Sometimes I forget about the importance of transportation, even in a large nation like Canada.
All too often I take for granted the ease of my commute to work, highway drive to another city, flight from one province to another or the delivery of my online shopping. People and goods need to move between work and home, cities, provinces and countries. As a result, transportation is essential to most activities, economic or otherwise.
In 2008, the transportation and warehousing sector made up more than 4% of Canada’s gross domestic product (GDP) (according to Statistics Canada). That works out to about $66 billion in economic activity. Given our reliance on transportation and its energy intensive nature, it should come as no surprise that transportation accounts for approximately a quarter of Canada’s energy end-use (according to the National Energy Board).
Most players in transportation use petroleum-based fuels. Aviation fuel, gasoline, and diesel are all derived from crude oil. Together, those three fuels make up 95% of all fuel used in the transportation sector (according to the National Energy Board). Why do we rely on petroleum for transportation so heavily? Perhaps most importantly, these fuels offer high energy density. High energy density is ideal for transportation because it makes the fuel more portable. It means smaller fuel tanks, thus smaller amounts of fuel, are required than would be the case if they used lower energy density fuels.
However, the consensus on petroleum-based fuels is being challenged. Some are looking to electric vehicles and hybrids while many provinces are mandating biofuels be mixed in with gasoline and diesel. Natural gas, which is essentially methane, presents an intriguing alternative. The Fuel Forward: Propelling Transportation with Natural Gas conference hosted by the Canada West Foundation, Calgary Economic Development and the Van Horne Institute on March 21, 2012 in Calgary explored the contours of this alternative.
Natural Gas’ Potential as a Transportation Fuel
Natural gas use in transportation comes in two forms: compressed natural gas (CNG) and liquefied natural gas (LNG). CNG involves compressing natural gas to approximately 1% of its normal volume prior to combustion, usually used in light- and medium-duty vehicles. LNG involves cooling the natural gas until it is liquefied and is combusted from the liquid state, usually used in heavy-duty vehicles.
The main argument for using natural gas as a transportation fuel is its cost competitiveness. Natural gas is incredibly cheap in North America due to relatively large continental supply. The wellhead price of natural gas in December 2011 in the United States was $3.14/mcf (thousand cubic feet, according to the Energy Information Administration).
A glut of shale natural gas has made it much cheaper. Combined techniques of horizontal drilling and hydraulic fracturing have unlocked natural gas once trapped in impermeable and inaccessible shale rocks. The Energy Information Administration recently estimated technically recoverable Canadian and American shale gas resources at well over one trillion cubic feet (and there’s even more expected to exist in Mexico). As a result, production of natural gas has risen recently and the price of natural gas has fallen.
Several speakers at the conference touched on the opportunity presented by shale natural gas. The low price of natural gas relative to diesel and other hydrocarbons makes a strong economic case. This is especially true given the fact that we appear to be stuck with $100/barrel or more oil for the foreseeable future. Although the natural gas price is unlikely to remain this low over the long-term, it is likely to remain modest for the foreseeable future.
The large amount of recoverable natural gas in North America also means Canada can look forward to regional security of supply. Currently, eastern Canada relies on imported oil for its needs. Increased natural gas usage would provide them with an opportunity to purchase natural gas from within the continent. Similarly, purchasing more natural gas supports a domestic industry that contributes significantly to employment and GDP.
There is also an environmental case to be made. Natural gas is also a cleaner burning fuel than its fossil fuel cousins. It has lower greenhouse gas, particulate, and nitrogen and sulfur oxides emissions. In an increasingly environmentally conscious world, natural gas may be a feasible option for reducing our footprint.
Weaknesses and Threat
There are weaknesses and a major threat facing this opportunity. One weakness is that the business case is strongest for only a segment of the transportation sector. The business case is strongest for high mileage return to base and regional corridor heavy-duty fleets. And even in that sector, the incremental costs can be daunting.
Then there is the problem of infrastructure all along the supply chain. If using LNG, then at some point along the supply chain, the natural gas needs to be liquefied. Then there is the refueling infrastructure. It is currently very limited, because few want to build it when there are few natural gas-powered vehicles on the road, and few people buy such vehicles when they see there is inadequate refueling infrastructure. It is a classic chicken-or-the-egg situation. Then there is the infrastructure the end-user needs to store and maintain natural gas vehicles. For example, one speaker talked about the difficulties of upgrading old infrastructure meant for diesel Calgary Transit buses since natural gas vehicles require different storage than conventional vehicles
Perhaps the biggest threat is natural gas’ ambiguous environmental credentials. While we know that at end use (i.e., combustion) natural gas releases fewer greenhouse gas emissions than coal or oil, there are questions about its environmental impact at other stages of the lifecycle. One speaker pointed to a study measuring the natural gas released during hydraulic fracturing (currently the only study of its kind). It found that enough natural gas—a potent greenhouse gas— is released during hydraulic fracturing to eradicate the greenhouse gas savings at combustion. If this is true, and if it cannot be mitigated, then the ecological benefits become less promising.
Like any decision, switching to natural gas vehicles has its costs and benefits. On the one hand, there are compelling bottom-line benefits for business, purported environmental benefits and security of supply benefits. On the other hand, the business case is best for only a segment of the transportation sector, incremental costs are still significant and there is an infrastructure shortage precluding widespread adoption. Moreover, there are questions being posed about how clean natural gas really is.
Ultimately, the cost concerns can be addressed with government incentives and public-private partnerships. While the exemption from fuel taxes is certainly helping on this front, other smartly designed incentives could really get the transition moving. However, government incentives are less likely when natural gas’ environmental credentials are uncertain. This is especially true when governments are conscious of environmental effects. (For some governments, the fact that it supports a domestic industry or provides regional security of supply may be enough, however.) Industry and other actors need to come together to better understand the lifecycle emissions of greenhouse gases from natural gas and how to mitigate them.
The switch to natural gas, like any switch, is about tradeoffs. While the benefits are compelling, more work needs to be done to justify this switch in a carbon-constrained world. Without that work, it will be difficult to convince government and the broader public that this is a switch worth making. With that work, there could be a brighter, cleaner future in store for Canada’s transportation sector.
– By Robbie Rolfe