The company is leveraging its position as one of the largest natural gas producers by using the fuel to power its own drilling rigs, ships and heavy trucks – with hopes of spurring others to make the same transition. At the same time, it is investing heavily in small modular facilities capable of liquefying natural gas by super-chilling it, and building the infrastructure to fuel trucks and boats that run on it.
The approach gives Shell a buffer against the uncertainties of a developing natural gas market and helps immunize the integrated oil company from the bad economics of producing natural gas while prices are relatively low.
“If you’re just producing natural gas and selling it into a pipeline, of course it’s a pretty challenging market right now,” said Marvin Odum, president of Shell Oil Co., the company’s Houston-based U.S. arm. “If you have the ability to play through that whole value chain of producing, marketing, liquefaction on through to transportation and then delivery to a higher market, you see that’s a better business.”
Odum spoke to the Houston Chronicle on the eve of next week’s 17th International Conference & Exhibition on Liquefied Natural Gas, an annual summit dedicated to exploring all aspects LNG’s production, delivery and use.
Shell is bullish on liquefied natural gas, anticipating that global demand will double to 400 million tons per year by 2020 and predicting that natural gas could represent a quarter of the world’s energy mix by 2030 – up from about 15 percent today.
And Shell has a big interest in making LNG work; worldwide, the company claimed proved developed and undeveloped natural gas reserves totaling 42.8 trillion cubic feet at the end of last year.
In March, Shell announced it is collaborating with Mack and Volvo to promote liquefied natural gas as a fuel for commercial vehicles, just weeks after launching the first-ever barge powered solely by LNG in the Netherlands.
And the company just unveiled plans to develop two liquefied natural gas corridors serving the Gulf Coast and Great Lakes region, each supported by two small-scale liquefaction units that could be built in about three years and are designed to fit into cargo containers.
The Greenstream, the first barge powered entirely by liquefied natural gas, was built in the Netherlands and will be chartered by Royal Dutch Shell for use along the river Rhine. (Royal Dutch Shell)
Shell’s “movable modular liquefaction system” technology allows quicker deployment, with facilities able to churn out 250,000 tons per year, in contrast to massive liquefaction plants planned to process 4 million tons or more annually for export.
LNG pumping out of the planned Louisiana liquefaction plant would be delivered to Mississippi River vessels and long-haul trucks.
Odum said Shell hopes to tap into the Gulf Coast corridor to fuel the trucks, rigs and hydraulic fracturing equipment it uses in the oil field.
“Let’s get this mini-LNG plant built in the Gulf Coast and then Shell will likely be one of its biggest customers,” Odum said. “We’re running rigs, of course, throughout the area, we’re running trucks, we’re running all sorts of equipment.
“There’s such a price advantage to using LNG, all of the emission advantages to running these drilling rigs on natural gas and running frac units on LNG,” Odum added.
Whether in the oil field or on the road, natural gas offers benefits over diesel, including fewer emissions and lower costs. But there are big obstacles too.
Some companies are wary of buying new gas-powered heavy-duty trucks – with a higher price tag and untested resale value – even if the fuel costs are lower. And some fear there won’t be enough refueling stations along major trucking corridors to support a natural gas fleet.
Odum says, however, that he’s increasingly optimistic about the pace of the transition in trucking, bolstered in part by companies’ plans to build refueling infrastructure.
Shell inked a deal with Travel Centers of America last year to spend $300 million adding LNG filling stations to truck stops nationwide, and it is building facilities along a major Canadian trucking route, from Calgary to Edmonton.
Other companies are aggressively rolling out LNG filling stations too, including the private Chinese firm ENN Group, which has plans to build dozens across the U.S. this year, and Clean Energy Fuels, which is backed by Texas oilman T. Boone Pickens, and Chesapeake Energy.
Odum said building LNG facilities and using the fuel in its own oil field operations is a way to blunt the challenge of matching infrastructure with demand.
“As you think about the complications of a developing market, particularly if you’re in the business of selling LNG – the whole chicken and egg thing – (the strategy) provides a real buffer with the pace of market development,” he said. “We can clearly see the benefits in using this fuel. We will use it. And then that fuel then is also available as the market starts to come on and there’s more demand in other places. It gives you a bit of a buffer as that market begins to develop.”