BUSINESS CASE FOR LNG AS VEHICLE FUEL

For a number of decades, oil derived products have led the way for vehicle fuel. Infrastructure for fuel distribution in mature markets are very established and developing at a rapid pace in Africa.

Although a number of new options exist to fuel vehicles, it will take a long time to replace infrastructure for alternative fuels. Mature countries have started to move their vehicles onto natural gas, electricity and hydrogen as alternatives to petrol and diesel. This is mostly driven by green economies, but also by the cost savings for the end user.

Nobody can deny that electrical vehicles are moving at a great pace and guys like Elon Musk with his Tesla brand have changed the way people will look at electric cars for ever. The great thing about electric cars is the fact that it can use existing infrastructure to recharge. Users can recharge at their homes and use charging points for their cars when traveling.

The shortcoming for electric cars is not the infrastructure to recharge the cars, but the electric car technology itself. Most of the electric car options that currently exist for potential clients requires users to sell their current vehicles and buy a new electric or hybrid car. With millions of petrol and diesel-powered cars on the road, the transition to electric cars will take a number of years. First world countries have a lot of incentives that support this green change but in Africa none of these incentives exist. Africa is also still battling to get petrol and diesel infrastructure installed to service the current growing market.

Luckily for Africa, another option also exists that could assist with the transition to green fuels. This comes in the form of LNG (Liquid Natural Gas). When methane gas is cooled down to -161 deg C, it changes phase from gas to liquid. Once it’s in liquid phase, the volume is reduced by 600 times compared to gas in atmospheric conditions. This means that the gas can be stored in liquid format to fuel cars and trucks in a very similar way petrol and diesel is stored. The energy density of LNG is also very similar to that of diesel and 1.6 liters of LNG is equivalent to 1 liter of diesel.

A number of options exist to create a stable supply of LNG to the African market. The first option would be to import LNG with large vessels from existing LNG plants in the rest of the world. LNG would then be transferred by means of cryogenic pipelines from the vessel to an LNG storage facility where trucks can get loaded to distribute the LNG.

The second option is to liquefy methane gas from a pipeline or wells. This is done with a LNG liquefaction plant that cools the gas down to the required temperature. Small scale liquefaction plants work very well to produce LNG for the vehicle fuel market. LNG liquefaction plants work very similar to ASU (Air Separation Units) used to liquefy oxygen, nitrogen and argon.

When LNG gets heated, the liquid changes back into methane gas. Its thus very important that the LNG get stored and transported in insulated tanks. It’s common practice to have 0,5% boil off gas per day when transporting LNG. In many cases, the trucks transporting the LNG will run on the boil off gas from the LNG.

Once the gas is liquefied, insulated tanker vehicles are used to transport the LNG to the end users. LNG can be supplied to the existing retail fuel outlets for vehicle fuel as well as industrial users for heating and power purposes. The LNG can be stored in the liquid phase and only re-gassed at the end of the process before its injected into vehicles or get re-gassed into existing gas infrastructure to use in industrial and power purposes.

Once the LNG reaches the retail fuel outlet, the LNG gets transferred to the LNG fuel tanks at the retail fuel station in the cryogenic phase. The LNG stays in the liquid phase during vehicle refueling process and only gets re-gassed directly before used in the engine.

Although vehicles need to be converted from diesel or petrol fueled vehicles to run on methane gas, it’s not a major conversion and existing vehicles can be used. For petrol engines to be converted to run on methane gas, no major changes need to be made except the storage and injection system of the gas. Petrol vehicles can run on 100% methane gas and it’s a complete change from petrol to gas. If the vehicle runs out of gas, it can continue running on petrol by only switching between storage tanks. Diesel powered vehicles can be converted to duel fuel by injecting methane gas into the diesel fuel mixture, but diesel cannot completely be replaced as its still needed to create an ignition using the diesel. With the latest engine management systems developed by companies like Caterpillar up to 85% of diesel can be replaced by methane gas. When a diesel engine converted to duel fuel runs out of methane gas, it continues on diesel without any changes needed to the engine.

Vehicles can thus be changed to run on methane gas without changing the vehicles or engines completely and using existing fuel retail station infrastructure. This creates an environment where vehicles can be changed over to green fuels over time economically. Once gas infrastructure improves and vehicle owners get used to using methane to fuel vehicles, they can start to procure new gas fueled vehicles.

A good example to look at is China, they started the process by converting existing vehicles to run duel fuel methane systems on CNG and have now moved over to complete LNG and CNG fueled vehicles. They could make this transition because the infrastructure in the country caught up and vehicles can now refuel using diesel, petrol, CNG or LNG.

When looking at the business case for LNG as a vehicle fuel, the cost of methane gas, cost of diesel or petrol, cost of electricity and liquefaction technology needs to be taken into account. As a rule of thumb, the cost of methane gas from the pipeline should be less than one third of the cost of petrol or diesel in the country. Once the cost of capital for liquefaction technology and electricity is taken into account an additional 50% should be added to the cost of the methane to get it into the liquid phase. In order to be able to sell the LNG at a price that makes sense for the end user, it should be sold between 15-30% less than the price of petrol or diesel. Even at this reduced price of LNG, the margin involved in LNG is a lot higher than that of petrol or diesel and some projects have IRR’s in the range of 40%.

LNG as a fuel also burns very clean with a large reduction in emissions and maintenance costs. Maintenance of vehicles get reduces by up to 3 times compared to existing maintenance philosophies.

In Africa, theft of fuel is a major concern and trucking companies annually lose a lot of money. Seeing that petrol and diesel is well known in Africa, an informal market exists for the sale of stolen petrol and diesel. With LNG being stored at -161deg C, nobody will attempt to steal the LNG. If the LNG gets removed from its LNG container, it will re-gas and disperse into the atmosphere. It’s thus a great means for trucking companies to reduce theft of fuel in their fleets.

Small scale LNG is the future for the next decade or two in the fuel industry with hydrogen and electricity to follow. Even though Africa is far behind with infrastructure, it’s very possible that small scale LNG can replace petrol and diesel in certain industries in the very near future.

Innovative oil retail companies are already investing a lot of money into LNG and seeing great returns from being first movers. LNG technology keeps getting cheaper as well as the prices of methane gas reducing with more gas being discovered. This will all contribute to LNG penetrating the African and global market.