A decade ago, conventional wisdom had the U.S. running out of natural gas.

“LNG [liquefied natural gas] import terminals were being built across the United States, and now we are talking about building LNG export terminals,” Doug Suttles, president and chief executive of Encana Corp. recalls. “This is all driven by innovation, a lot of capital investment and a lot of human energy.”

The Canada-based company is both a producer and user of the abundant natural resource that is making a comeback around the world. Suttles made his remarks at the recent World LNG Fuels conference in Houston about advancements in gas technology and how Encana is utilizing natural gas in its operations.

Encana as a company is the third-largest gas producer in North America and the largest in Canada, according to Suttles. As a leading producer, it has also been at the forefront of promoting the uses of natural gas.

Hydraulic fracturing is a technology that is six decades old, Suttles said, but “what is new is combining horizontal drilling and hydraulic fracturing to unlock the potential of shale rocks.

“So in less in than a decade, we now fulfill over a third of the market demand,” he said. “Not only is the supply very plentiful, it is also very affordable.”

“No other fuel offers the same unique blend of abundant supply, improved environmental performance, cost efficiency and energy security,” he said. “Technology, innovation and a drive for continuous improvement have fundamentally transformed North America to be a global clean energy leader rather than simply a large energy consumer.”

Leading by example

Suttles said that Encana sees the value in natural gas and is as much a consumer as producer. The company is practicing
what it preaches by not just promoting gas as a cost-saving fuel source; it’s using it in its own fleets.

“In 2013, we converted more than 50% of our rig fleet to run on natural gas, and we also began using by-fuel LNG
frac spreads both here in the U.S. and in Canada,” he said. “The cost savings we saw from doing this for our drilling ranges from $250,000 per year if we are using LNG to upwards over $1.5 million per year if we are able to use lease gas, gas produced on location.”

A portion of the company’s truck and pickup fleet also runs on gas. Encana has installed seven natural gas stations in communities where it has operations—and the stations are not just for its fleets but are open to community residents as well.

“The growth of public compressed natural gas stations, CNG refueling stations, has increased by 50% since 2010,” Suttles said. “Just three years ago, there were 880 stations and 40% of those were available to the public. Today there are more than 1,400 CNG stations and more than half of those are available to the public, so this has become much more widely available.”

LNG on track

Encana has been an advocate of natural gas use in drilling operations, and the trend is spreading to other industries as well. Suttles said he is seeing more frac fleets operated by gas in use across the industry and rail is starting to look at gas as an alternative fuel source to diesel.

“We have seen most Class I operators make moves to get into LNG pilots in 2013, and we have every expectation that these pilots will be successful,” he said. “Our work with CN Rail and BNSF over the last year has convinced us that the railroads are determined to put natural gas to work.”

And with good reason: For the past seven decades, U.S. rail transportation has relied on diesel, but economics and air quality regulations are prompting a turn to natural gas. The superabundance of gas produced from shale plays and
the low price (around $5 per million Btu in early February) are positioning LNG as the fuel of the future.

General Electric, a major railroad locomotive manufacturer, unveiled its NextFuel Natural Gas Retrofit Kit last November, allowing locomotives to run on both diesel and gas, and Caterpillar, which owns rival Electro-Motive Diesel, will incorporate high-pressure direct injection technology in its bi-fuel (diesel and gas) high-horsepower locomotive engines.

The diesel-gas combination should be seen as an interim solution, said Miguel Raimao, founder and principal of Resonance Mode, based in Colorado Springs, Colorado.

“It’s very, very clear that a bi-fuel solution operating on LNG and the prices that we hit today might be the beginning of fuel savings and perhaps more of a steppingstone than an endgame,” he said during a panel discussion at the conference.

Raimao’s techno-economic analysis of the potential for natural gas in the rail industry concluded that a bi-fuel solution using retrofit kits will generate an internal rate of return of about 7%. To achieve a return of 20% requires (in addition to even lower natural gas prices) a 100% substitution of diesel with gas. This is the case even though the kits are cheaper than buying a new locomotive, which costs around $2 million.

“If you have a bi-fuel kit and you’re buying LNG at today’s prices, your fuel savings won’t even pay for the equipment,” he said. “So, you don’t generate any [return].” The CNG option To enhance fuel savings even more, \ Raimao’s analysis supports use of CNG.

Short-line operators, more common in the eastern U.S. than in the West, can gain an advantage by shifting to CNG instead of LNG when their equipment is ready for overhaul, said Wolfgang Fengler, project leader for the Allegheny Creative Energy Solutions (ACES) natural gas locomotive and tender development program, based in eastern Pennsylvania.

“There is a cost advantage, potentially in the 50 to 60 cent range, and that is largely tied to the reduction in energy to compress the gas versus the liquefaction process,” Fengler said.

Another plus is that the infrastructure is already in place.

“If you overlay the national pipeline structure, it maps quite nicely to the national rail network,” he said. “So there’s an opportunity to put compressor stations close to the pipeline, which reduces compressor costs.”

The safety factor also tilts in CNG’s favor, Fengler maintained.

“If you’re operating in the middle of a desert and you get stalled because of an accident up ahead, you’ve got 30,000 LNG gallons behind you in the tender, you’re sitting there in 120º weather … what’s going to happen over time?” he said. “From our perspective, from a design scenario, you don’t have to worry about vaporization on a tender [with CNG].”

Both Raimao and Fengler emphasized that solutions for the industry in its transition to natural gas must be operator-specific—not one size fits all.

“The economics in certain operating scenarios,” said Fengler, “shorter, 1,600 miles or less, more typical of eastern railroads, especially in high fuel-burn applications, make CNG a viable option.”

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