Natural Gas in Transportation

Webinar

www.steps.ucdavis.edu  

Amy Myers Jaffe, Executive Director, Energy and Sustainability Rosa Dominquez-Faus, Post Doctoral Fellow

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Sustainable Transportation Energy Pathways (STEPS)

Repeating Boom and Bust Cycles Characterize Oil

•  High oil prices usher in demand destruction through conservation, efficiency gains, and substitution

•  High oil prices stimulate drilling innovations, which over time can lead to supply bubbles.

Source: Medlock, K.B., Amy Jaffe, “The price of crude oil: deja vu all over again?” (2013), EIA

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Breakevens for US shale oil and gas are lower than many other regions.

Source:  Ci5  Research  

Unconven'onals  are  not  at  the  top  of  the  scale  for  breakeven  costs.  Arc'c  and  Mega-‐LNG  projects  could  be  most  under  pressure  as  global  gas  prices  ease.    

Johan SverdrupRumailaJubilee Area

Bina BawiZubair

China Domestic GasCampos ExpWest Qurna 1Tempa RossaPNG LNG T3

Gbaran Ubie Ph2Cepu Exp

NgamiaPerlaGoM Tiebacks Majnoon

NE Tupi

ItaipuFrancoWhales Park

CariocaLulaSapinhoa

SkrugardIara

PNG LNG T1-2Hadrian

Yamal Gas

JupiterBig Foot

Trebs TitovSandridge JVADMA

Mozambique LNG Uganda Bl.1,2,3Clair Ph 2 AbsheronVankorBl. 15/06 East

North Alexandria Hub TiberWest Qurna 2 KaskidaCLOVGhana Gas

Laggan/Tormore ZaedyusBlock 32

STL Bakken

Colombia OilChina Domestic Oil

Tanzania LNGWheatstone LNGYamal LNG

OXY Bakken APLNGPSVM

Ichthys LNGChina Domestic Oil Junin 5Prelude LNG

Bl. 31 SE Gorgon LNGJack-St Malo

DominoSTL Eagle Ford Browse LNGTengiz Exp

Bolia-ChotaKearlOPL245

Aparo-NsikoSunrise Ph 1 Usan

West Canada LNGRDS Unc Gas STL MarcellusFilanovsky

Block 61 OmanBG Haynesville QCLNGSurmont Ph 2

Fort HillsMacKay RiverDover

Abadi FLNGTerre de Grace Kashagan Ph 1

Arrow LNGCarmon Creek JoslynGLNG

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80

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0 5 10 15 20 25 30 35 402020e Production, Mboe/d

Bre

akev

en, $

/bb

l

LNG cost pressures

Pricing-discounts pushing

unconventionals higher up the curve

(2Q writedowns)

Low-cost conventional giants (Brazil & Norway)

remain robust.

Heavy oil expectations being scaled

back

Disappointing pace in Iraq sees industry accept

political risk of Kurdistan

Field     Breakeven     OPEX  

Marcellus  (gas)  

$2.50   $1.00  

BarneC  (gas)   $3.80   $1.80  

Haynesville  (gas)  

$3.60   $1.80  

Eagle  Ford  (oil)  

$37   $7-‐$8  

Permian  (oil)   $49   $10-‐$12  

Bakken  (oil)   $37   $7-‐$8  

Mississippian     $43   $7-‐$8  

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U.S. shale gas is prolific and supply abundance will be sustainable

Shale’s  diverse  geographic  loca5on  enhances  security  of  supply    

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Natural Gas In Transportation

•  The  wide  spread  between  natural  gas  prices  and  oil  prices  offered  the  promise  of  fuel  savings  and  led  to  forecasts  of  extensive  fuel  switching  in  the  freight  sector.    

•  Excitement  emerged  surrounding  America’s  natural  gas  highway.          

We  sought  to  quan5fy  both  the  temporal  and  spa5al  market  response  to  the  price  incen5ves  that  might  promote  fuel  switching  in  the  U.S.  Class  8  heavy  duty  trucking  fleet  •  We  created  an  op5miza5on  model  to  determine  the  

op5mal  LNG  refueling  network  and  supply  chain  for  long  haul  trucks  and  test  scenarios  including  sta5on  subsidies  and  high  diesel  prices.    

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Optimistic forecasts look at history and assume that low natural gas prices will eventually drive shift to natural gas for heavy trucks, after a slow start.

But is the S Curve for diesel fuel really indicative of what will happen in US for natural gas in trucking?

Source:  Ci5  Research    

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2013

2015

2017

2019

2021

2023

2025

2027

2029

2031

2033

2035

2037

2039

%

Base Complete turnover Slow adoption

Es5mated  NGVs  as  %  new  HDV  sales  in  the  US     Diesel’s  share  of  new  Class  8  trucks  sales  in  US,  1950-‐2010  

0%

25%

50%

75%

100%

1950 1960 1970 1980 1990 2000 2010

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Modeling Insight: Network development more sensitive to travel intensity of trucking corridors and relative diesel price levels rather than proximity to or surplus of available natural gas supply.

Highest Traveled U.S. Trucking Corridors: I-5 in California; Milwuakee to Chicago; upstate NY; NYC-New Jersey; Dayton, OH to Cincinatti,OH; Kansas City region; Chicago to Indiana; Dallas to Houston; and Orlando to Tampa Higher U.S. Diesel Prices: NY and PA about 10% over national average OH, MI & New England about 5% over national average CA, DE, & MD about 2% over national average

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ITS Davis modeling finds that natural gas fuel cost advantage is not sufficient to launch a national network.

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The fuel cost discount of natural gas compared to diesel is not large enough to compensate for the large capital costs for new natural gas fueling infrastructure

The delivered cost of an LNG gallon involves infrastructure and capital costs not required in the incumbent diesel refueling network. The success of LNG as an economical alternative to diesel fuel is largely dependent on economies of scale at the liquefaction site and refueling station. Station with larger annual flows will see smaller per-LNG gallon expenses for their fixed costs.

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While U.S. national network is hard to launch, California has unique aspects that make NGV fueling more commercially viable. California’s freight route is highly concentrated and heavily traveled.

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Over time, a California NGV trucking network would connect to an expanded system as demand is able to accrue and spread out and system costs fall. Policy makers view system potentially enabling for biogas.

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The majority of emissions come from vehicle operations

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Carbon Intensity under different methane leakage

Methane leakage (%)

Only  most  efficient  engine  offers  substan5al  advantages  

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Research Team/Acknowledgments

Allen  Lee  Nathan  C.  Parker  Rosa  Dominquez  Faus  Daniel  P.  Scheitrum    Amy  Myers  Jaffe  Yueyue  Fan    •  The  Natural  gas  team  wishes  to  thank  GE  EcoimaginaFon,  

Westport  and  Shell  for  their  generous  support  and  advice  on  this  project.    

 

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Concluding summary

•  Alternative fuel cost discount compared to incumbent fuel is an important element to commerciality but not the only driver to a successful transition. Level of costs of new infrastructure also significant variable to developing new networks.

•  Traffic volume more important element to freight market infrastructure success than natural gas supply surplus.

•  Concentrated regional focus in key markets for early investment can be a better strategy than broader initial investment in national coverage.

•  New natural gas modular technologies like LNG in a box still too expensive to wide-spread adoption without government intervention.

•  Technologies exist to improve environmental performance of natural gas in vehicles but may require government regulation to stimulate wider adoption.

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