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Synthetic Natural Gas (SNG): Fuel Switching Up in U.S.

Posted by Greg Ezzell on Thu, Oct 31, 2013 @ 07:14 PM

Low-Cost Natural Gas Shifting U.S. Power Markets

The newly accessible abundance of U.S. natural gas resources, signified by the ongoing shale gas boom and corresponding lower cost of natural gas compared to other fuels, coupled with new regulations to curb power plant emissions, are together causing a shift from coal and other fuels such as diesel and crude oil to natural gas for power generation.

Cheaper Natural Gas

In 2012 the Energy Information Agency (EIA), reported spot natural gas prices neared a ten-year low at the Louisiana-based Henry Hub, which generally indicates pricing for the overall U.S. natural gas market.

US SNG Opportunity Natural Gas Chart

EIA forecasts predict that while costs associated with natural gas will climb over time due to increasing demand as well as costs associated with production, natural gas prices will regardless remain low relative to other fuels through 2040.

Rising Cost of Crude

In concert with the lower price of natural gas has been a simultaneous increase in the cost of crude oil.  And diesel, a derivative of crude oil, has not surprisingly followed a similar pattern of price increases.

At it’s peak, one six month period reported by EIA last year showed an increase in the price of crude from $103.90 per barrel to $123.81 per barrel, while the spot price for natural gas at the Henry Hub dropped a whopping 45% from $3.57/MMBtu to $1.98/MMBtu over the same period.

SNG Switching Relative Cost of Crude

From a cost perspective alone, the higher the crude-oil-to-natural gas ratio, the more motivated end users become to choose natural gas—and energy from natural gas is expected to remain far less expensive than oil through 2040.

Rising Cost of Coal

Despite technological advances to the process of mining coal, EIA also predicts average coal price increases of 1.4 percent per year through 2040, due to the inevitable migration of mining activity into reserves that are more difficult to reach and more costly to mine.

In the U.S., plant owners and operators already anticipate retiring close to 27 gigawatts of coal-fired generator capacity between 2012 and 2016—an amount that is four times more than retirements executed during the previous five-year period.

SNG Opportunity Retirement of Coal Fired Generators

According to EIA, as much as 49 gigawatts or more of U.S. coal-fired capacity will be retired from 2011 to 2040.

As such, it comes as no surprise a shift from coal as a dominant fuel for power generation to natural gas has been accelerating in the U.S., with EIA reporting earlier this year that natural gas and coal for the first time ever contributed virtually an equal share of power generated. And it predicts natural gas-fired plants will account for 63 percent of capacity additions from 2012 to 2040.

Fuel Switching Opportunities

As the transition to natural gas continues to take hold, companies newly dependent on gas will need to reevaluate the manner in which they purchase and manage their fuel consumption.  While coal purchases are typically made under long-term contract and stored on-site, natural gas is delivered on-demand, making buyers highly susceptible to ongoing price fluctuations driven by seasonality and other potential disruptions to supply and delivery.

One approach that is already widely employed by commercial users of natural gas for power generation is the adoption of fuel switching or ‘peak shaving’ strategies, that allow users to supplement natural gas consumption with propane (or a propane-butane mix) to off-set high prices during times of peak demand—and to compensate for natural gas supply shortfalls.  Propane-air can also be used as a standby fuel source should there be an interruption in the natural gas supply.

Easily liquefied under pressure, propane and butane are filled into storage tanks and cylinders that can be readily transported as LPG (liquefied petroleum gas) to end user customers by truck and rail.  At volumes that are 600 times reduced from their natural state, LPG is efficiently stored in on-site storage tanks until it is needed.

When called for, propane vaporization and blending systems are used to convert LPG to synthetic natural gas (SNG), an air and propane mix which can be seamlessly substituted for natural gas and fed directly into power generators—with no interruption to ongoing operations.

The installation of LPG storage, vaporization and combustion equipment is an investment that quickly pays for itself, adding flexibility and reducing risk in the management of fuel consumption, and in some cases allowing the user to negotiate a lower cost for natural gas by having an “interruptable rate”, which allows their natural gas to be curtailed during unseasonably cold times.  Indeed, the delta between their normal NG rate and the interruptable rate will in many cases pay for the SNG installation in a very short period of time.

SNG Bridge to Natural Gas

For remotely located commercial operators who wish to transition to natural gas, but are in the costly position of waiting for new gas pipelines and infrastructure to be built in their geographies, SNG can be used as a ‘bridge fuel’.

With the installation of LPG storage and vaporization equipment and SNG blending systems, users can convert coal- and oil-fired generators to gas-fired units now, ahead of the arrival of natural gas infrastructure and move away from higher cost coal and crude sooner.  Using SNG as a substitute for natural gas in the mean time lets users begin benefitting from lower-cost, cleaner burning propane—and readies them to leverage low-cost natural gas quickly once it becomes available.

Planning for SNG

Those contemplating fuel switching strategies that incorporate LPG and SNG systems should consider the following to ensure successful implementation:

  • Always ensure proper sizing of the LPG & SNG systems to the maximum potential load
  • Consider redundancy of major components when SNG is the primary fuel source at power production facilities
  • Ensure there is a plan in place for regularly scheduled start-up and testing, as required by the manufacturer
  • Consider using previously owned recertified LPG Storage Tanks to keep cost to a minimum.

Working with a single source supplier who can not only supply the SNG vaporization/blending systems, but also properly size and install the LPG storage systems and assist with contracting the LPG supply is also highly recommended. 

To learn more, call 1-888-206-4563 today to speak with one of TransTech Energy's LPG storage or SNG system specialists.

For information about LPG & NGL storage systems click here.

For information about TransTech Energy’s propane-air SNG offerings click here.

Tags: sng fuel switching, fuel switching, lpg fuel switching, propane fuel switching, butane fuel switching, bridge fuel

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