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This week, Royal Dutch Shell PLC began rolling out a strategy that will dramatically change the energy world. With revenues larger than the economies of Alberta, Saskatchewan and British Columbia combined, Shell is betting big on natural gas to replace oil as the world’s foremost transportation fuel.
This is the game-changer. It was only a handful of years ago when small independent oil companies proved that a technology called fracking worked and was able to blow up deep shale rocks to release natural gas. They sold out to majors who, in turn, sold reserves to super-majors like Shell that have fuel refining and retailing expertise and operations.
There have been pilot projects involving the use of natural gas, liquefied or compressed, as fuel in trucks, but this week Shell made a big move. The giant announced a partnership with an American gas station operator to supply liquefied natural gas (LNG) for heavy-duty trucks at 100 fuelling stations across the U.S. by 2013.
The company will build LNG plants to service this chain and others that will follow. In Canada, Shell has made a similar deal with a truck-fuelling chain along 1,600 kilometers of highway between Fort McMurray and Vancouver. Shell has called this its “Green Corridor project”.
The liquefied, or frozen, gas is an ideal transport fuel for large trucks and compressed gas for smaller vehicles. Roughly 92% of transportation fuels are petroleum-based, but could be replaced by natural gas, compressed or liquefied. This will take years, but Shell’s move breaks the Catch-22 that has slowed adoption of gas.
Gas is greener too and the United States has a glut — one century’s supply of gas at current consumption rates. This, on top of the glut of conventional gas in Canada and the U.S., has driven natural gas prices down to the point where fuel switching makes sense.
Shell has made its move because it doesn’t expect a rebound in gas prices anytime soon, and the company’s gas production outpaced oil production in 2012 for the first time in its history.
The shale gas phenomena is going to primarily impact oil but also the coal industry. Recently, three large power plants in the U.S. announced they will close and generate power from natural gas.
Eventually, Shell and others will build out a complete infrastructure to offer LNG, and possibly, CNG, to all trucks.
The use of LNG is limited to big vehicles because the gas must be kept at minus 162 degrees Celsius and only large-scale fuel-ups by big trucks would justify the additional cost of providing special coolers at filling stations.
For the rest of this article, please go to the National Post website: http://opinion.financialpost.com/2012/06/08/shell-is-changing-the-energy-game-and-in-a-big-way/