Shell Oil Co. and TravelCenters of America LLC (TA) said today they have signed a tentative agreement to build and operate liquefied natural gas (LNG) fueling lanes for heavy-duty rigs at about 100 of TA's 238 nationwide fueling centers.
The proposed agreement, if finalized, would represent another step forward in establishing the necessary infrastructure to make the economical energy source accessible to the nation's interstate motor carrier fleet. The biggest obstacle to expanded trucking industry use of natural gas is the absence of a national refueling network that allows drivers operating 300 miles or more easy access to natural gas lanes to fill their rigs.
The joint agreement, which takes the form of a "memorandum of understanding," calls for Houston-based Shell to build at least 200 LNG fueling lanes at the 100 TA locations. Westlake, Ohio-based TA will operate the lanes.
Shell and TA will jointly choose the locations, the companies said. The first location is expected to be operational in 2013, the companies said.
BUILDING A NETWORK
The announcement is the second breakthrough within the past two years in building out so-called natural gas highways to support gas-powered rigs. In October 2010, Clean Energy Fuels, a Seal Beach, Calif.-based natural gas supplier, signed an exclusive agreement with Pilot Flying J, the nation's largest truck-fueling operator in the country to build and operate natural gas facilities at Knoxville, Tenn.-based Pilot Flying J Centers.
Since that agreement, the companies have completed work at 20 stations, and plan to have 50 more stations operational by year's end. It is expected that 80 additional facilities will come on line in 2013, according to the companies.
Natural gas supplies in the U.S. remain plentiful due to a mild North American winter that depressed energy demand, and, more significantly for the long term, an increase in domestic exploration and development that has led to an abundance of gas inventories.
As of June 4, the average cost of a gallon of diesel fuel stood at $3.84, according to the Department of Energy's Energy Information Administration. The cost of a gallon of LNG is currently about $2.92 a gallon, according to prices quoted on the Clean Energy network. The cost of compressed natural gas (CNG) is estimated at $2.30 a gallon, Clean Energy said.
Natural gas prices traded yesterday at $2.42 per million British Thermal Units, (or BTUs), well above recent lows of under $2 per million BTUs, but still low by historical standards.
Although truck engines can run on both, LNG is considered the better fuel for longer hauls because, unlike CNG, it doesn't add weight that must be carried along with the goods.
As a result, CNG is better suited for local-use vehicles like buses and garbage trucks, both vehicles that operate over shorter hauls.
About 300 million gallons of natural gas is consumed each year by various forms of livery, according to data from Clean Energy. By contrast, 35 billion gallons of diesel are sold and consumed annually. The wide disparity in the numbers indicates a sizable market for conversion to natural gas as a truck power source, advocates say.
A SIGNIFICANT ANNOUNCEMENT?
Glen P. Kedzie, a vice president at the American Trucking Associations, called the Shell-TA announcement an "extremely significant" step forward in reinforcing the notion that natural gas can stand on its own as an alternative to diesel as a truck fuel. "We're seeing the stuff born right before our eyes," he said.
Kedzie said, however, that transactions such as this may convince Congress that enough private sector capital exists to support natural gas investments and that there is no need for government subsidies to incent con version efforts.
James N. Harger, chief marketing officer for Clean Energy, downplayed the announcement as little more than a proposed agreement that could be revised, or even never see the light of the day.
Still, Harger acknowledged that the proposed agreement is "good for our business because it confirms there is a growing market" for natural gas.