Published October 2014

Client: America’s Natural Gas Alliance (ANGA)

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Executive Summary:

The availability and abundance of clean, low cost, North American shale gas is prompting a comprehensive reevaluation of transportation fuel operations across the nation. In the on-highway marketplace, companies like UPS, Frito Lay, Ryder, Waste Management, and many others are making large-scale investments in natural gas vehicles across their nationwide fleet. Off-highway high horsepower industries are rapidly catching up, with marine vessel operations and locomotives offering two of the highest potential near-term growth opportunities.

High horsepower natural gas users can significantly reduce fuel costs, improve environmental performance, increase the use of domestically produced fuels, and comply with air quality regulations. This report examines the intersections between marine and rail operations to identify liquefied natural gas (LNG) growth opportunities in three geographic regions: the Great Lakes, inland waterways along the Mississippi River and its major tributaries, and the Gulf of Mexico. This study finds that the total potential demand across all three regions could reach 1 billion gallons annually by 2029, which equates to approximately seven times current LNG fuel use for transportation in the United States. This large-scale transition to natural gas would allow users to collectively realize $575 million in annual fuel cost savings.

In the United States, companies such as Crowley Maritime, Harvey Gulf International Marine, Totem Oceans Trailer Express (TOTE), and others are investing in LNG projects. However, the domestic LNG-powered commercial marine fleet is still a fraction of the emerging international LNG vessel growth. Currently, there are 46 LNG-fueled commercial marine vessels (non-LNG carriers) worldwide with another 41 under construction. The vast majority of the current LNG fleet operates in the Baltic region of Europe and demonstrates the technological feasibility of LNG-powered ships for operators worldwide. According to Lloyd’s Register and IHS CERA, the long-term growth rate for marine LNG adoption by 2030 ranges from 11 percent to 22 percent of the global vessel fleet. Experts project that worldwide LNG demand from vessel operators will grow from approximately 56.6 million gallons (4.3 billion cubic feet (BCF)) in 2012 to between 2.5 billion gallons (192.5 BCF) and 4.4 billion gallons (336.9 BCF) in 2020, to over 41 billion gallons (3.1 trillion cubic feet (TCF)) in 2030. This level of demand represents roughly 2.6 percent of worldwide natural gas consumption in 2012. In fact, one forecasting firm projects there may be as many as 10,000 LNG vessels operating worldwide by 2020.

The North American rail industry is dominated by the seven Class I railroads: Burlington Northern Santa Fe (BNSF), Canadian National (CN) and Canadian Pacific (CP), CSX Transportation (CSX), Kansas City Southern (KCS), Norfolk Southern (NS) and Union Pacific (UP). North American railroads used approximately 4.1 billion gallons of diesel in 2013, spending approximately $11.6 billion on fuel. Given the immense fuel volumes used, railroad companies dedicate significant resources to efficiency and fuel cost reduction strategies. If the railroads converted even one third of their operations to dual fuel natural gas operations, they would be able to save approximately $2.6 million each day. Given these numbers, it’s no surprise that the majority of the large railroads are actively working with leading technology providers to take advantage of the cost-saving potential of natural gas. The two largest locomotive manufacturers—Electro Motive Diesel (EMD, a Caterpillar company) and General Electric (GE)—are developing natural gas products that could help shift the nation’s rail system to natural gas, much as the railroads shifted from steam propulsion to diesel in the mid-1900s.

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