And the Winner is?
There are essentially two methods for replacing “oil-derived” diesel fuel in the United States.
The first is to use natural gas in either a compressed form (CNG) or in a liquefied form (LNG).
The second is to convert natural gas to a liquid diesel-type fuel in a process known as gas to liquids (GTL).
The GTL process changes the structure of natural gas so it becomes a new liquid product akin to diesel fuel. LNG is natural gas that has been cooled until it is in a liquid rather than gaseous state.
SASOL recently announced plans to build a GTL plant in Louisiana. The plant would cost around $10 billion and produce 93,000 barrels of diesel fuel each day.
Whether this investment has strategic implications will depend on whether the plant can succeed economically by earning a profit with an acceptable rate of return. SASOL has built a similar plant in Qatar that seems to be an economic success, but the natural gas in Qatar is virtually free. In Qatar, there are very few alternatives for using its huge natural gas reserves, so converting natural gas to diesel fuel is worthwhile at any cost below the market price of oil. (Qatar also has a large LNG capability.)
The cost of natural gas in the U.S. is currently around $4 per million BTU and that will affect the viability of the SASOL plant.
Assuming it is economically viable, it’s still questionable whether GTL would replace the use of “oil-derived” diesel fuel in the U.S. Replacing the 3 million barrels per day of diesel fuel used in the U.S. would require building over 30 GTL pants with an investment of over $300 billion.
The GTL derived fuel has two important advantages over LNG.
- First, it can utilize the existing infrastructure for transporting and delivering the fuel.
- Second, it doesn’t require modifications to existing diesel engines.
The two disadvantages of LNG are:
- First, LNG requires building new fueling stations with equipment for producing LNG from natural gas.
- Second, existing diesel engines will need to be modified or new engines installed on new trucks.
Earlier articles provide more detailed information on LNG and CNG. See Natural Gas for Transportation Part I
The cost of building LNG stations at 4,000 truck stops around the U.S. would be around $16 billion.
Trucks will incur an additional cost of around $70,000 to enable them to use LNG. The ROI for the added cost is around five years for heavy-duty trucks and around two years for fleets of over 100 vehicles. See Natural Gas for Transportation Part II
The Catch-22 for LNG is that truck owners won’t invest in LNG-capable trucks until there are LNG fueling stations along their truck routes, and station owners are hesitant to build LNG fueling stations until there are trucks available to buy the fuel.
We have two contestants for displacing “oil-derived” diesel fuel in the U.S.
On one hand, there is GTL that requires a very large initial investment but can use the existing infrastructure, while on the other hand, there is LNG that requires a smaller infrastructure investment but higher operating investments, i.e., higher truck costs.
CNG is not part of this competition since it would primarily be used to power light vehicles, i.e., cars and SUVs.
If SASOL goes ahead with its plans to build the GTL plant in Louisiana, the competition will begin. Both GTL and LNG have the potential to reduce oil imports, but these alternatives may not replace diesel fuel derived from oil because of the high investment and other costs of GTL and LNG.
The outcome will be of great interest.
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