Long road ahead before truckers switch from diesel to natural gas
By Lauren Krugel
THE CANADIAN PRESS
CALGARY — Those hoping to see truckers across Canada ditch diesel for cheaper and cleaner liquefied natural gas fuel might be in for quite a wait — though a handful companies are working toward making that a reality.
Last week, Royal Dutch Shell PLC announced plans to sell LNG — natural gas that has been cooled into a liquid state — at truck stops between Edmonton and Calgary starting some time next year. By 2013, it aims to produce some of its own at a plant west of Calgary.
“It’s a solid first step,” said Stephen Laskowski, vice-president of the Ontario Trucking Association.
Shell plans to make the business case to potential customers through a marketing agreement with Westport Innovations Inc. (TSX:WPT), a Vancouver-based manufacturer of natural gas fuel engines.
“As a result of this initiative, we believe the use of natural gas as a fuel for transportation will accelerate,” Westport CEO David Demers said in a statement.
On the surface, it may seem like a no brainer for truckers to make the switch: Laskowski figures LNG could be up to 35 per cent cheaper than diesel and emit up to 24 per cent less carbon dioxide.
But there’s something of a chicken-and-egg conundrum standing in the way.
Trucking companies are reluctant to invest in LNG-fuelled rigs if there is no guarantee there will be enough places to fuel up along their routes. Likewise, it’s tough to justify building those fuelling stations if it’s not certain enough vehicles will make use of them.
Another challenge is the massive upfront costs trucking firms would have to incur to buy new rigs. Laskowski said a LNG rig can be twice the price of a diesel one.
Quebec is the only province that offers tax incentives for LNG rigs, so it’s no coincidence that Robert Transport of Boucherville, Que., is among the first to add LNG trucks to its fleet by partnering with Gaz Metro and Westport.
“Obviously governments need to step up in the short term with regards to special tax treatment for this equipment,” said Laskowski.
“Without accelerated tax allowances for the vehicle itself through the federal and provincial governments, there would still be, I think, a lot of hesitancy in the marketplace.”
LNG currently isn’t taxed the same way diesel is and Laskowski said he hopes that remains the case if the fuel eventually gains traction.
Shell expects the transportation sector will back LNG, said Bob Taylor, the company’s manager of commercial fuels, business development and marketing.
“Trucking companies are bidding on business based on their cost structure, and so we think that we can give them a cost structure, and also an environmental story that will make them more competitive,” her said.
Ed Kallio, director of gas consulting for Ziff Energy Group, said the long-term fuel cost savings outweigh the upfront costs of the new rigs.
“If you look at the fuel savings, the potential demand could be quite substantial, given that differential between what oil is priced at, and what gas is priced at,” said Kallio
Companies have been compelled to find new markets for their natural gas because of an enormous supply overhang that continues to dampen prices in North America.
In addition to the transportation initiative — which also envisages partnerships with consumers in the marine, rail, and mining sectors — Shell is examining shipping the fuel off Canada’s West Coast to Asia, where natural gas prices more closely track the price of oil.
Canadian natural gas giant Encana Corp. (TSX:ECA) has also been pushing for the fuel to be used for transportation and has been using it to power some of its own drilling rigs. It too is eyeing exports from British Columbia through its interest in a proposed terminal in Kitimat, B.C.
Talisman Energy Inc. (TSX:TLM) is teaming up with South Africa’s Sasol to examine building a gas-to-diesel plant in B.C., and Nexen Inc. (TSX:NXY) is weighing marketing options for its gas as well.
What all of these companies are doing is playing the gap between natural gas and oil prices, which have been much more robust, said Kallio.
“It’s the differential that counts. Everything runs off of this differential between oil and gas.”