The road to hell is paved with discarded business models

Any LNG seller that looked at the North American gas market 15 years ago would have seen himself confronted with an image of the biggest payday ever. North American gas production was going down, the market needed gas like a breath of fresh air, there were so many LNG import terminal project proposals up and down both coasts of the continent that the coastlines were blotted out on most maps and prices were so high that there were talks of the new El Dorado.

Look this year, and not only is the US a net gas exporter, but also the US gas market is on its way to becoming the first true 1 tcm/a gas market on Earth. Emissions are at the lowest point in living memory and the price of Natural Gas is so low for so long that there is talk of a new industrial revolution as this low priced clean energy attracts plenty of energy-hungry industry back to the lower 48.

What we have just been looking at was only the last 15 years of US gas history though. The full story goes on for much longer and there have been shifts, sudden developments and all kinds of surprises. None of them have been quite as significant as shale gas though.

And if you think now that this shale revolution has already played all its cards or that there are no more surprises in the store, I suggest you buckle down for the ride as you might be in for a real massive surprise. Yes, most people did not see shale coming when it was in its early years. There were quite a number of those that could see the lone rednecks that tried to make shale work but most thought that it would never amount to anything.

Because shale was no surprise at all. It did not sneak up in the dark when no one was looking. It did not jump out of a badly lit back alley in order to shock its victims into instant stasis. Rough men and hard-hitting innovators were working the shale cudgel for many years, what do I say – even decades as this is not a new thing at all.

We know about the existence of shale almost as long as we know about the use of oil as a feedstock for energy applications. Kerogen wells (the precursor stage of crude oil) were tentatively drilled in Austria in the late 19th century. People knew it was there, they knew that it might be commercially interesting to exploit, and they tried to find out that their assumptions were wrong. Not that the resource was not there but rather that they could not exploit it commercially.

Most radical innovations don’t spring out like a Jack in the Box in order to take the world in a storm. Innovators go through a veritable Spiessrutenlauf (running the gauntlet) for many years or even decades until the day when their idea gains critical mass or takes on a momentum that allows it to grow exponentially finally comes around.

One such idea is the use of LNG as a fuel as a replacement for pretty much anything diesel does. It does already happen in the shipping world as with the advent of the new IMO 2020 rules, HFO essentially becomes unusable for those vessels. Or just under the penalty of very large financial investments.

Where the LNG revolution is still in its infancy is as a fuel for trucking. Oh yes, it is there, there is a rough network of LNG fuelling stations in parts of the US right now. However, in the grand scheme of things, it’s still a pretty exotic option. And has been for many decades as LNG was used as a vehicle fuel for more than 50 years now and there is a thick body of expertise and knowledge that comes with it. If you go down the LNG route, you are not looking into a potentially black hole of unsolved issues. You are looking at a well-trodden path with pretty much all issues resolved.

Early believers, innovators, and entrepreneurs have gone down this path – most notable of all, Mr. T. Boone Pickens and his company Clean Energy that has resisted the devils of failure for a very long time.

I think they are on the right side of history.

Just like with shale, the groundswell of LNG as a fuel is building up until the moment is right for it to go big. But why has that not happened so far? In the end, gas has been cheap for years now, the technology is beyond mature, there is now an appreciable range on Natural Gas vehicles available to choose from and the environmental credentials of Methane are established even if some die-hard enviro-ultras will never be satisfied and prefer plastering entire regions with bird, bat, and insect shredding windmills or transforming them into glistening beryllium deserts instead.

As so often, its the rulebook that still disadvantages LNG as a fuel.

One of those non-sensical rules is the interdiction to transport LNG is railway tank carriages that have been made to transport cryogenic fuels. To be sure, LNG can be transported in road trailers and also in ISO containers on flatbed rail carriages. So, in the end, it does not seem to be the fact that LNG gets moved around that arouses the ire of those with the rulebook. Its the fact that it couldn’t be done in tank cars that – its must be reminded – are specifically built for this purpose and have stood up to more stringent safety tests than any gasoline or diesel railcar ever has. Or indeed many petchem railcars that rumble through neighborhoods all the time and that are, contrary to LNG, really dangerous.

Another example it the impossibility of using a part gas engine. Many trucks that are built and rated for diesel could be efficiently and cheaply retrofitted to run with a diesel/methane mixture where methane would constitute the much bigger part. And only a small fraction of diesel that is needed for ignition.

These trucks would, in essence, become dual-fuel vehicles that use LNG wherever it is available for about 90% of its fuelling requirements and revert back to full diesel when no LNG is available. Plus, the conversion is pretty cheap. That takes care of a lot of problems in long-distance trucking with class 8 trucks for example.

Those are just examples where quick and decisive action by the administration would achieve rapid results that would make life in the US better in many ways.

How that? Read on next week.

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