Home' Trinidad and Tobago Guardian : May 2nd 2013 Contents BG10 ENERGY
BUSINESS GUARDIAN www.guardian.co.tt MAY 2013 • WEEK ONE
Gasoline and diesel are still the dominant
fuels for transport, but this could change as
natural gas is increasingly becoming compet-
itive, Morgan Stanley said in an April 16 blue
paper obtained by the Business Guardian.
Exploration success and technological inno-
vation have boosted global gas resources to
around 240 years of current consumption,
natural gas is priced at a 45 to 75 per cent dis-
count to oil in the United States and Europe,
and natural gas vehicle (NGV) technology exists
and is tried and tested, Morgan Stanley said.
"With input from our global oils, autos and
commodity teams, this blue paper explores the
potential for natural gas to gain share from oil
in the last but most entrenched oil bastion,
the transport market," the blue paper said.
The contributors were many from all around
In many cases, the economics of switching
to natural gas are compelling, particularly for
return-to-base fleets such as courier trucks,
buses, taxis, etc, as well as heavy duty trucks
that do high annual mileage, the paper said.
The payback period on the additional invest-
ments in a Class 8 liquefied natural gas (LNG)
truck, for example, can be as short as two to
In a hypothetical scenario in which all Class
8 trucks in the US were fuelled with LNG,
annual savings of US$40-$70 billion could be
realised, the researchers estimate.
NGV penetration in emerging markets is
currently around 3.6 per cent, the paper said.
Developed markets lag this considerably with
just around 0.2 per cent penetration. If the
share in emerging markets were to improve to
around five per cent (that is, in line with Brazil
currently) and the share in developed markets
were to increase to one to two per cent (in line
with Sweden, Italy), this could boost gas
demand by eight-16 billion cubic feet (bcf/d)
per day (three to five per cent of current global
gas demand), but shave off 1.5-2.7 million bar-
rels per day of gasoline/diesel demand (three
to six per cent of global gasoline/diesel demand),
Morgan Stanley said.
If 30 per cent of US medium and heavy duty
trucks were to switch to natural gas, this could
increase to 26 bcf/d (eight per cent of global
gas demand) and 4.5 million barrels per day
(mb/d) (nine per cent of global gasoline/diesel
demand), but this still requires a number of
obstacles to be overcome, Morgan Stanley said.
Selected equipment manufacturers could be
well placed to benefit from broader NGV adop-
tion, Morgan Stanley said. Also, higher natural
gas prices would benefit major gas resource
holders, including many E&P companies in
T&T, but also in the US, Europe, and Asia-
"Natural gas is now relatively cheap and
abundant and tried-and-tested technology
is making it more viable as a transport fuel,"
Morgan Stanley said.
"Discoveries of new conventional gas fields
alone have been sufficient in recent years to
replace nearly all of the world s natural gas
consumption. In addition, reserve estimates
for previous discoveries continue to increase
and the shale revolution has unleashed sub-
stantial unconventional natural gas resources.
The International Energy Agency (IEA) esti-
mates that technically recoverable gas resources
now stand at around 28,000 trillion cubic feet
(tcf) globally, which is equivalent to around
240 years of current consumption, substantially
ahead of oil, the paper said.
In addition, natural gas is also much cheaper
than oil on an energy-equivalent basis, par-
ticularly in Europe and the US. For example,
Morgan Stanley said, the Henry Hub natural
gas price of around US$4 per million British
thermal units (mmbtu) is at a around 75 per
cent discount to the West Texas Index. Euro-
pean hub prices are somewhat higher, but
around US$10 per mmbtu is still at a around
45 per cent discount to Brent. Only spot LNG
import prices into Asia at around US$16 per
mmbtu come close to oil prices.
Natural gas market share
Natural gas low price and increased avail-
ability has already made it more competitive
in other markets. For example, gas has already
taken market share from coal in power gen-
eration in the US, the paper said. Yet, these
additional sources of demand have so far been
insufficient to absorb all excess production.
In the transportation market, natural gas
has so far not played a meaningful role, Morgan
Stanley said, but NGV technology has been
available since at least the 1930s and is already
relatively mature. Increasingly, car manufac-
turers are offering versions of existing models
that can run on compressed natural gas (CNG).
In Europe, this includes Fiat, Lancia, Mer-
cedes, VW, Seat Skoda, Audi, Volvo and Saab.
In the US, the offering is more limited, but
Honda, Ford, General Motors and Chrysler
have various CNG cars in their fleets, and after-
market conversion systems are available for a
wide range of models. In China and India,
there are more than 50 models of CNG vehicles
on offer and after-market conversions are com-
mon, Morgan Stanley said.
The same holds for trucks. Several manu-
facturers offer natural gas fueled models, includ-
ing Volvo, Scania, Daimler and Iveco, and others
can be converted using third-party engines.
So far, NGV adoption has been driven by
emerging markets, including China and India,
the paper said. The global NGV fleet currently
stands at around 16 million units, including
around 700,000 buses and around 360,000
medium and heavy duty trucks. The number
of NGVs worldwide has been growing relatively
strongly at a compound annual rate of around
15 per cent since 2008. Still, the blue paper
said, NGV share of the global car fleet still
only stands at around 1.5 per cent.
So far, the global NGV fleet has been con-
centrated in emerging markets, the paper said.
Based on data it received, Morgan Stanley esti-
mates the penetration of NGVs in emerging
countries is around 3.5 per cent, more than
double the global average. This is offset by
penetration in developed markets of merely
around 0.2 per cent.
NGV in emerging markets
Emerging countries have also been the main
drivers of growth of the global NGV fleet in
absolute terms, the paper said. For example,
China s NGV fleet has increased from around
0.4 million at the end of 2008 to around 1.2
million currently, a compound annual grout
rate (CAGR) of 37 per cent.
Similarly, India s fleet has increased 24 per
annum over this period from around 0.7 million
to around 1.5 million units now. Other countries
that have added substantially to their NGV
fleet are Pakistan (over 1.1 million units since
late 2008), Argentina (over 0.4 million) and
the Ukraine (more than 0.3 million).
In many of these countries, there are strong
government incentives in place that stimulate
adoption of NGVs. These are usually introduced
to reduce import dependence on oil and/or
reduce pollution (foe example, Mumbai, Beijing),
Morgan Stanley said. As a result, governments
in emerging countries have so far been more
supportive of NGVs than their counterparts in
However, Morgan Stanley said, the economics
appear attractive in many developed markets
too. Growth trends in China, India, and Argenti-
na for example, are well established and with
current government incentives in place, "we
expect those to continue," Morgan Stanley said.
"It is noteworthy, however, that many of
the countries with the largest and fastest grow-
ing NGV fleets have neither the largest gas
reserves nor the lowest gas prices. Natural gas
is particularly cheap and abundant in the United
States, and also Europe is, on the whole, better
supplied than most countries topping the NGV
fleet chart. In principle, this creates potential
for those developed markets to become a second
source of NGV growth."
Economics plus upcoming regulation could
also incentivise the use of natural gas to fuel
ships, the paper said.
"LNG is also a fuel option for ships, and
may become more attractive after upcoming
changes in regulation. The International Mar-
itime Organisation has declared that all vessels
sailing in so-called Emission Control Areas
(ECAs) must reduce the sulphur level in fuel
oil to 0.1 per cent or clean the exhaust gas to
the equivalent level by 2015.
"A similar reduction could be enforced world-
wide by 2020. In practice, shipping vessels will
have three options:
1) use marine gas oil;
2) install a scrubber ;
3) switch to LNG. In a recent joint study on
container vessels, Germanishe Lloyd and MAN
calculated that LNG is likely to be the most
economically attractive option in many cases.
Payback periods depend heavily on vessel
size and time spent in ECAs, but were less
than two years in many of their scenarios (rel-
ative to the use of marine gas oil)," the
Transport generates 13 per cent of global
greenhouse gas emissions, the blue paper said.
On an energy-equivalent basis, burning natural
gas produces almost no sulphur dioxide and
30 per cent less carbon dioxide and 80 per
cent less nitrogen oxide than burning oil. There-
fore, using natural gas as a transport fuel should
significantly reduce harmful pollutant emissions
from the burning of oil-based fuels.
"But, there is a catch," Morgan Stanley said,
"These figures assume that during the extrac-
tion and production process of natural gas,
little or no methane leaks into the atmosphere.
Natural gas is around 90 per cent methane,
and the US Environmental Protection Agency
estimates leakage rates at around 2.4 per cent
from various stages of the production process.
This matters, because one molecule of methane
is able to trap over 20 times more heat than
one molecule of carbon dioxide.
"Recent studies suggest that methane leakage
rates above two to three per cent would probably
negate the environmental benefit of burning
natural gas as a fuel. Cost-effective technologies
that reduce methane leakage rates to below
one per cent would, therefore, be needed to
ensure the environmental benefits of switching
to natural gas."
Morgan Stanley said a "key obstacle is a lack
of refueling infrastructure" and getting the gas
from the well head to refuelling sites requires
major infrastructure investment.
"We estimate that adding CNG capability
to an existing petrol station costs around US$0.4
million, whilst building a CNG fuelling station
on a new site requires an investment of around
US$1.6 million. For LNG, the cost of refuelling
infrastructure is even higher, at US$1.4-2.2
million per station. LNG stations also need to
be located within 150-300 miles of a small to
mid-sized LNG liquefaction plant.
Building the necessary infrastructure will
require both time and investment, Morgan
Stanley said, but with sufficient visibility on
demand and supportive economics, these bar-
riers appear surmountable.
Natural gas becoming competitive
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