Thank you for this opportunity to present my thoughts on natural gas as a transportation fuel of the future. As a representative of Gazprom Export, I

1 Thank you for this opportunity to present my thoughts on natural gas as a transportation fuel of the future. As a representative of Gazprom Export...
Author: Lambert Patrick
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Thank you for this opportunity to present my thoughts on natural gas as a transportation fuel of the future. As a representative of Gazprom Export, I can tell you we are continually looking for new markets for Russia’s vast natural gas resources, and we believe natural gas has a distinct and important role to play in terms of reducing all forms of emissions from the marine and heavy-duty truck fuel markets, while maintaining vehicle range and performance and without increasing life-cycle costs. Gazprom Export has closely followed the ongoing EU initiatives and debates on greenhouse gas emissions reduction. If we look at the most recent EU goals for the transportation sector – targeting a 60% overall reduction in carbon emissions by 2050 – we come up against some stubborn facts. Excluding electrified rail, which only operates between fixed points, the utility of transportation technologies is highly dependent on their portable fuel capacity, which determines range and performance. There are no existing substitutes for carbon-based fuels that can approximate the range and performance of heavy trucks, ships and aircraft today. The magnitude of this challenge is evident in the rather modest goals for emissions reduction in these three transportation sectors. For heavy trucks, there is a leap of faith that 95% of the fleet will be at least partly electrified via hybrid drive and mobile fuel cell systems. This may well be possible someday, but not without fundamental scientific breakthroughs in electricity storage systems and major engineering advances for the components and integration of mobile fuel cell power systems. For shipping, the only proposed advancement in propulsion systems is actually a reversion to “wind power”. In other words - sailing tall ships. Indeed, this plan has a strong romantic sense but is not grounded in reality. My general observation is that efforts by politicians and environmental alarmists to take all fossil fuels off the table as a means of addressing the climate challenge blinds Europeans to consideration of actual, attainable options. Greenhouse gas emissions reduction can be achieved by substituting traditional fossil fuels with other cleaner fossil fuels. There are sensible and currently available alternatives that can significantly decrease pollution now, while research and development proceeds on even better longer-term alternatives. My proposition to you today is that natural gas can take the place of oil products for a significant portion of the transportation sector. In fact, the “oil-to-gas” dash, a major revolution in transportation , is silently taking place already.

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You may ask me a question why this silent revolution is taking place only now. What prevented natural gas from displacing oil products as a motor fuel in the past? There are three main reasons for this. The first major problem with using gas as transport fuel was its lower energy density. Even when compressed to around 200 atmospheres, natural gas still has only 25% of the energy content that diesel fuel has. Add to this the greater weight of the pressurized tanks needed to contain the compressed natural gas (or CNG), and the advantage of conventional liquid fuels becomes clear. In the past, the poor energy density of CNG limited the use of natural gas in the transportation sector to light duty vehicles and public intercity transportation with a short haul. The solution to the density problem came from liquefied natural gas or LNG. LNG has an energy density more than double that of CNG. Compared with diesel, the lower density of LNG (around 0.4 g/cm3 against 0.8 g/cm3) is partly compensated for by a significantly higher calorific value on a weightfor-weight basis (54 MJ/kg for LNG against 46 MJ/kg for diesel fuel), resulting in an energy density roughly 60% of that of diesel. With the possible exception of long-haul flights, LNG has made nearly all transportation industry sectors viable for natural gas penetration from long-haul trucking to maritime shipping to 300-ton heavy duty trucks in the mining industry. The huge expansion of the global LNG manufacturing and distribution system over the past decade has made LNG accessible to motor-fuels markets around the world, although the need for dedicated infrastructure for small-scale LNG still exists and creates an impediment for the rapid growth of LNGfueled truck and vessel fleets.

The second reason for the “oil-to-gas” dash is purely economical. The gas price (even when linked to oil) has been rapidly losing its parity to oil since the mid-2000s. The decoupling of oil and gas prices further tips the scales in favor of natural gas as a transport fuel, as gas increasingly becomes a more economical (and less volatile) fuel substitute. This advantage is expected to remain for the long term, as few expect crude oil prices to decrease to a level at which natural gas would become uncompetitive.

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Natural gas is much cheaper than oil products on an energy-equivalent basis. The German border price of natural gas is around half as expensive as Brent oil and the European power price, and one third as expensive as diesel fuel. All of these prices do not include tax, which provides further advantages to natural gas when one considers the applicable tax regimes for the competing fuels. Even with the additional cost burden of managing the production and distribution of a cryogenic fluid like LNG, LNG can be profitably sold at a significant discount to conventional oil products.

The third reason behind the “oil-to-gas” dash is the increasing focus on environmental restrictions. In marine bunkering, the immediate cause for fuel switching is the implementation of new limits on ship emissions in regions designated as Emissions Control Areas (or ECAs) by the International Marine Organization. The first ECA scheduled for implementation is in the Baltic and North Seas, with SO 2 and particulate emission restrictions taking effect in 2015 followed by NOx in 2016. The European Parliament's Environment Committee has recently backed tightening sulphur limits on marine fuels, ensuring that the 3.5% cap for sulphur content be cut to 0.5% by 2015 and to 0.1% by 2020. Fuels used in coastal waters (within 12 nautical miles) would not be able to exceed the 0.1% sulphur limit by 2015 under proposed legislation that will now be debated by the full parliament. It should be noted LNG is fully compliant with both the IMO and EU requirements.

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LNG-powered trucks are fully compliant with Euro V standards. According to major truck manufacturers, trucks will be able to meet Euro VI emission standards in a year or two.

Additionally, in many European cities owners of LNG-fueled trucks receive unrestricted access to urban environments that bar noise from diesel engines.

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Let me summarize what I have said so far. Until recently, there was broad consensus that global natural gas production was on the same trajectory as oil, just deferred a decade or two. Economies around the world, led by China, were expected to continue requiring greater amounts of energy to fuel their growth. Meanwhile, natural gas production in the West was thought to be in permanent decline, leading to premature assumptions regarding the long-term dependence of developed nations on imported sources of fuel. With the advancement of unconventional gas, declining gas production is not the case anymore. Technologies lowering greenhouse gases in the transportation sector through the use of natural gas are readily available today. But this cannot happen without the build-out of the requisite LNG production, storage and distribution infrastructure. With the Baltic/North Sea ECA as the obvious starting point for such a build-out, Gazprom and other companies are engaging equipment manufacturers and potential partners to deploy this new fuel distribution infrastructure. Prior to widespread market acceptance (and continuing in many instances), wholesale LNG purchases from regional LNG import terminals will be a likely source of product supply, followed by small local and regional liquefaction plants using available pipeline supplies. A fleet of specialized LNG shuttle tankers and barges will move the product from central supply nodes to satellite storage facilities in regional ports or directly to LNGfueled ships. This initial build-out will be costly, but Gazprom believes it is warranted given the longer-term market potential. As with other new technologies, the difference in capital costs is expected to decline with the ramp-up in LNG truck production volumes, while the fuel savings will keep coming in. Gazprom is actively pursuing joint development initiatives with equipment manufacturers with the intent of selling Gazprom-branded LNG as vehicle fuel through a network of both Gazprom-owned fueling stations and those of interested franchisees. Finally, with LNG you have a fuel supply with roughly 60% the energy density of conventional liquid fuels. This energy density brings LNG into a manageable range for surface and waterborne transportation modes and limits its use today only for long-range aircraft.

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Let us take a look at the potential size of the market for displacement of oil by gas. The total demand for oil products in the European transportation sector is significantly higher than the total production of LNG worldwide (as of year 2010). Of course, the majority of LNG production today is used to deliver natural gas from remote fields to market centers where it is regasified and put into pipeline networks, rather than being used directly as transport fuel. This proves that there is a tremendous opportunity for natural gas to displace oil products in the transportation sector, but this opportunity will only be realized with significant investment in LNG production, transportation, storage and distribution facilities.

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Marine bunkering and heavy-duty truck fuel are two LNG market opportunities receiving a great deal of attention today. Both fuel markets are large consumers of heavy fuel oil and distilled products and currently emit large quantities of traditional pollutants (SO2, NOx, and particulates) as well as large quantities of CO2 as combustion by-products. The current historically-high price differential between natural gas/LNG and oil products, and growing restrictions on vehicle stack emissions, have prompted a number of countries and companies to pursue LNG alternatives. While only ~26 vessels currently run on LNG (tugboats, ferries, platform supply vessels and patrol vessels, the vast majority of which serve the Norwegian coastline), 17 more are under construction or on order. This small base is expected to rapidly increase as we approach 2015 and beyond as ship owners and operators are forced to choose between adding abatement technologies to fuel oil-burning vessels or switching to LNG. Wärtsilä, the world’s biggest engine maker, expects 10% of ships calling on North and Baltic Sea ports to be running on LNG by 2015 - a tenfold increase in vessels currently using the fuel. Det Norske Veritas, one of the world's leading ship-classification societies, predicts that the majority of European ship owners will order ships that can operate on LNG by 2020.

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Major international consulting agencies and industry associations have already contributed their forecasts of the “oil-to-gas” dash. The consensus among these varied organizations is that natural gas is expected to capture significant market share from traditional petroleum-based fuels in marine and road transport.

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The transportation sector is the only sector where CO2 emissions have continued to soar. Total European transport emissions have grown 36% since 1990. High-ranking EU politicians have repeatedly warned that Europe must cease its 'almost complete dependence' on oil as crude oil reserves are becoming scarcer and more expensive to develop. But these politicians do not point to natural gas as the solution to soaring emissions. And that blindness is easily explainable. When natural gas is incorrectly labeled not only as ‘dirty’, but also as ‘foreign’, it makes it difficult for politicians to justify promoting natural gas as an alternative to oil. This is why the proposed European Tax Directive makes no accommodation for natural gas, instead unfairly punishing all carbon-based fuels in the transportation sector and eliminating the excise tax benefits that are currently available to gas. While disguised as a tariff to reduce carbon emissions, the proposed ETD would actually eliminate a large part of buyer preferences to use the cleaner-burning natural gas over more traditional petroleum fuels. This, in effect, would not discourage the increased use of more expensive, heavy carbon materials, a consequence which is contrary to EU sustainability policies. Current EU greenhouse emissions reduction plans assume at most a 5% market share for vehicular CNG/LNG in all transport categories. Meanwhile, as I noted earlier, these same plans assume up to 95% market penetration for hybrid electric and fuel cell electric heavy trucks, counting on dramatic improvements in battery storage capacities and fuel cell integration into vehicle fueling systems. It is highly doubtful that these assumptions will prove to be true in the timeframe that the EU requires. In contrast, LNG can be introduced as a transport fuel today and deliver immediate environmental benefits, while allowing for improvements and investments to be made in associated technologies. Thus natural gas will serve as a ‘bridge’ to the development hydrogen-fueled vehicles, should that technology become technically feasible and economically justified.

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EGAF’s recent study on the use of natural gas in transportation shows that the EU’s target of a 60% decrease in greenhouse gas emissions can be achieved with a heavier reliance on natural gas.

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Gas consumption in the transportation sector could reach 52 bcm in the gas-focused scenario compared to only 11 bcm in the EU baseline scenario.

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The estimated cost savings from using the gas-based scenario to achieve the same ambitious GHG emissions reductions goals could reach 73 billion Euro by 2050.

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There is another reason why Europe should not not rule out using natural gas in the transportation sector. Producing synthetic methane as a by-product of power generation from renewable energy sources can help solve the basic problem of RES - the problem of renewable energy storage. But the “power-to-gas” topic , in which natural gas becomes a renewable source of energy, would require a whole new speech. Today, I will discuss just the most important details. If "power-to-gas" technologies gain ground in Europe, natural gas will not only be considered a “bridge fuel” to the RES-dominated future or a back-up fuel for when RES reaches their supremacy. Instead, natural gas can pave the way towards something even more beneficial: a true 'dual-fuel' world where gas and RES exist in a symbiotic relationship. In many cases, RES will serve as a back-up source of energy to natural gas and not vice versa. This is not a utopian plan. One of the very real solutions currently under discussion proposes that we utilize the excessive volumes of electrical power that is generated by RES to produce H2 via the process of electrolysis. Then the problem becomes: What should we do with all this H2? Fuel cells are not efficient, H2-driven vehicles represent a niche market and will hardly steal market share away from the electric cars, hybrids, and conventional gasoline- or diesel-driven LDVs. The solution to H2 utilization lies in the massive production of "synthetic methane" through a process known as methanization. Combining CO2 from CCGT, CHP, CCS, the atmosphere, biogas or sewage in a chemical process with H2 will produce CH4 and water. There are several projects already underway to study this process. One of these is being led by Audi, which aims to take the surplus power produced from four wind power generators and use electrolysis and methanization to produce CNG as the final product. If and when methanization can be conducted on a commercial scale it will make natural gas a truly renewable source of energy on par with bio-gas.

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In conclusion, using LNG as a fuel for marine and road transport will offer Europe significant and diverse benefits. Global transportation fuel demand is poised to grow rapidly in parallel with the growth of the Chinese and Indian middle classes and the rise in international trade. Yet, efficiency gains in OECD transportation systems and technologies are only expected to partially offset this growth, and global oil production will not increase indefinitely. In contrast, natural gas resource estimates are growing rapidly, and gas production is both ample and readily expandable. Direct competition between gas and oil in transportation applications will benefit end-users by lowering prices and diversifying supply options. Further, efficient LNG liquefaction technologies are available across a wide range of output capacities. Expanding use of LNG in these applications is consistent with EU environmental goals for both conventional pollution and greenhouse gas emissions reduction and can further these objectives immediately using current technologies. For these and many other reasons, I believe that LNG deserves a prominent role in national and regional energy and environmental management strategies. LNG can truly revolutionize the transport sector due its many advantages, which we have discussed in part today. I truly feel that natural gas is the next logical step in our civilization’s ongoing transition to cleaner fuels. This abundant and secure fuel supply can confer economic and environmental benefits without government subsidization, anticipated technological breakthroughs or significant delays. But the process of promoting LNG as a transport fuel will undoubtedly, and unfortunately, be hampered by the EU bureaucracy. European politicians must relinquish their prejudices relating to natural gas. Currently, the European Commission is working on defining a list of so-called "Fuels of the Future“ that gives a clear preference to trucks with electric and hybrid engines, without paying sufficient attention to LNG. If this issue is not sufficiently resolved by the European Commission in favor of natural gas, then standards for LNG vehicles and LNG refuelling facilities will not be developed, and the utilization of LNG as motor fuel will become a slow and difficult process. The use of LNG as transport fuel means creating a market from scratch. This makes it essential that we work with new partners from different sectors and institutions and help EU politicians to realize the very real benefits of natural gas. Gazprom’s vast natural gas resources and transportation network make it well-positioned to serve growing markets throughout Europe through its integrated supply chains. Gazprom intends to play a major role in advancing LNG as a transportation fuel. Together, LNG and Gazprom can save the world. Thank you for your attention.

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