High Horsepower LNG (Liquefied Natural Gas)

Today we look back at five big issues from the last week in natural gas:

  1. House Passes Pipeline Permitting Bill
  2. Obama Drops Natural Gas From the State of the Union
  3. Pennsylvania’s New Democratic Governor Sounds Gas Friendly
  4. Senate Voting on Energy
  5. Dropping Prices and Natural Gas Engines

Our interview today is with Ben Deal of LNG Energy, a consulting company that is helping convert high-horsepower engines from diesel to liquefied natural gas.

Click below to listen or find us on iTunes or Stitcher.

1. House Passes Pipeline Permitting Bill

With an hour of debate, the U.S. House of Representatives passed a bill that is aimed at speeding up natural gas pipeline approvals.  The bill, H.R. 161, the Natural Gas Pipeline Permitting Reform Act, would set a one-year limit on permit applications.  The permits are granted by the Federal Energy Regulatory Commission (FERC).  The bill would require all other federal agencies holding related permits to act within 120 days of FERC’s decision.  If the other agencies do not act, the related pending permits are automatically granted.

The bill passed by a margin of 253 to 169, with all Republicans and 14 Democrats voting for it.  Supporters, including sponsor Rep. Mike Pompeo (R-KS) below, spoke about the need to build up natural gas transmission infrastructure as electricity generation switches from coal to gas.

Surprisingly, the main opponents to speak against the bill were both from the Northeast.  Rep. Frank Pauline (D-NJ) said he is worried that shortening the permitting process could lead to pipeline explosions.  Rep. Niki Tsongas (D-MA) said the bill would cut her constituents out of the permitting process.

2. Obama Drops Natural Gas From the State of the Union

Over his time in office, President Obama’s State of the Union Address has always touched on oil and gas.  His feelings on the issue have swung dramatically with the shale boom.  At the beginning of his term, he stressed the need for energy independence.  By 2012, he was bragging about America’s 100-year supply of natural gas.  He touted natural gas again in both 2013 and 2014:

  • 2009 – “We have known for decades that our survival depends on finding new sources of energy, yet we import more oil today than ever before.”
  • 2010 – “…we need more production, more efficiency, more incentives…It means making tough decisions about opening new offshore areas for oil and gas development.”
  • 2011 – “With more research and incentives, we can break our dependence on oil…And to help pay for it, I’m asking Congress to eliminate the billions in taxpayer dollars we currently give to oil companies. I don’t know if you’ve noticed, but they’re doing just fine on their own. [Laughter] So instead of subsidizing yesterday’s energy, let’s invest in tomorrow’s. …[t]onight I challenge you to join me in setting a new goal: By 2035, 80 percent of America’s electricity will come from clean energy sources. Some folks want wind and solar. Others want nuclear, clean coal, and natural gas. To meet this goal, we will need them all…”
  • 2012 – “We have a supply of natural gas that can last America nearly 100 years. And my administration will take every possible action to safely develop this energy. Experts believe this will support more than 600,000 jobs by the end of the decade. And I’m requiring all companies that drill for gas on public lands to disclose the chemicals they use. Because America will develop this resource without putting the health and safety of our citizens at risk. The development of natural gas will create jobs and power trucks and factories that are cleaner and cheaper, proving that we don’t have to choose between our environment and our economy. And by the way, it was public research dollars, over the course of 30 years, that helped develop the technologies to extract all this natural gas out of shale rock, reminding us that Government support is critical in helping businesses get new energy ideas off the ground.”
  • 2013 – “We produce more natural gas than ever before, and nearly everyone’s energy bill is lower because of it. And over the last 4 years, our emissions of the dangerous carbon pollution that threatens our planet have actually fallen….Now, in the meantime, the natural gas boom has led to cleaner power and greater energy independence. We need to encourage that. And that’s why my administration will keep cutting redtape and speeding up new oil and gas permits. That’s got to be part of an all-of-the-above plan. But I also want to work with this Congress to encourage the research and technology that helps natural gas burn even cleaner and protects our air and our water.”
  • 2014 – “…America is closer to energy independence than we have been in decades. One of the reasons why is natural gas. If extracted safely, it’s the bridge fuel that can power our economy with less of the carbon pollution that causes climate change. Businesses plan to invest almost $100 billion in new factories that use natural gas. I’ll cut redtape to help States get those factories built and put folks to work, and this Congress can help by putting people to work building fueling stations that shift more cars and trucks from foreign oil to American natural gas.”

This year, however, natural gas was dropped from the speech in favor of a greater focus on reduced oil imports.

In the Republican rebuttal, Iowa Senator Joni Earnst talked about the Keystone XL pipeline, but did not directly mention domestic oil and gas production.

3. Pennsylvania’s New Democratic Governor Sounds Gas Friendly

Tom Wolf was the only Democrat to beat a Republican Governor in last year’s election.  One of the major themes of the campaign was that Republican Governor Tom Corbett was too friendly with the industry, leaving natural gas undertaxed.  Gov. Wolf has promised to seek a 5% severance tax, which is a tax on the value of the gas at the wellhead.  That effort will be difficult given Pennsylvania’s conservative legislature, but Gov. Wolf appears to have some public support.  To date, it does not appear he has made a formal proposal and it is unclear if dropping oil and gas prices will change his plans.

Gov. Wolf did talk about natural gas in his inaugural address.  He certainly does not sound like someone that is hoping to harm the natural gas industry.

4. Senate Voting on Energy

The Senate spent all week voting on a series of amendments to a bill that would approve the Keystone XL pipeline.  In fact, last week the Senate voted on more amendments than all of 2014.  Last year, the Senate only voted on 15 amendments.  Individual Senators were cut out of the process in order to prevent tough votes leading up to the election.  Sen. Mitch McConnell (R-KY) promised to allow open debate, but Senators have been sniping back and forth over whether he has actually done that.  He allowed 24 votes, but several Democratic amendments were voted on late Thursday night with limited debate.  Republicans tout the votes, while Democrats say that was “killing” the amendments.

5. Dropping Oil Prices and Natural Gas Engines with Ben Deal at LNG Energy (Starts at 20:06)

The recent drop in crude oil prices has led to a rethinking of the economics of natural gas replacing crude oil products as a fuel.  But natural gas conversions are still a great investment in certain applications.  For example, commercial fleet operators still see value, as do waste haulers.

Ben Deal, a consultant at LNG Energy,  also sees value in high horsepower engine conversions.  In particular, he focuses on agriculture, asphalt, remote industrial power, marine, mining, rail, and utilities.  He has spent his career in logistics and alternative fuels.  Ben worked for Fed-Ex, Clean Energy Fuels, Applied LNG, and others.  Most of his past efforts have focused on natural gas usage for ground transportation.  In fact, Ben drives a compressed natural gas (CNG) Crown Victoria.  But he is not optimistic about natural gas use for most on-road applications.  He sees CNG as very effective for fleets operating within a small radius.  LNG is only useful on the road for long-range heavy trucks, but that is problematic because LNG trucks are locked into limited refueling infrastructure.

Ben said that the rationale for stationary high horsepower LNG applications is strong, regardless of the recent drop in oil prices.  In his view, oil prices are naturally going to fluctuate.  Natural gas, on the other hand, is going to consistently be cheaper than than oil.  Moreover, there is nothing holding back LNG at this point.  Past efforts at natural gas conversions were reliant on technology breakthroughs and proposed government incentives, particularly the Nat Gas Act.  The federal incentives in the Nat Gas Act did not make it into law, but they are not needed for high horsepower LNG.  And now the necessary technology is in place.

Ben said that LNG can reduce operating costs by about 40% for most high horsepower diesel engines.  The conversion costs are relatively low.  One leading application is an asphalt hot plant.  There, a number of components are poured into a large tumbler, which is heated by a very large burner.  A typical hot plant can burn 10,000 gallons of LNG per day.  So even minor savings in fuel costs will quickly recoup costs of the conversion.  Moreover, the conversion is relatively cheap because the equipment can run on LNG with few modifications.  The main costs will be a cryogenic storage tank to store the LNG, and a vaporizer to warm the LNG up to be burned.

Agriculture is another potential application for high horsepower LNG.  Irrigated farms in many settings require large water pumps.  These are commonly diesel engines.  LNG Energy can help convert those engines to bi-fuel, meaning they could run on a mixture of LNG and diesel.  A conversion to bi-fuel costs far less then completely replacing the diesel engine with a natural gas engine and makes it easier to recoup conversion costs.

Ben also touched on storage and safety issues.  On safety, he pointed out that many homes have natural gas stoves, but gasoline and diesel are not used indoors.  That is because natural gas is inherently safer because it will not pool like gasoline or diesel.  He also pointed out that LNG in transportation has a long safety record.

If you want to learn more, visit www.lngenergy.us.