News & Updates

'Gas interests lining up against TransCanada’s Energy East pipeline'

Oct 21, 2014

The head of Quebec’s leading gas utility says TransCanada Corp. has badly fumbled its effort to line up Central Canadian support for the proposed $11-billion Energy East pipeline project and can expect fierce resistance from natural gas interests when it seeks federal regulatory approval.

In an interview, Gaz Métro chief executive officer Sophie Brochu said natural gas customers in Quebec and Eastern Ontario need assurances the new system will deliver as much gas, at the same price as the current one.

“I refuse [to accept] that the Children’s Hospital of Montreal pays a higher price for its gas because Western Canada needs to export its oil to the international markets,” Ms. Brochu said. “What TCPL [TransCanada Pipelines Ltd.] is asking now is that the gas customers subsidize the oil shippers and I don’t believe this is in the best interests of Canada.”

Executives from TransCanada insisted Wednesday that there is no cross-subsidization, and that any reduction in volumes simply reflects lower demand for Canadian gas in the United States.

“What we’re really redeploying here is that capacity that is not used for export anymore,” said Karl Johannson, the company’s executive vice-president in charge of gas pipelines. “We’re not redeploying any of the capacity that we have traditionally serviced the Canadian domestic market with.”

He added that gas customers should benefit as underutilized capacity is taken out of the system.

TransCanada is proposing to convert capacity on its natural gas mainline to carry 1.1 million barrels a day of Western Canadian crude to refineries and export terminals in Quebec and New Brunswick.

The company will use an existing gas pipeline as far as Cornwall, Ont., and then build a new line through Quebec and New Brunswick.

Prime Minister Stephen Harper hailed the project as a nation-building exercise when it was officially unveiled in August, 2013, as did a host of politicians from across the country. But Ontario and Quebec governments have both held hearings, and are being urged by their gas utilities to oppose the project in its current form.

The dispute raises the spectre of an east-west battle over the proposed pipeline when TransCanada files for regulatory approval later this month.

At issue is a 420-kilometre section from North Bay to Cornwall, which carries not only Western Canadian gas but supply coming up from the United States. The local gas distributors, including Ontario’s Union Gas and Enbridge Gas Distribution, insist all the capacity on that section is required.

Ms. Brochu said the distributors will ask the National Energy Board to force TransCanada to build a new oil pipeline from North Bay, and leave the gas line intact, an approach TransCanada rejects.

“Our position would be the same in Ontario and Quebec,” Ms. Brochu said.

“We are of the strong view that all the current capacity on the North Bay-to-Cornwall segment is fully required, which means there is no surplus line that can be removed from service.”

Quebec has ambitious plans to increase the use of natural gas in communities not currently serviced, and in transportation. The TransCanada plan could undermine that effort to make the province more competitive and environmentally sustainable, she said.

TransCanada’s Mr. Johannson said the Central Canada gas utilities and industrial users have enjoyed years of surplus capacity on the gas line, which has given them to negotiating power, and potential for customer growth.

“But the reality is that there is far more capacity than the domestic market needs and by us redeploying that right now, we can reduce the cost of service on our system, and get an opportunity to make our system more efficient at a reduced cost for our customers,” he said.

In order to make up for lost capacity on the mainline, TransCanada has pledged to build a new gas pipeline from Southern Ontario to Cornwall.

As a result, the gas utilities say they’ll face higher tariffs, especially if there are cost overruns. TransCanada argues the overall costs on the system will be lower.

Both sides say they’re confident the National Energy Board will accept their arguments.

 

 

Source: McCarthy, Shawn. "Gas Interests Lining up against TransCanada's Energy East Pipeline." The Globe and Mail. The Globe and Mail, 15 Oct. 2014. Web. 17 Oct. 2014. <http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/gas-interests-lining-up-against-transcanadas-energy-east-pipeline/article21117847/

'Budweiser Puts Its Diesel Trucks Out To Pasture, Switches To Natural Gas'

Oct 17, 2014

Last week Anheuser-Busch announced that it was going to replace all 66 of the heavy duty trucks at its Houston brewery. This was no obvious business move. The trucks in its existing fleet are not old or falling apart. Like the Clydesdale horses of yesteryear, these are tough, reliable diesel-powered workhorses that pull 53-foot trailers loaded with 50,000 pounds of beer.

Yet A-B is putting all these diesel workhorses out to pasture — and replacing them with 66 new trucks, that intead run on compressed natural gas.

It’s significant that A-B feels comfortable swapping for an entire fleet that runs on CNG. The intention of shifting to natgas, says James Sembrot, A-B’s senior transportation director, is to reduce carbon emissions and fuel costs, while doing something green(ish). The Houston brewery is among the biggest of the 14 that A-B operates nationwide. The closest breweries to this one are in Fort Collins, Colo. and St. Louis. Each truck rolls virtually around the clock — putting in an average of 140,000 miles in a single year hauling beer to wholesalers. They move seventeen million barrels of beer each year.

In other words: if Texans want to put Bud Light in their mouths (and hell yeah they do) then these trucks gotta haul.

For the past six months Anheuser-Busch InBev has been testing two CNG trucks within the fleet. “We’ve been running the tar out of them, with no issues at all. We’re thrilled,” says Billy Lawder, director of transportation engineering at A-B.

It was Ryder System (NYSE: R) that initally brought this idea to A-B. Ryder owns those 66 now-antiquated diesel trucks. Nationwide, Ryder owns and leases 160,000 heavy-duty trucks. Five years ago none of Ryder’s trucks ran on CNG. Now it suddenly has 1,000 of them, made by the likes of Freightliner, Volvo and Navistar. In 2011 it opened its first NGV maintenance facility in California, and will be building out its Houston garage for the A-B fleet. In a sense, Ryder is playing catch-up. UPS and Fedex have been buying smaller trucks that run on CNG and other alternative fuels for years. But Ryder was interested exclusively in heavy duty haulers, for which powerful CNG engines are only now being perfected.

According to Scott Perry, the s.v.p. at Ryder who managed the A-B relationship, the move toward heavy-duty CNG is possible thanks to the efforts of Cummins CMI +0.22%, which last year introduced its 12-liter CNG-powered engine.

truck

Bud’s new CNG truck. (Photo courtesy Anheuser-Busch)

The other vital piece of this deal: state subsidies. Texas taxpayers, through a programoverseen by the Texas Commission on Environmental Quality, gives out grants of $45,000 toward the purchase of a new natural gas powered vehicle. For A-B’s 66 new rigs, the grants will total about $3 million. Texas currently has 100 NGV filling stations, adding 35 just in the past year. Texas is producing ever increasing volumes of natural gas from shale plays like the Eagle Ford. At the same time, Texas (and its oil industry) has been in crosshairs of the Environmental Protection Agency. For the state, subsidizing NG trucks both supports the Texas drillers and shows a commitment to reducing emissions. Not only do NGV’s emit 23% less carbon dioxide than diesel trucks, but also much less carbon monoxide, nitrogen oxide, and virtually zero particulates.

“It’s easier to make these investments when you have partner states like Texas,” says Ryder’s Perry. “The industry should stand on its own two feet. But these programs are what it really takes to get the built out into the market place.”

How many more natural-gas-powered vehicles (NGVs) are in Ryder’s future? A lot, especially when taxpayer money is available. Perry points to forecasts from the likes of the U.S. Energy Information Administration as well as Resources For the Future, concluding that nearly a third of heavy-duty trucks could be NGVs by 2035, up from barely 2% today.

But that’s only going to happen if a bunch of other conditions are met (with or without government subsidies).

– The trucks have to be reliable and plentiful.

– There needs to be sufficient build out of re-fueling and maintenance infrastructure.

– Natural gas has to stay cheaper than oil (on an energy-equivalent basis).

The first condition appears to be in the bag. It’s one thing for Ford to offer CNG-fueled F-150s, or for G.M. to roll out a CNG Chevy Impala, but when a truck is hauling 50,000 pounds of beer, it needs some power. The Cummins engine churns out 400 horsepower and 1,450 foot-pounds of torque and has so far been in hot demand. After a few years they won’t be that much harder to make than traditional diesels.

The second condition is manageable.  America has about 120,000 filling stations selling gasoline. But there’s only 1,000 spots to get CNG, half of them built by Clean Energy Fuels CLNE -7.98%, the public company founded by T. Boone Pickens. A-B’s Houston refuelling point is located 3 miles from the brewery and is operated by Questar, which started building an NGV-fueling corridor in Utah back in 1981.

You could drive a CNG big rig all the way across the country if you needed to, but A-B’s switch is easier because all the trucks come back home to the same garage. And their CNG tanks are so big that they can roam all the way out to the edge of their territory, and back, without refuelling. If only makes sense that the initial CNG adoptions will be made by companies moving goods via this kind of “hub and spoke” network.

The third condition is the great unknown. Will natural gas stay cheap enough relative to petroleum to make this bet worthwhile?

Right now natural gas on the U.S. Gulf Coast sells for about $4 per thousand cubic feet (or roughly a 1 million BTU). Light, sweet crude oil goes for $90 a barrel. To equal the energy in one barrel of oil, you’d need roughly 6 million BTU (or 6,000 cubic feet) of natural gas.

Do the math ($4 per mcf x 6 mcf per BOE = $24 per BOE) and you can see that for 70% less than the price of a barrel of oil, you can get the same amount of energy in cleaner-burning natural gas.

That’s a bargain, but that price differential doesn’t trickle all the way down the value chain to the price of a gallon of diesel or CNG.

According to Clean Energy Fuels, over the past three years the cost of a “gasoline gallon equivalent” of CNG has been about $2.85 — equating to a 95-cent-per-gallon discount versus diesel.

That means that at the pump CNG is just 30% cheaper than diesel. But the discount of natural gas from oil was 70% — where’d the rest go? Those new CNG filling stations we mentioned all have to be paid for, and new compressors and tanks — and it all costs considerably more than would the same kind of gear to deliver gasoline and diesel because those oil-based fuels have the enormous benefits of scale, depreciation and amortization.

And that’s just on the supplier side. On the user side there’s plenty of costs for Ryder, and ultimately A-B, to bear as well. These CNG trucks cost around $190,000 each, which is a whopping $75,000 more per truck than buying a tried-and-true diesel (or just $30,000 more after the $3 million in Texas grants).

What’s more, the CNG trucks need a special maintenance facility designed to cope with exceedingly rare situations in which chance emissions of natural gas could potentially lead to uncontrolled combustion. That costs millions.

Lastly, there’s the career risk. Natural gas supplies have been surging in this country, but then so have oil supplies. What’s going to happen to the CNG price when we start exporting LNG around the world? Meanwhile, we have oodles of diesel. America’s refiners are this year making record volumes of diesel, more than 4.7 million barrels per day. And we make so much extra that in less than four years we’ve doubled ourdiesel exports to 1.2 million barrels per day.

So how much diesel is A-B not using, thus how much money is the company saving? A-B’s Sembrot tells me that the old trucks were getting 6.2 miles per gallon of diesel and running 140,000 miles per year. That equates to 1.45 million gallons of diesel to go 9.2 million miles. At about $3.80 per gallon, that’s roughly $5.5 million in total diesel costs per year. If they save about 30% per “gallon equivalent” when buying CNG, that’s a savings of about $1.65 million per year.

Looked at another way, the anticipated savings in fuel costs amounts to 10 cents for every barrel of beer those 66 trucks will move in a year.

And don’t forget the carbon. Ryder figures that the CNG trucks will emit 23% fewer greenhouse gases, reducing the carbon dioxide emissions of the Budweiser fleet by 2,000 tons a year.

That sounds good. But is that a lot? Not particularly.

By comparison, total U.S. carbon dioxide emissions equal 17 tons per person per year. And considering that the market price of carbon dioxide — at least in places with working cap-and-trade regimes — has been less than $20 per ton, A-B is keeping no more than $40,000 worth of carbon dioxide out of the air.

And the carbon saved is less than negligible when compared with the carbon dioxide emissions of the entire beer producing process. A few years back the New Belgium Brewing Company did a fascinating study of the carbon footprint of a 6-pack of Fat Tire Amber Ale. They found that when you add up everything from growing barley to making glass, to transportation and even the carbon dioxide flatulence emitted by the yeast during fermentation, the total comes to 3.2 kilograms of CO2 per six-pack (I assume A-B’s carbon footprint is roughly the same as New Belgium’s.)

There’s about 28 six-packs worth of beer per 31.5 gallon beer barrel, so that works out to 90 kg of carbon dioxide per barrel. Given that A-B’s trucks move 17 million barrels through Houston each year, that equates to 1.5 billion kgs of carbon dioxide, or 1.5 million tons.

So reducing emissions by 2,000 tons — will shave about one tenth of one percent off of the Houston brewery’s total carbon footprint. Hmmmm…

This goes to show just how hard it will be, in a carbon-constrained future, for manufacturers to identify tweaks they can make that will achieve meaningful shrinkage of their carbon footprints. For Anheuser-Busch the adoption of natural gas trucks is a significant initiative that should reduce costs and reduce emissions.  For America, it only makes sense to bring some diversity to the fuels we use for heavy-duty transport.

But what about the world? I wanted to know what would happen to the 66 diesel trucks being replaced? Ryder’s Perry explains that the rules governing those $3 million in Texas TCEQ grants require that for every NGV purchased, a diesel-powered truck must be taken off Texas highways. The preferred method of disposal is for the diesel engines to have a hole bored through the engine block, with the rest sold for scrap. Ryder is undertaking an alternative disposal method: shipping them entirely out of North America so they can spend the rest of their productive lives in a part of the world not blessed with such plentiful natural gas or generous taxpayers.

The Houston brewery’s full fleet of CNG trucks should be in place by the end of the year.

 

 

 

Source: Helman, Christopher. "Budweiser Puts Its Diesel Trucks Out To Pasture, Switches To Natural Gas." Forbes. Forbes Magazine, 9 Sept. 2014. Web. 17 Oct. 2014. <http://www.forbes.com/sites/christopherhelman/2014/09/09/budweiser-puts-its-diesel-trucks-out-to-pasture-switches-to-natural-gas/>