Jet fuel or liquid natural gas: now available from a trash bin near you, Part II

July 22, 2014 |

MSW-LNGIn part 1, Tim Sklar considered Basic Arguments for Considering a Waste-to LNG Pathway, the Growing World-Wide Demand for LNG, and LNG Demand in the US, here.

The Transportation Segment

The other major potential market in the US is LNG that used as a transportation fuel in vehicles  designed to run on compressed natural gas (CNG). This market is in  the early stages of development and is still being defined. However there are LNG producers that are investing in LNG storage and delivery infrastructure and some have plans for opening fueling stations designed to dispense  LNG derived CNG at truck stops, creating a network of “natural gas highways”.

CNG is considered to be a form of “clean energy”, and LNG produced from RDF based syngas, when de-liquefied and used in its compressed form,  is considered to be both  “clean” and “renewable”.

But what will surely drive the rapid growth of CNG use in the transportation segment in the US, is its price advantage over competing transportation fuels. The US Energy Information Agency (EIA) released a list of national average transportation fuels prices for April 2014, which highlights CNG’s “price advantage.” Prices for conventional fuels are stated in $/gallon, whereas the average price for CNG is stated in gasoline-gallon equivalents or GGEs, and price differentials are all calculated against the average gasoline price of $3.65 gallon.

US Avg Fuels Prices: 4/1-4/15/14 Advantage/
Source: US EIA $/Gallon (Disadvantage)
Biodiesel (B100) 4.23 -0.58
Biodiesel (B20) 4.01 -0.36
Diesel 3.97 -0.32
Gasoline 3.65 0.00
Ethanol (E85) 3.41 0.24
Propane 3.31 0.34
Natural Gas (CNG) 2.15 1.50

This $1.50/gallon price advantage was corroborated by Clean Energy Fuels, one of the major companies that are actively engaged in developing the transportation segment of the US LNG market. Clean Energy Fuels, recently reported that “CNG (was costing) up to $1.50 less per gallon equivalent.. than diesel fuel … (and that this savings) translates to annual fuel cost savings (natural gas vs. diesel) of up to $15,000 per truck (emphasis added)”. They also claim that some fleets owners that they supply with CNG are finding that their hourly operating costs have been reduced by “as much as $10 per hour.”

CNG Marketing Targets

Being targeted are bus lines, taxi fleets, municipalities that operate fleets of trucks,  solid waste management truck fleets, police departments, and wholesale and retail operations that operate their own truck fleets.

Some LNG producers such as Clean Energy and Applied LNG, are already providing LNG and CNG fueling at selected truck stops along selected interstate highway corridors that are used by a select number of major interstate freight carriers. A logical target market for LNG use would be those interstate trucking lines that are on the list of the 50 largest in the US that use these corridors. The largest such carrier is FedEx, who generates over $4.7 billion in annual revenues. There are 19 other “large” carriers, each of whom generate between $1 billion and $3 billion in annual revenues.

And the remaining 30 of these 50 largest carriers, generate between $130 million and $900 million per year. With a reported savings of $15,000 per truck all of these carriers should have an interest in running more of their trucks on CNG and all are large enough to invest in fleet conversions. And many of these trucking lines make frequent use of selected interstate corridors such as I-95 in the east, I-80  and I-5, that strategically located  small scale LNG plant could service. And it  seems  reasonable to assume, that there will be many of these trucking firms that could easily absorb all the LNG provided by strategically located  small scale LNG plants that are developed.

The next question in “connecting the dots” on the biogas-to-LNG pathway, is whether small-scale plants can be as financially viable as those that convert RDF into biogas and then into jet fuel. Recently announced is a company that is positioned and committed to develop this biogas to LNG pathway.

Cyrostar’s Small Scale LNG Plant Technology

The recent Economist Magazine article suggests that as technology evolves for making and handling LNG, costs will decline, and cost effective LNG plants could be built for small-scale operations. Mentioned in the article was a French company, Cyrostar, which makes small-scale liquefaction plants to turn biogas into LNG.

Cyrostar is an international company that is headquartered in France that has been involved in LNG technology for over 60 years. A review of their web site confirms that they do in-fact offer small-scale LNG plants that  perform liquefaction of biogas in quantities ranging from 5 to 400 tons per day. In subsequent discussions with their US business development manager, it was confirmed that Cyrostar’s process could convert 1.3 mcf of methane rich syngas into 17,000 gallons of LNG.

In other words if a gasifier is used that produces 10 mcf/day of methane rich syngas from 1,000 tons per day of RDF, the Cyrostar liquefaction process will convert this 10 mcf/day of syngas into 130,769 gallons of LNG. This compares to the 46,000 gallons per day of jet fuel that could be produced from the same amount of syngas.

Assuming the following yields and priced, the estimated revenue that can be realized from each fuel indicates that if the same amount of syngas were used to make LNG rather than JP-5, the revenue that is realized would be almost twice as much, assuming the yields and prices hold true.

LNG vs. JP-5 LNG Jet Fuel
Daily Yield 130,769 46,208
Price/gallon 2.15 3.12
Daily Revenue 281,154 144,168
Excess Rev fm LNG 136,986
 as a  % of Jet Fuel 95.02%

Cyrostar’s representative indicated that the capital cost of a small scale liquefaction unit is estimated to cost ~$40 million, which is $15 million less than the estimated cost of a Velosys F-T GTL process used to make jet fuel from syngas.

He then opined that if the cost of syngas produced from RDF were comparable to the cost of natural gas with similar properties, namely $4 to $5/mcf, then making LNG from it would be a financially viable proposition.

This assertion has yet to be validated, as metrics and costs to be used in assessing the cost of making syngas and converting syngas to JP-5 need to be validated. In addition, metrics and costs associated with converting syngas to LNG still needs to be obtained.

The Bottom Line

Based on what is known so far, making RDF into syngas and then into LNG and CNG for sale into the US transportation fuel market may become a better pathway to follow than using RDF derived syngas to produce jet fuel for the US military.

The Known Unknowns of LNG Marketing and Distribution.

The owners of small-scale LNG plants are not capable of providing large enough quantities of LNG for export, as in all likelihood, many of these plants that are developed will not be close enough to the large export terminals that service this trade.

To service the US market, small-scale LNG plants that can produce syngas from wastes could economically serve end users on a regional basis, if they have access to companies that can provide the needed storage and delivery infrastructure.

To serve the maritime segment with LNG, small-scale LNG plant operators will need to be located close to ports that cater to the Jones Act fleet and have strategic partners that already service this market.

With respect to the transportation segment of the US LNG market, this market is just evolving and much of the LNG to be sold as transportation fuel will have to first be liquefied and delivered as CNG to large numbers of users and select fueling stations.

This will require a network of LNG storage facilities, LNG tankers and LNG to CNG fueling stations and with a few exceptions, do not now exist. Further, this infrastructure that will be needed to distribute LNG produced by a small LNG plant must be strategically located to serve its potential end users. In most cases , this infrastructure does not exist or if it does, it is more than likely is inadequate.

In any case, if the transportation sector is the primary target market for the LNG to be produced, significant added investment in LNG infrastructure will have to be made either as part of the project or by a strategic business partner who takes on the marketing responsibility. In any case, the added cost of distribution will cut into the profits that are expected from the “price advantage” that LNG now has.

Project Financing Impediments and Obstacles

Conventional financing may be more of a problem if the LNG pathway is followed rather than the jet fuel pathway, because LNG will more than likely have to be sold on a spot basis under short term contracts, creating substantial market risk that could scare away lenders conventional sources of project financing.

If the syngas to jet fuel pathway is followed and if the jet fuel is sold to the Navy or Air force, the US DoD is able to offer longer-term fuels procurement contracts that guarantee off-take and provide cost based price escalation. Clearly, these DoD fuels procurement contracts offer less market risk and are much more acceptable to providers of project financing.

Steps That Are Needed to Decide On the Waste-to-LNG Pathway

Part of the early-on project development effort required by those contemplating developing small scale LNG facilities, would be to identify potential LNG marketing and distribution partners needed to service US LNG maritime and/or transportation sector markets. And once identified, letters of interest will be needed from those that are able to meet the project’s LNG marketing objectives on the best terms.

In addition, a project sponsor will have to be found that will be willing to assist with seed financing that will then be needed in order to develop a credible pre-feasibility study that will be used in making a LNG pathway decision and re-used in developing a business plan to facilitate project financing. This “study” should not only include adequate disclosures demonstrating that the technology to be used is adequately proven and is supported by actual demonstrations. This study must also be based upon costs and metrics derived from adequately detailed engineering assessments.

And this study ought to include explicit marketing plans supported by a sufficient number of written commitments from those that will be responsible for the project’s marketing and distribution. Obtaining a few written expressions of interest from potentially significant end users may be needed to bolster the study’s credibility.

And if a decision is reached to pursue either the waste-to-LNG pathway, a financing plan should then be prepared  that identifies potential sources of financing and suggests alternative financing structures that  could best be used.

Final Observation: “Connecting the dots” in choosing among alternative waste-to-biofuels pathways is not a simple exercise.

Tim Sklar is a longtime Digest contributor on bifocal, MSW, and torrefection topics. He can be reached here.

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