Business Case for LNG as Vehicle Fuel

We introduce the consideration of 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 is very established and developing rapidly in Africa.

Although several new options exist to fuel vehicles, replacing the infrastructure for alternative fuels will take a long time. Mature countries have started transitioning their vehicles to natural gas, electricity, and hydrogen as alternatives to petrol and diesel. Green economies and cost savings largely drive this shift for the end-user.

There’s no denying that electric vehicles are advancing rapidly, with figures like Elon Musk and his Tesla brand revolutionizing public perception of electric cars. A significant advantage of electric vehicles is their ability to utilize existing infrastructure for recharging. Users can recharge at home and use charging points while travelling.

The main limitation for electric vehicles is not the recharging infrastructure but the technology itself. Most current electric vehicle options require users to sell their existing cars and invest in new electric or hybrid models. With millions of petrol and diesel-powered vehicles on the road, transitioning to electric cars will take several years. While first-world countries offer many incentives to support this green shift, such incentives are largely absent in Africa, which still struggles to establish petrol and diesel infrastructure to service the growing market.

Fortunately, another option exists that could assist Africa in its transition to greener fuels: LNG (Liquid Natural Gas). When methane gas is cooled to -161 °C, it transitions from gas to liquid. In its liquid state, the volume is reduced by 600 times compared to gas at atmospheric conditions, allowing for storage similar to how petrol and diesel are stored. The energy density of LNG is also comparable to that of diesel, with 1.6 litres of LNG equivalent to 1 litre of diesel.

Several options exist to create a stable supply of LNG for the African market. The first option involves importing LNG via large vessels from existing LNG plants worldwide. The LNG would then be transferred through cryogenic pipelines from the vessel to an LNG storage facility, where trucks can be loaded for distribution.

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

When LNG is heated, the liquid changes back into methane gas. Thus, it’s very important that the LNG is 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 transport the LNG to the end-users. LNG can be supplied to 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 being injected into vehicles or re-gassed into existing gas infrastructure for industrial and power purposes.

Once the LNG reaches the retail fuel outlet, it is transferred to the LNG fuel tanks at the retail fuel station in the cryogenic phase. The LNG stays in the liquid phase during the vehicle refuelling process and is only re-gassed directly before being 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 for the gas storage and injection system. Petrol vehicles can run on 100% methane gas, 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 dual-fuel by injecting methane gas into the diesel fuel mixture. However, diesel cannot completely be replaced as it’s 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.

Thus, vehicles can be converted to run on methane gas (LNG) without changing their engines completely and using existing fuel retail station infrastructure. This creates an environment where vehicles can be economically converted to green fuels over time. Once gas infrastructure improves and vehicle owners get used to using methane to fuel vehicles, they can start procuring new gas-fueled vehicles.

A good example to look at is China. They started the process by converting existing vehicles to run dual-fuel methane systems on CNG and have now moved over to complete LNG and CNG-fueled vehicles. They could make this transition because the country’s infrastructure 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, diesel, petrol, electricity, and liquefaction technology must be considered. 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. 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 much higher than that of petrol or diesel, and some projects have IRRs in the range of 40%.

LNG burns very cleanly and reduces emissions and maintenance costs significantly. Vehicle maintenance can be reduced by up to three times compared to existing maintenance philosophies.

In Africa, fuel theft is a major concern, and trucking companies lose a lot of money annually. Since petrol and diesel are well known in Africa, an informal market exists to sell stolen petrol and diesel. With LNG being stored at -161deg C, nobody will attempt to steal the LNG fuel. 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 fuel theft in their fleets.

Small-scale LNG is the future of the fuel industry for the next decade or two, 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, and the prices of methane gas are reducing as more gas is discovered. This will all contribute to LNG penetrating the African and global markets.

Read more about EPCM LNG here.