The Economics Of Switching From Diesel To LNG -- RBN Energy -- September 5, 2014

RBN Energy: the economics of switching from diesel to LNG.

The shift from diesel to LNG (and sometimes CNG or field gas) as a fuel for drilling rigs and hydrofracturing pump engines is underway, and there is interest in having ships, locomotives and long-haul trucks run on natural gas from LNG too.

But before investing in new or converted engines that can run on natural gas or on a diesel-natural gas blend, diesel and shipping fuel users need answers to three questions: What will it cost? How much will we save? And—this is important, too--is the LNG infrastructure sufficiently robust to support the switch?Today we explore the economic ins and outs of converting from diesel to gas, and describe the current state of domestic LNG supply infrastructure.

With US natural gas selling at roughly one-quarter the price of crude oil on a per-BTU basis, it is not surprising that major consumers of diesel (an oil-based fuel whose pricing is closely linked to crude) are exploring the possibility of switching to natural gas from LNG. As we said in our Series Opener on the domestic use of LNG, diesel engines that power drilling rigs, fracking pumps, locomotives and long-haul trucks can be converted to dual-fuel operation or replaced with natural gas-only engines, as can ship engines now fueled by marine distillate or bunker fuel.

LNG, produced mostly with modest-size (less than 200 Mgal/d) plants sited near major customers, is seen as a logical, cost-effective and consistent quality source of gas. LNG also stores several times as much gas per gallon volume as CNG (helping with weight and storage space).

But there are significant costs involved in making a switch, and even some risk—the biggest of which is whether, after making the investment to change to dual-fuel or all-gas engines, you can count on LNG to be available when and where you need it. To help sort out the economics and the risk, let us first look at what is involved in switching engines from diesel (or shipping fuel) to dual-fuel or all-gas.