momentum. In January 2015 Canadian marine engines will be required to cut their sulphur emissions by 90 per cent, an achievable goal using natural gas as a fuel. A year later, new locomotive engines in the U.S. will also face stringent new emission restrictions.

“We do a disservice to ourselves thinking that this is just an on road or things with wheels story because there is potential for significant market penetration for rail and marine and mine haul,” Hamberg noted.

On a cost basis, LNG holds its own as a fuel in marine applications, according to a 2013 study by STX Canada Marine for Transport Canada and industry. The fuel, which emits substantially less sulphur, smog-related NOx and particulate matter than traditional marine fuels, would offer economic benefits to owners and operators of certain types of vessels from a six-year payback on investment to slicing annual fuel costs by more than half, according to STX.

On the rail side, in April the U.S. Energy Information Administration recently predicted LNG would replace diesel in most of the country’s freight locomotives within the next 30 years.

The rail industry consumes more than nine billion gallons of diesel fuel annually—half of which is in North America. Small wonder rail operators are converting to natural gas when fuel consumption represents approximately 24 per cent of the operating costs of railroads.

“Canadian National Railway and Westport are developing a tender car with more than 10,000 gallons of LNG capacity.”

Canadian National Railway and Westport are developing a tender car with more than 10,000 gallons of LNG capacity. The fuel provides longer range than a diesel locomotive, reducing the number of refueling stops and the investment in LNG infrastructure.

The slow adaptation by industry and consumers in Canada is not mirrored in the U.S. where states such as California have provided incentives to build and use natural gas fueled vehicles in effort to clean up air quality.

Yet despite the support, companies such as Shell and Clean Energy have tempered their enthusiasm, pulling back from investments or keeping new refueling stations shuttered, waiting on demand.

Rail Yard_ ShippingOttawa has shown some leadership by developing a natural gas deployment roadmap, collaborating with industry to develop codes and standards, education and training, said Hamberg. She would like to see a regulatory framework put in place supportive of alternative fuels, as well as clarity around fuel taxes. More funding for research and development to ensure the next generation of optimized engines are brought to market also would help forward the alternative fuel.

And for Milner, the biggest piece of the puzzle remains creating a sustainable demand in a timely way.

“The challenge here is getting all of the pieces to move at the same time,” she said. Part of the reason Shell pulled back from the investments they had announced was the timing wasn’t right as customers were not ready to take the natural gas leap. And without customer confidence in the fuel, companies can’t move forward with infrastructure.

“We know the technology is there, we know the environmental and the economic benefits are there. And I’m not suggesting it’s for all fleets, it’s going to be kind of niche fuel in the future. But how do you get all the pieces moving at the same time and how can governments encourage the private sector investments that are needed so that Canada can keep pace in the integrated North American transportation market, that’s the most challenging aspect of this potential transformation I would say.”


Dina O’Meara is a former business writer with the Calgary Herald and is now a communications consultant.