Today’s Lead Story

As he fumbled through his tote bag behind the podium at last week's LNG for E&P forum, the crowd seemed a bit perplexed by the antics of Allan Willms. Bent over and facing away from the crowd, the Parkland Fuels Corporation commercial west vice-president wrestled with a large piece of indistinguishable textile until finally emerging, smiling, in front of everyone, wearing a sports jersey for his favourite team -- the Boston Bruins.

"A recent event, an unprecedented event, has taken place where a team has never come back from being down three goals with 10 minutes left in the game, in Game 7, in NHL history," Willms said to the crowd in regards to the May 12 Eastern Conference quarter-final hockey match between the Bruins and Toronto Maple Leafs.

"I got to tell you, they did this through collaboration. They understood the tasks and challenges ahead of them. They understood there were difficulties, but they persevered and they won."

Likewise with that recent Bruins victory, Willms said there are challenges ahead if LNG is to gain a stronger hold in the North American market, but team effort can largely resolve those challenges.

Willms's company recently announced its branded distribution agreement for LNG with Shell Canada Limited. The agreement allows Parkland to deliver Shell LNG to commercial and industrial customers for use in various high horsepower markets including oil and gas exploration, well stimulation applications and off-grid power generation.

The agreement, which is extendible to 10 years, allows Parkland to be active in Canada's LNG market. The company will distribute LNG from Shell's Jumping Pound liquefaction, storage and loading facility in southern Alberta to customers across Western Canada.

The Parkland/Shell deal is just one example of many partnerships bringing LNG into the market, and Matt Most, vice-president of environmental policy with Encana Corporation, said more and more companies are working together towards a common goal when it comes to promoting this fuel source.

Most told the Bulletin he would expect companies within the oil and gas industry to be the first and fasted adopters of LNG for their daily operations, in part, because E&P companies benefit from using their own natural gas products. He said Encana has been active in trying to educate potential users on LNG and the associated equipment. Further, he said, the company has built liquefaction capacity and is using LNG in its own E&P operations.

"We're all about walking the walk, and at Encana we're happy to say we have over half our large rigs running on natural gas, and just a quarter of our light duty fleet running on CNG."

Why is LNG important for Canada's natural gas industry?

Alicia Milner, president of the Canadian Natural Gas Vehicle Alliance (CNGVA), pointed out at last week's LNG for E&P forum that while the U.S. has historically been a major consumer of natural gas, innovations in extraction methods has increased the supply of the fuel.

With an increasingly energy-independent neighbour to the south, coupled with more energy efficient homes, Milner believes Canadian producers are left in need of a new market. She said she is optimistic the future of Canadian natural gas will be in transportation, thanks in large part to its liquefaction.

Milner said: "We know it's lower cost, we know it's lower emission, and it's Canadian. So what's not to love?"

James Burns, general manager of LNG for Transport Americas with Royal Dutch Shell Plc., said there is a revolution going on currently regarding the demand for natural gas products.

"The environment that we are in today -- not tomorrow, but today -- provides a huge opportunity to prosper in this industry. That opportunity is to use LNG in commercial fuels application; and not just in trucking, the marine industry, or rail, but in the E&P industry as well," Burns told the LNG for E&P forum.

Compared to diesel, Burns said, LNG creates lower fuel and operating costs across the board -- whether for a large truck operator or a drilling rig operator. Further, he added, natural gas fuel is much cleaner burning than diesel, and that makes the use of LNG better for companies from a regulatory standpoint.

According to Burns, Shell envisions LNG plants with access to barges that carry LNG to markets, as well as trains that move the product as well, which he said is essential to ensuring supply reaches its intended end-users, like the trucking industry.

Trucking into the future with LNG

The trucking industry is quite progressive, said Trevor Fridfinnson, vice-president of western operations for Bison Transport, which is why he believes any technology that is relatively simple, clean and inexpensive is going to catch the attention of those in North America's transportation sector.

"We're pragmatists about it though," he told the Bulletin. "A fuel shift does not come quickly or easily. Even in the United States where they're a fair ways ahead of Canada in terms of [LNG] infrastructure rollout, at this point even the U.S. is still behind other parts of the world."

In November 2012, Bison signed a five-year fuel supply agreement with Shell in which the trucking company will run 15 tractors using LNG in Alberta, obtaining fuel at Shell stations in Calgary, Edmonton and Red Deer.

To celebrate the construction of LNG fuelling stations for the Calgary-to-Edmonton corridor of May 28, Shell has invited senior government officials and leading industry executives for the grand opening of this route during an event at Calgary's Shell Flying J Travel Plaza. During the event, Shell will perform LNG refueling demonstrations.

The arrangement between Bison and Shell is a first of its kind in Canada, said Fridfinnson. Under specific conditions, the use of LNG in heavy duty applications has the potential to deliver 20 per cent reduction in greenhouse gas emissions and Fridfinnson therefore believes the fuel source aligns with his company's economic and environmental values.

He said the company's evaluation of the pilot project would be continuous over the next five years.

"It's an ongoing evaluation. Depending on how the results are, and what is the acceptance in our fleet by the driving crew and just how well [the LNG trucks] are actually performing, we may look to expand in the midst of the pilot project, or we'll look to wait it out and see."

Bison's LNG fleet consists of new Peterbilt Motors Company tractors featuring the Westport HD natural gas engines, which the Canadian trucking company put into operation earlier this year.

However, Fridfinnson said LNG is still a bit limited for the trucking industry because of a lack of fuelling infrastructure, and currently Bison LNG trucks are dependent on "return-to-base" travel in order to access the only LNG fuelling station currently along their route.

To make LNG, gas is cooled to -162 C, at which point its volume is reduced by 600 times and the product can be stored in insulated vessels under atmospheric pressure for shipping, storage and usage.

During the recent LNG for E&P forum, Travis Balaski, manager of LNG market development for Ferus LNG, said one problem with replacing diesel with LNG is simply that it takes 1.7 times the volume of LNG to equal the same diesel energy. Therefore, a tank of LNG does not go as far as the same-sized tank of diesel.

"So we've sacrificed a little bit of range to date in order to get that LNG in operation, but I believe we're getting closer and closer to having larger LNG tank configurations," he said, adding whereas current LNG tanks give trucks a range of about 837 kilometres, new technology is rapidly making it more possible for these trucks to travel at a preferred 1,300-km range.

Balaski said as LNG trucks become more popular, the industry will have more reason to improve upon technology and the costs, tank capacity issues and networks of fuelling stations will all be resolved to match market demand.

"We're going to see infrastructure increasing. We're going to see economies of scale -- instead of hundreds of trucks, we're going to see maybe tens of thousands of trucks being built."

Fridfinnson said another challenge with LNG trucking is the fuel itself requires "more active management" than petroleum liquids.

"If fuel sits and is allowed to warm up, then it will look to return to gas form and you will lose that energy content. So you're in a sort of 'use it or lose it' type of scenario."

However, Fridfinnson said operating an LNG truck is remarkably similar to operating a diesel one, although differences include zero odor associated with LNG fuel and the LNG truck runs a bit quieter than its diesel counterpart.

Bill Simpkins, spokesman for the Canadian Fuels Association, said there is going to be room for all sorts of new fuels in the transportation sector. He added the association believes the future for LNG appears to be largely in return-to-base transportation for large vehicles.

"I don't think you're going to see it in small vehicles," he said, adding his organization anticipates petroleum-based liquid fuels will remain key components in the transportation sector for many years.

"Of all the fuels we know today, diesel still gives you the best energy value by volume and by weight, next there's gasoline, and then you run into things like natural gas."

However, Milner told the audience at last week's LNG for E&P forum that LNG will increasingly become a key component in the transportation infrastructure of North America. In fact, she said, if Canada ever expects to meet its greenhouse gas reduction goals with industries' heavily reliant on lots of diesel fuel, LNG will likely have to play a key role in that process.

"Right now in Canada, [LNG] is fairly small. In total, there are probably about 200 LNG highway tractors in operation in Ontario, Quebec, Alberta and B.C.," Milner said, adding the CNGVA does not believe LNG will entirely take over the heavy-highway market, but it is a wonderful fuel for fleets operating in regional corridors.

David Hill, vice-president of natural gas economy operations with Encana, said a big help to encouraging LNG trucks would be for large manufacturers such as General Motors Company, Ford Motor Company, Cummings Inc. and Caterpillar Inc. to develop "natural gas engine solutions," making buying an LNG truck as convenient as buying any other truck, with similar degrees of service, understanding and warranty.

He said that same need for manufacturers to develop LNG machines would also benefit the railway, mining and marine industries, although the marine industry seems to be moving somewhat quickly towards adoption of LNG with coastal shipping, tug boats and ferry systems.

In the agriculture industry, Hill said, one of the first areas to see LNG use would likely be in the dryer segment, in which farmers use large machines to dry grain during harvest. However, he noted, there needs to be a better means of getting the LNG to remote agricultural sectors in order for this fuel to be fully realized by that industry.

Key to enabling full utilization of LNG in the transportation industry, according to Hill, is companies investing in fuelling infrastructure.

Cracking the fuelling infrastructure 'chicken-or-the-egg' paradox

While there are some areas of the country with trucks running regionally on LNG, to get a larger segment of the trucking fleet on this fuel Milner said there must be more corridor infrastructure in such centres as Quebec City, Edmonton and Vancouver.

According to Milner, fortunately in Canada there are "a lot of different players starting to get involved" in LNG for transportation.

"We've seen, for instance, in the Maritimes Irving Oil Ltd. talking about offering LNG at their stations between Montreal and Halifax. In the Ontario market, of course, Shell recently announced it's building an LNG production facility near Sarnia, and from that facility the company aims to supply both the heavy on-road trucks, as well as the marine sector in the Great Lakes.

"Gaz M�tro out of Montreal, they're the ones who provide the stations for Robert Transport, and they too are starting to put in stations in Quebec City and Cornwall. So we're beginning to see point-by-point development."

Burns said Shell has more natural gas reserves than it does oil, and is therefore perhaps best thought of as a gas company rather than a crude oil one. Currently, the company provides more than 30 per cent of all LNG globally, and was integral in creating the first LNG plant about half a century ago. He said Shell operates over 20 per cent of all seaborne LNG carriers globally.

However, Burns said, what makes Shell so important to the growing LNG market is the company isn't just a producer of oil and gas, but it is also one of the most recognizable brands in the downstream segment of the industry with Shell fuelling stations located in communities across the planet.

South of the border, for example, last month Shell and truck-stop owner TravelCenters of America LLC announced they would be opening -- in approximately one year -- the first of up to 100 planned LNG fuelling stations for U.S. trucks (DOB, April 16, 2013).

"It's only natural for us to bring those core competencies we have in the conventional LNG space, the competencies and rich heritage we have in the downstream space of bringing new fuels into the market, to bring LNG into the market," Burns said.

Hill said Shell and its Alberta public LNG fuelling infrastructure is an example of a company "stepping up" in regards to infrastructure.

"So quite honestly, two or three years ago there was a lot of talk and not a lot of action," he said. "But within the past year we've seen a lot of companies step forward to actually start to build the infrastructure, and no longer just talking about it. I think it's a very significant event we're looking at today."

While leaving larger public fuelling infrastructure to other companies, Hill said Encana has been quite active with about a dozen mobile fuelling operations providing fuel to help start smaller LNG pilot projects.

"It's hard to build a huge fuelling station until the trucks show up, and the trucks don't want to show up until there is fuel, so to help crack the code of the 'chicken or the egg,' mobile fuelling is what we have been doing to help move the market forward on the trucking side."

As the infrastructure for LNG is put into place, Hill said the next question is in regards to the LNG itself.

"That's where Encana is playing a bigger role. We're participating in developing new liquefaction capacity in North America, our first two announced plants have been in Alberta, and we're looking to announce several more in North America in the coming year. And there are others announcing plants as well, which is very positive."

Hill said there are new engines available and new ones to be announced in the near-term, which he said would really accelerate the market for trucking, and give companies more choice as to the LNG trucks they buy.

However, as promising as LNG might be for the transportation market, Hill admits it isn't ideal for all vehicles in all travelling situations, such as smaller cars and trucks or other transportation devices that are not travelling long distances. Fortunately, he added, in those cases there are other natural gas options, including CNG.

"The best market today for natural gas is the transit buses and the refuse trucks, because they're all return-to-base, they drive a very set route, and they don't consume a lot of fuel and can refuel every night," he said, noting on March 11, the City of Calgary rolled out two new CNG buses as part of a pilot project.

Using LNG for E&P; increasing LNG production

According to Hill, Encana integrated natural gas into its pressure-pumping services, starting in B.C. at Horn River getting a test going in 2012, which he said went "very well" and the company is now on its fifth pad using natural gas.

"It's been a very interesting process, and we've had to teach ourselves how to do it and then teach our services companies how to do it."

As Encana expanded its use of natural gas, Hill said, the company realized it didn't have enough access to LNG in the areas in which it operates.

"So Encana began to investigate new technologies to liquefy natural gas. We built our first plant east of Calgary at our Cavalier facility [DOB, Jan. 30, 2013], and that facility is doing about 6,500 gallons a day of LNG production. So it is very much what I would call a micro-liquefaction facility."

Once that plant was operational by the end of last year, Hill said, that's when Encana entered into a partnership with Ferus to build the 190,000-litre per day second LNG plant in Grande Prairie.

"These are primarily to really start the market for our [exploration-and-production] services, the E&P supply chain, and the trucking market."

To feed its Alberta network of LNG fuelling stations under development, Shell will produce LNG at the planned liquefaction plant, which will be located at the Jumping Pound natural gas facility, located 30 km west of Calgary. Burns said that plant will be operational next year, with a third party currently providing LNG for the fuelling station already open locally.

"Infrastructure is a challenge, but we're hitting that head-on," he said, adding Shell would continue to invest in building fuelling infrastructure for LNG, with plans to have networks set up in the U.S. Gulf Coast, as well as the Great Lakes corridors within the next three years.

Train company choosing LNG to help keep environmental practices on track

In late 2012, Canadian National Railway Company (CN) began testing two mainline diesel-electric locomotives fuelled primarily with LNG on an approximately 500-km run between Edmonton and Fort McMurray, with the railroad company retrofitting two 3,000-horsepower diesel-fuelled locomotives using existing technology to gain first-hand experience with LNG locomotives, and Encana providing the fuel.

Mark Hallman, spokesman for CN, said while the pilot project is progressing well, it remains in the very early stages of development.

"CN is working closely with other parties, including specialized manufacturers, locomotive builders, fuel suppliers and regulatory agencies, on a project to develop a state-of-the-art natural gas railway engine for locomotives and a standardized railway fuel tender," he said, adding there would likely be significant cost implications, as well as mechanical and fuel logistics challenges associated with the introduction of natural gas motive power.

"CN will need more long-term experience with its pilot program -- and will need to see more industry research and development work proving the rail technology employing natural gas is effective and economic -- before it can comment on the long-term viability of natural gas fuelled locomotives as alternatives to its current diesel locomotive fleet."

According to Hallman, CN selected the run between Edmonton and Fort McMurray for its pilot project because Edmonton is a key location on the company's transcontinental network, with a major yard and diesel fuel operation. Further, the loop between two Alberta cities allows fuelling, servicing, maintenance and training at a central point in Edmonton.

Finally, he said, the line between Edmonton and Fort McMurray sees sufficiently high tonnage trains over undulating territory to test the capabilities of the retrofitted locomotives.

Hallman said natural gas has a lower carbon content compared with diesel fuel, so that locomotives using natural gas -- if the railway technology using this form of energy proves viable -- would produce significantly fewer carbon dioxide emissions.

"As a natural next step to achieve reduced emissions and greater energy efficiency, which are two key pillars of the company's Sustainability Action Plan, CN seriously began to examine in 2011 the possibility of a pilot test of locomotives in revenue service using natural gas as a potential alternative to conventional diesel fuel."

Hill said the rail industry is very attractive for the LNG market, because trains are very large fuel consumers and fuel is a large percentage of a railway company's operating costs.

"It's something the railroad companies looked at back in the early 1990s, but then the price of oil collapsed, so they didn't have a competitive advantage," he said, adding with diesel prices again high and with higher forecasted prices as well, railway companies are again looking "very seriously" at natural gas.

Hill said the two CN locomotives using LNG have a kit to blend LNG with diesel, accompanied with an LNG tank between the two cars. He added other railway companies across North America are evaluating the success of the CN project to consider their own LNG options.

Canada Post not yet ready to put its stamp on LNG vehicles, but has not licked past the idea either

Steve Clark, director of fleet management with Canada Post Corporation, told the Bulletin the nation's postal service is not currently investing in LNG technology, but that could change in the foreseeable future.

"So LNG is not currently on our radar, primarily because right now it is being looked at as a heavy 'Class-8' fuel," he said, adding Canada Post's fleet falling into this category is quite limited -- less than 100 out of 12,500 total units -- and those vehicles are only conducting regional runs.

"It could change down the road, but for now the majority of our long-haul for mail and parcels is a contracted service and not done with our own fleet."

However, Clark said he believes LNG does have potential benefits for Canada Post in the future, even with in-city regional-shuttle services, as well as yard equipment. He said part of what must happen first, though, is development of more LNG refueling infrastructure.

"We would definitely want to have infrastructure availability closer to the postal facilities than probably exist in a lot of cases today."

Clark said diversifying Canada Post's fleet with alternative fuel options is important for many reasons, including environmental stewardship and potential cost savings for the organization, and he believes there is much potential for what LNG might offer in those regards.

"We've done a lot of work in the last few years to invest and grow our alternative fuel fleet, and we just haven't looked at LNG yet."

While Canada Post has yet to make a move towards LNG, in April United Parcel Services Inc. (UPS) announced it would purchase about 700 LNG vehicles and build four refueling stations in the U.S. by the end of 2014, which will give the company one of the biggest LNG truck fleets in the world (DOB, April 24, 2013).

Robyn van Teunenbroek, company spokesperson, said in Canada the UPS fleet consists mostly of standard fuel vehicles and about 33 per cent running on liquid propane, and there are plans to expand that propane fleet next year. Van Teunenbroek said UPS is looking at options for its fleet in Canada.

How can government help in the LNG revolution?

Before LNG can be fully utilized in the transportation market, Milner said government must help create certainty for the private sector in order to encourage investment.

In Canada, she said, the federal government charges no excise tax on natural gas, which is the same with most provinces. Milner said that tax advantage is important and should be maintained until natural gas is better established as a transportation fuel across the country.

"We recognize governments will need to introduce tax, but at this point we need first to get the fuel onto the market," she said, adding the CNGVA encourages government to wait five years before introducing fuel taxes on natural gas, or else wait until a higher percentage of the nation's trucking fleet is on LNG.

"But what we're seeing in Canada is just the lack of any leadership from government ... and with the kind of resource base we have in Canada on natural gas, and the emissions benefits, it is really hard to understand why governments would want to raise barriers."

According to Milner, assurances from government would make companies more likely to invest in LNG-fuelled engines, but ultimately government can only support the growth of a new fuel on the market. She said industry is responsible for taking the lead on LNG's development and success.

Burns noted another area in which LNG might benefit from government help would be for regulatory support in regards to highway weight restrictions.

"These LNG tanks are a bit heavier than their diesel counterparts," he said.

While government can help industry bring LNG to a more prominent place in the fuel makeup of North America, though, Burns said industry should also help government understand the benefits of the fuel and ways in which they can help the industry.