LCNG A Bridge Solution to Lower Energy Prices in Rural Alaska

Michael Moora PDC Harris Group LLC

907.644.4716 mike.moora@pdcharrisgroup.com There is an apparent opportunity to deliver a substantially less expensive substitute fuel to remote Alaskan communities in the form of LCNG.

LCNG storage & fueling unit, Norway

LNG for marine delivery, Europe

December 2009

INTRODUCTION
This paper presents the technical and economic concepts for substituting a less-expensive, lower emissions fuel in existing furnaces, boilers and electric generators in Alaskas rural communities. Use of liquefied and compressed natural gas (LCNG) as an economical fuel substitute to petroleum distillates is growing in Europe, Asia and in numerous metropolitan areas of the lower 48 states. As summarized in the following discussion, a pilot program in an Alaskan community, aimed at demonstrating the advantages LCNG over diesel and fuel oil has been proposed, and awaits funding.

ECONOMIC DRIVER
The lower 48 states, and the remainder of the world, are currently enjoying a substantial surplus of natural gas. With the recent developments of enabling production technologies for tight shale, the booked reserves of US natural gas have spiked, and should continue to climb for decades.
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Comparison of Delivered Fuel Price*, $/Million BTU

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AK Wholesale Diesel Fuel Pricing , including adjustment for shipping to Bethel

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Diesel fuel and other petroleum-derived distillates do not have the surplus status of natural gas. While supply pressure is currently weak due to world-wide economic factors, petroleum economists generally agree that significant increases in crude oil and its distillate products is only a matter of economic recovery. LCNG is a commercially available form of natural gas increasingly used in Europe, Asia and South America for numerous fueling applications, including those where diesel fuel and heating oil are currently used in rural Alaska, e.g. space heating, transportation and power generation. The chart above illustrates several key points regarding petroleum-derived products such as diesel fuel, relative to natural gas derived liquefied natural gas (LNG): A very significant pricing differential exists between diesel/fuel oil and LNG (natural gas). This gap is expected to widen over the next decade as more unconventional sources of natural gas come on-line.
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 LNG historically has demonstrated more pricing stability than petroleum-derived distillates. For the lower 48 states, LNG) is more closely tied to the price of domestic natural gas, LNG is currently priced 1 at approximately 26% of diesel and heating oil fuel, on an energy content basis. This comparison does not represent the full supply chain costs to deliver either LNG or diesel fuel to remote Alaskan communities. It nonetheless emphasizes the striking cost differential between natural gas based fuel, and petroleum derivatives.

WHAT ARE LNG, CNG AND LCNG?

Liquefied natural gas (LNG) is derived from dry and specially conditioned natural gas by chilling to the liquid state, at a temperature of approximately -260F (at atmospheric pressure). A volume of LNG weighs about 45% what an identical volume of water does. It is odorless, colorless and when vaporized back to its gaseous state it burns only when mixed with air at a concentration of 5% to 15% by volume. LNG is always stored in double walled containers with highly efficient insulation between the walls. Larger volumes are generally stored at near atmospheric pressure, but smaller volumes (less than 70,000 gallons) may be stored at pressures up to 250 psig. The temperature of the stored liquid varies between 260F at atmospheric pressure, and -117F at the elevated storage pressure. These storage temperatures are maintained by allowing controlled boil-off of a small fraction of the inventory. This vaporized stream may be condensed back to the liquid state, or used for fuel in associated systems or buildings.
2 Is LNG safe? First, one must remember that LNG is a form of energy and must be respected as such . Today LNG is transported and stored as safely as any other liquid fuel. Before the storage of cryogenic liquids was fully understood, however, there was a serious incident involving LNG in Cleveland, Ohio in 1944. This incident virtually stopped all development of the LNG industry for 20 years. The race to the Moon led to a much better understanding of cryogenics and cryogenic storage with the expanded use of liquid hydrogen (-423F) and liquid oxygen (-296F). LNG technology grew from NASA's advancement.

LNG has been in commercial use since the 1960s, serving as a means for monetizing stranded natural gas in producing basins not linked to markets by gas transmission pipelines. The industry has undergone tremendous growth in the last 10 years, and several world-scale import (re-gasification terminals) plants have been permitted and constructed in the lower 48 to accommodate anticipated imports. These facilities are unlikely to see significant import traffic for the short-term, based on the surplus of natural gas in the US. There are approximately 225 LNG transport ships world-wide, and 24 export terminals, as of early 2007. One of these is the Kenai LNG plant, the only export facility in the U.S.
3 Compressed natural gas (CNG) is natural gas pressurized and stored in welding bottle-like tanks at pressures up to 3,600 psig. Typically, it is same composition of the local "pipeline" gas, with some of the water removed. CNG and LNG are both delivered to the engines as low pressure vapor (ounces to 300 psig). CNG is often misrepresented as the only form natural gas can be used as vehicle fuel. LNG can be used to make CNG. This process requires much less capital intensive equipment and about 15% of the operating and maintenance costs.

The liquefied and compressed forms of natural gas are of interest to producers, gas suppliers and utilities because they represent increased energy density 4 relative to the diluted gaseous form, i.e. natural gas. LNG enables large-scale transportation of natural gas stranded from commercial markets. CNG, while less dense than LNG, represents a convenient storage alternative for smaller users, where operating and maintaining a cryogenic storage system may be unattractive. Henceforth in this paper we will use the industrial acronym of LCNG to represent liquefied compressed natural gas, or more technically
August 2009 pricing: Wholesale price of diesel fuel, national average = $2.04/gal or $15.22/million BTU, Imported LNG pricing @ $3.94/million BTU. AK LNG landed in Japan @ $8.24/million BTU or 46% of wholesale Diesel Fob Anchorage @ $17.87/million BTU. 2 LNG Fact Sheet, Federal Energy Regulatory Commission. 3 For introductory information on the commercial status of CNG in Europe, Asia and S.America, refer to http://en.wikipedia.org/wiki/Compressed_natural_gas. 4 Relative to natural gas, LNG is approximately 600 times denser. Relative to diesel or fuel oil, LNG has an energy density of approximately 60%, meaning a volume of approximately 167% the volume of diesel/fuel oil has the same energy content in heating value (British Thermal Unit, BTU).
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appropriate liquefied to compressed natural gas technology. CNG is produced from LNG more efficiently than it is from pipeline natural gas. LNG is more efficiently transported in commercial volumes than is CNG.

RURAL ALASKA THE PROBLEM

As Alaskas economy began its remarkable expansion following World War II, statehood, and the discovery of the massive oil reserves on the North Slope, its remote village cultures were gradually propelled from a subsistence existence, to a more urban-like culture, with dependencies upon various imported commodities. These included motorized vehicles, processed foods, consumer electronics, indoor plumbing, and electrified kitchen appliances. Reliance on these modern conveniences has fostered a dependency within the villages on a supply of imported energy. This rural dependency upon imported energy has been subtle, as the BTU-rich liquid fuels derived from petroleum were relatively inexpensive initially, especially when compared with the first costs of snowmachines, four-wheelers, boilers, home furnaces and generators that consume these liquids. This cultural metamorphosis from subsistence to dependency continued nearly unabated in Alaskas remote communities; occasionally deterred by spikes in fuel prices briefly in the early 70s and again in 80s. Generally though, the combination of a marketplace flooded with inexpensive oil, and nearly non-existent fuel taxes in AK, alleviated most of the pain associated with purchasing fuel by rural Alaskans, even on meager fixed incomes until the recent oil price run-up and instability began in 2003-2004. From the lean days of 2002, when a barrel of oil averaged approximately $22, to the maximum of nearly $145 per barrel observed during the summer of 2008, fuel pricing in remote Alaskan communities increased as dramatically, causing near universal fear, anger and frustration among village dwellers. In the summer of 2008 fuel barge deliveries to interior Alaskan villages brought unheard of prices, up $3 to 5 $4 per gallon since the last years delivery, to $7.50 to $8.00 per gallon . A double-whammy of highpriced fuel delivered by fuel burning transport ships or air tankers has resulted in astounding increases in home heating and electrical costs to rural villagers. During 2008 single family fuel costs, for space heating and cooking range from $300 to $900 per month, representing an average of 40% of a typical familys income. This particularly grim situation for Alaskas rural communities is not sustainable, and is likely to increase in severity as crude oil prices rise with global economic recovery.

THE LCNG CONCEPT

The LCNG technology described here is commercially-proven, robust and expanding at a rapid pace outside of Alaska. It requires little developmental risk to bring it to Alaskas remote communities. Its economic viability needs to be demonstrated in a pilot program, where actual supply chain constraints and costs are applicable. Our concept addresses the largest contributor to sky-rocketing fuel costs in remote Alaskan communities petroleum derived diesel fuel and fuel oil by substituting lower priced and more environmentally acceptable natural gas. We envision this fuel substitution concept as a bridge to longer-term renewable solutions for remote Alaska communities. Since renewable sources of energy such as a wind generation potentially can replace only a portion of the energy that a remote village or city must have over an extended period, the dependency on expensive diesel and heating oils doesnt end with the installation of expensive wind turbines. To have a significant impact on rural energy costs in Alaska requires breaking the dependency on petroleum-based fuels. LCNG technology represents a clean fuel alternative that may serve as the basis for hybrid combinations with wind-powered electric generation, a technology that is handicapped by the requirement for reliable fuel-derived electrical generation to support it. This need for back-up generation for wind generated electricity is precisely why such renewable projects have are often paired as Wind-Diesel Generation projects; a combination that is not economically optimized, owing to the stratospheric cost of diesel in remote Alaskan communities. Based upon the very significant disparity in pricing between natural gas and petroleum-derived distillate fuel, the substitution of natural gas for diesel and fuel oil will result in price savings per unit of energy (Refer to the analysis presented later in the paper). Eroding natural gas pricing, initiated prior to the

Anchorage Daily News, June 4, 2008.

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recent economic downturn, is indicative of an increasing surplus of natural gas in the lower 48, which will likely increase the disparity in $ per BTU between these commodities for many years. We have proposed 6 conducting Reconnaissance and Feasibility level analysis in Bethel to test the economic and technical feasibility of transporting Liquefied Natural Gas (LNG) to a remote community, storing the fuel as Compressed Natural Gas (CNG) in commercially available pressure vessels on-site, and distributing the gas for use in existing space heating furnaces, boilers and an engine-electric generator set via low pressure distribution piping, much like that used throughout the Anchorage area, and in the lower 48 states.

LCNG THE BRIDGE SOLUTION FOR RURAL ALASKA

Omnitrans LCNG fueling station, Montclair, CA, 2002 (Compliments of North Star)

The investment capital requirements for modifying a community energy infrastructure are minimized using this approach, as existing oil fired-equipment and diesel-driven electric generation can be converted to run on natural gas, and do not require wholesale replacement. For this reason, and the commercial availability of the hardware associated with the conversion to LNG and CNG, the time to implement this solution is short. Unlike renewable solutions, which generally require major changes to a communitys infrastructure system to accommodate a new source of thermal or electrical energy, this solution relies on: Maximizing the efficiencies and operational economics of LCNG technology and storage components, and transport know-how of this commercially successful technology Maximizing the reuse of existing energy conversion systems installed in village homes, schools, community buildings, and power generation utilities through the use of compatible, clean burning natural gas Minimizing the installation of capital intensive conversion systems which are often inefficient or require significant real estate to capture or convert a dilute renewable energy source

POTENTIAL STATE-WIDE SOLUTION

Because of the general applicability of this project to nearly any Alaska community with barge access, for delivery of bulk LCNG, the results of this pilot scale initiative are potentially beneficial to many more Alaskans than just the village program outlined here. In our opinion implementing LCNG conversion is a bridge solution; offering a short term solution to high energy prices before long-term alternative solutions can be placed on-line. Furthermore, the results from this project are scalable. The economic and technical findings are directly applicable to larger or smaller applications. Hardware components that are commercially available for this Pilot Scale Bethel system, are applicable for a Semi-Commercial scale for the surrounding regional communities, and then to Full-Scale service to remote villages throughout Alaska.
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Orutsararmiut Native Council & PDC Harris Group, Liquefied & Compressed Natural Gas (LCNG) as a Bridge Solution to High Energy Prices in Rural Alaska, application to Renewable Energy Grant Program, Alaska Energy Authority, Fall 2008.
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Phoenixs Valley Metro LCNG fueling facility, May 2008 (Compliments of North Star)

PILOT PROJECT DESCRIPTION

Natural gas, delivered and stored as LNG, and CNG, respectively, will be used to substitute for diesel/fuel oil used as follows. Four (4) boilers for space heating in ONC 7 owned buildings. Converting a diesel engine electric-generator from 100% diesel operation to dual fuel operation. This conversion, using commercially available hardware and control software, will allow replacement of a nominal 80% of the diesel fuel requirements at full-load operation with CNGderived natural gas.

LCNG Availability
LNG is currently available 8 from two sources within the state: the Kenai LNG Plant owned by ConocoPhillips Alaska Inc (CPAI) and Marathon Oil Co., and a smaller LNG liquefaction plant owned by Fairbanks Natural Gas 9 (FNG) at Point McKenzie. Also, LNG is a world-wide commodity, and is therefore available from sources outside the state. In the future, LNG associated with the Alaska North Slope Gas Pipeline is the ideal source, potentially offering the lowest pricing for larger volumes, should this concept prove feasible for larger scale use.

Orutsaramiut Native Council, the non-profit tribal organization representing Native Alaskans and American Indians in Bethel. 8 Acquiring LNG from these sources will need to be negotiated during the project reconnaissance stage. 9 FNG has announced plans to build another LNG plant on the North Slope, and has an agreement to purchase gas from ExxonMobil. However, construction of this plant appears to be delayed.
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Delivery of LCNG to Bethel

As noted, delivery of natural gas will be accomplished most efficiently, in terms of transportation cost, in its most dense form, which is LNG. Stored at atmospheric pressure, liquefied natural gas has a temperature of -256F, requiring cryogenic double-walled insulated storage tanks, to minimize boil-off loss. These conditions represent a technological challenge to a remote community, and storage as CNG represents a simpler approach. System components (tanks, pumps and heat exchangers) for storage and transport are readily available from numerous suppliers. Our preliminary plan is to design a suitable storage and transfer system for a standard delivery barge, similar to those currently used by Crowley Marine. Fabrication will involve outfitting a new or surplus barge with cryogenic storage tanks, fill system piping, off-loading piping, pumps and heat transfer equipment sufficient to transfer and convert the LNG to CNG for storage in a pressurized cylinder at the village site. Commercially available pre-fabricated barges for river delivery of LCNG are available from Europe, and will be investigated as well.

Omnitrans LCNG fueling station, Montclair, CA, 2002 (Compliments of North Star)

To convert LNG to CNG requires raising the cryogenic liquid pressure from approximately atmospheric pressure (in the LNG transport tanks) to 3600 PSIG (standard storage tank pressure for CNG). This is accomplished using commercially-available pumps designed for cryogenic service. Following pressurization, the dense-phase fluid must be heated to near ambient temperature for compatibility with the CNG storage vessel materials. This can be accomplished using an air to LNG heat exchanger, where fans direct ambient air across tube bundles; also commercially available technology. LNG can also be vaporized using low temperature water (saline or fresh) as the heat sink. Such heat rejection would be required only when LNG is delivered to village storage tanks, where it would be pumped to CNG pressure using on-board pumps and vaporization equipment. In the future, should LCNG be used regionally or state-wide, conversion of the diesel drives on-board the marine vessels used to haul the barges is also a possibility. Like the conversion from diesel in the communities, such conversions would yield benefits in terms of operating expense, and the emissions of CO2.

On-Site Storage of LCNG

As stated in the prior section, natural gas delivered to the village as LNG will be converted to CNG using barge-mounted pump system and heat transfer equipment. Storage of natural gas as CNG may be more attractive for remote communities because: Cryogenic temperatures and specialized vessel alloys are not involved The wall thickness of the CNG vessel is sufficiently heavy to prevent punctures from vehicles or firearms
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 Since the CNG storage vessel is closed and pressurized, boil-off loses are zero Conversion of LNG to CNG is accomplished with a pump and simple heat exchanger, and requires minor electrical power.

Conceptual Diagram LCNG Transport, Storage & Dispensing

CNG Bullet G N L p m u p L NG to C NG H eater

to Gas Users

LNG Barge

Economics - LCNG vs. Diesel/Fuel Oil

Presently Bethel is supplied energy in the form of No. 1 fuel oil, by periodic barge shipments handled by Crowley Marine. Pricing of fuel oil for Bethel and surrounding communities has been volatile lately, owing to the instability in world financial markets, and a general economic recession. Quoted prices reported for June 2008 indicate a delivered price for No. 1 heating oil of $6.33 per gallon, of which approximately $1.30 to $1.50 per gallon can be attributed to transportation cost to Bethel. Monthly pricing trends for diesel/fuel oil delivered to Bethel between Spring 2003 and Fall 2009 are plotted in Figure 1, following. Note that the data points in Figure 1in $ per million BTU, were derived from federal Energy Information Administration (EIA) reports for Alaskan wholesale diesel fuel, and adjusted to reflect the cost of shipment to Bethel. The differential cost of shipment was calculated using as-delivered fuel pricing reported periodically by the Alaska Department of Commerce, Community and Economic Development (DCCED). Also shown in Figure 1is the price trend for Alaskan LNG, landed in Japan, during the same period. These data were acquired from EIA, in a format of $ per 1000 standard cubic of natural gas equivalent, and were converted to the units of $ per million BTU, based on the higher heating value of Kenai LNG. Certainly the landed Japanese pricing for LNG does not represent the actual price of LNG shipped to Bethel on smaller, less efficient vessels, but the potential is nonetheless obvious; there is a massive pricing disparity between the two, sufficient to warrant additional investigation. It is precisely this difference that drives the need to conduct the investigations described in this application. There is an apparent opportunity to deliver a substantially less expensive substitute fuel to remote Alaskan communities in the form of LCNG. Quantifying the real project economics, determining a price range to provide a reasonable return on investment, and identifying supply options are the primary objectives of this project.
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Attachments:
1) Paper 1st LCNG Station in Bergen, Norway 2) Brochure Vanzetti, Commercial LCNG Systems ###

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Figure 1 Trended Fuel Prices, Diesel/Fuel Oil and AK Export LNG

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First LCNG station in Bergen, Norway

By Terje Simmenes, Gasnor Project Manager Mannsverk December 12. 2005 is a milestone for Gasnor. On this day the new LCNG station in Bergen was filled with LNG for the first time. The following weeks the station will be running in test modus and serve a small number of buses. In February 2006 the station will be fully operative and serve 22 buses on a regular basis. The Bergen Programme This station is the last of three filling stations for buses in the "Bergen Programme". This is a programme supported by Bergen Municipality and Hordaland County initially launched in 1999. The programme has 2 main objectives: Reduce emissions of NOx, SO2 and particles in the Bergen area; Contribute to more domestic utilisation of natural gas which is landed at the Kollsnes Terminal 40km outside Bergen. Both objectives are reached as 59 buses in Bergen have converted from diesel to natural gas. When the LCNG station is fully operative in February 2006, the total number will be 80 buses. In addition the programme lead to the commercialisation of domestic natural gas distribution from Kollsnes. Further this lead to the construction of a 40 000 t/y LNG plant at Kollsnes in 2003, which again opened up for this LCNG station. Challenges related to infrastructure To understand why Gasnor decided to build this LCNG plant, it is important to understand the challenges in distribution of natural gas in Norway. Our country is more known for its beautiful fiords than for densely populated cities. And there is a reason for that. Norwegians live scattered around the coast. In addition the topography, especially along the West Coast where the gas resources are available, is not suited for pipeline distribution of natural gas. Local grids around gas terminals occurs, but interconnections between such gas islands is not economic feasible. The first two filling stations in the Bergen Programme were supplied by CNG compressed at Kollsnes and transported by semi-trailers to the filling stations. At the filling station the CNG was recompressed and filled on buses. The intention at that time was to let CNG distribution be a vanguard of a future pipeline from Kollsnes to Bergen. However, this pipeline is still not economic feasible, and CNG is not fit for distribution over longer distances. Something had to be done to establish a future oriented and robust distribution system. The solution was the construction of a 40.000 t/y LNG plant which was ready in 2003. (Gasnor is now about to extend the plant to 120 000 t/y.) By doing this Gasnor was able to supply the whole Norwegian bulk marked with LNG, thus creating several LNG islands along the coast. In 2004 Gasnor decided to build the last of the three filling stations as an LCNG station. The stations could have been built as a CNG station. However Gasnor supposes a future natural gas to vehicles market in Norway will have a number of LCNG stations due to the LNG islands along the coast. Gasnor has also experienced CNG distribution as challenging. An LNG trailer is transporting six times as much energy as a CNG trailer.

Energy consumption is about 4 times as high in the compressor stations compared to the high pressure pumps in the LCNG station. In addition LCNG stations require less space and the LNG chain is more reliable than the CNG chain. LNG is also cleaner than CNG because there always is some leakage of seal oil from compressors, something you avoid in LCNG stations. Therefore the transition to LCNG is appreciated by the bus companies. Technical details and suppliers The station at Mannsverk consists of a 54m3 cryogenic tank. Two high pressure pumps at 15 l/m capacity each can supply up to 1000 Sm3/h through air fanned high pressure vaporizers. There is a storage tank of 6,4m3 water volume, which allows 3 buses to be filled without starting the pumps. There are 22 slow-fill masts which allow the buses to be refilled during the night. In addition there are 3 fast-fill masts which will be used on daytime when occasional filling is needed. As limited space was a challenging issue in this case, the plant was built very compact. Pumps, valves and vaporizers are all delivered in a 40 feet iso skid. The tank is placed vertically on top of this. The LNG part is delivered by Chart Industries. This company has wide experience in building LCNG stations in the US. However, this is their first European station. Therefore their European branch, Chart-Ferox from Czech Republic, assisted in the project thus ensuring the transition to European norms, measurements and other requirements were fulfilled. The CNG part of the station, including filling masts, was contracted to Bergen Engineering. This is a local company which also has participated in building the other two filling stations in Bergen. Future By fulfilling the Bergen Programme, Gasnor hopes the remaining 300 city buses in Bergen gradually will be converted to natural gas, and that this project shows that natural gas can be used in vehicles any place in Norway - regardless if a grid is available.