Shell Plans Added U.S. LNG Transport Amid Record Diesel

Royal Dutch Shell Plc (RDSA), the largest European oil company, plans to double the amount of liquefied natural gas available for trucks and marine vessels in North America after retail diesel prices reached a record.

Shell will build units in Ontario and Louisiana capable of producing about 500,000 tons a year, said James Burns, general manager of the company’s LNG for transport unit in the Americas. That’s the equivalent of about 12,000 barrels of oil a day, according to a Bloomberg calculation.

“Natural gas in North America is abundant, and because it’s abundant it’s affordable,” Burns said in an interview yesterday in Bloomberg’s Houston office. “We see a future where customers are very comfortable with LNG, where they have no concerns about security of supply.”

Drilling techniques including the combination of hydraulic fracturing and horizontal drilling helped the U.S. vie with Russia as the world’s largest natural gas producer. North American prices reached a 10-year low in April as supply outstripped demand. LNG is fuel that’s cooled to -160 degrees Fahrenheit (-106 Celsius), reducing its volume and converting it to a liquid state.

The retail price of diesel, which helps power the trucks and ships Shell wants to run on LNG, reached an average of $4.11 a gallon in February, an all-time high for that month, according to data compiled by Bloomberg.

New Industry

“We’re witnessing the creation of a new industry,” Mike Gallagher, senior adviser to Westport Innovations Inc. (WPT), said today at the IHS CERAWeek conference in Houston. “Natural gas is establishing itself as the primary alternative to diesel in heavy trucks and buses.” Vancouver-based Westport builds natural-gas-powered engines.

Burns declined to specify the cost of Shell’s investment. The Hague-based company plans to charge customers fuel prices at an average discount of about 30 percent to diesel. Fleet operators may be able to recoup the added cost of LNG-based trucks within three years, Burns said.

The LNG facilities are expected to be completed in three years. Shell sees increasing LNG-for-transport projects to produce more than 5 million tons a year in the next decade, Chief Financial Officer Simon Henry said Nov. 15.

To contact the reporter on this story: Bradley Olson in Houston at bradleyolson@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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