I've been doubtful before on the China to bail out LNG producers and raise prices for everyone narrative, so this piece from Reuters provides an interesting take on the overlooked use story of LNG in China as transport fuel.
Independent firms supplying retail volumes of liquefied natural gas (LNG) around China are targeting hundreds of thousands of users such as Liang, gunning for as much as 10 percent of China's roughly 1.6 million barrels per day diesel market for transport use by 2015.
LNG, gas chilled to liquid form for transport, will be used to fuel heavy-load trucks, city buses and river fleets as the world's top energy user and greenhouse gas emitter moves aggressively to boost gas use to combat emissions.
Firms such as Xinao Gas (2688.HK) and Xinjiang Ghuanghui are involved in the sector, which liquefies and transports small volumes of gas and which has flourished quietly outside of the focus of China's leading energy firms.
A key point to consider of course is whether Europe should learn from China. Replacing diesel with LNG or CNG in the transport sector is far easier than most people think. Which is where the problem lies: EVs are far sexier if at present very expensive and although the infrastructure for EVs is far more problematic, there is a perception of NGV, Natural Gas Vehicles powered by Liquefied Natural Gas, or CNG (Compressed Natural Gas) as being old fashioned.
I won't go into the economics of EV (electric vehicles), which in personal transportation may have a long term role. But 30/40% of oil use is in trucking and shipping and there are no electric buses, ships or trucks even on the most optimistic horizon.
But for suppliers, it's a good news, bad news kind of story. First, the cost to the consumer, and added to that the carbon reductions are compelling:
Energy policy makers in Beijing started with a "no-go" for onshore liquefaction plants, seen as a distraction from China's massive pipeline drive, but the surging demand for gas, which tripled in the past decade, and recurrent winter shortages forced the government to review its stance.
Despite the lack of policy support, scores of LNG plants have mushroomed since 2001, near marginal gas reservoirs often overlooked by big oil firms and which are now churning out some 20 million cubic meters of gas a day, equivalent to 7 percent of China's total gas demand, industry officials estimated.
Similar to the "teapots" — China's small oil refiners — these liquefaction facilities have become a dynamic swing supplier to container trucks at major ports, factories and new residential compounds, a cluster of consumers that has expanded faster than the pipelines can reach.
Gas for transport is not new in China, which early this decade started using compressed piped natural gas under high pressure (CNG) for thousands of city buses and cabs, replacing diesel or liquefied petroleum gas – a refinery byproduct.
But gas in liquid form is more efficient, with a driving range nearly triple that of CNG.
I think that the NGV sector is going to be big. It should be even bigger in Europe, but it will be a while yet as most aren't getting their head around the global supply glut in general. Also, as with renewable's for generation, there is a general anti-any carbon at all narrative at work in transport. But NGV has a number of fascinating angles starting with this one from China:
The growth in the sector could help absorb global oversupply after a rise in output of unconventional gas took the United States out of the market as an importer.
"That is going to divert Middle Eastern supplies earlier earmarked for the U.S., and China is an obvious destination," said Yan Kefeng of Cambridge Energy Research Associates.
In the US of course, the Pickens Plan, to soak up some of the shale gas glut has been around for a while:
The plan proposes getting 18-wheelers in the U.S. to use natural gas instead of diesel.
Boone Pickens told Squawk that in seven years, the U.S. could get 8 million 18-wheelers on gas, it would “cut OPEC in half,” saving 2.5 million barrels of oil a day against the Organization of Petroleum Exporting Countries’ 5 million-barrel-per-day production
But the best part of the rise of LN'G/CNG as a transport fuel is not only the intended consequence of increased security of supply, but also of the unintended consequence:
With natural gas at $4 today, Pickens observed that a reduction in oil prices to something at “parity” with gas, would lead to oil being priced at … $21 per barrel.
I don't think we'll get anywhere near that level. But we already see oil as solely a transport fuel. A transport fuel also losing market share in marine fuels as well. Natural gas can make big inroads in petrochemicals, and even via gas to liquid aviation fuel. So oil will in the future be used mostly for personal transportation, that fancy way of saying cars. Which means that in theory, oil prices will follow oil demand down. And that's the bad news flip side to the good news of increased gas demand:
Those who have their heart set on a reassertion of the gas/oil link may yet live to regret it.