Leading the Charge

Encana opens first LNG fuel plant in Alberta

Encana is building a reputation.

Obviously, they are already well known as a Canadian natural gas heavyweight with operations throughout North America, but the reputation they are building now is all about how they use that resource.

The company announced at the end of January that their Cavalier LNG facility near Strathmore, Alberta was up and running, the plant being the first of its kind in Alberta to convert ordinary natural gas into liquefied natural gas (LNG) fuel for transportation and high horsepower applications.

At the time of the commissioning of that plant, it had recently been announced that Encana would be building a second LNG plant with Ferus near Grande Prairie.

All of this came after Encana started converting their own light truck fleet to compressed natural gas (CNG) and building CNG fueling facilities to service those trucks, after Encana converted the transport fleet of one of their service providers in Louisiana to LNG with the help of mobile LNG fueling stations and even after Encana began working with CN to test LNG locomotives on a short run between Edmonton and Fort McMurray.

The Encana name is quickly becoming synonymous with domestic uses for natural gas that go beyond heating homes, generating electricity and coaxing bitumen from the oil sands of northern Alberta.

"We're proud to have a plant there in Alberta," said David Hill, vice president of Encana's natural gas economy group, noting that the plant isn't far from their corporate headquarters in nearby Calgary.

"It's very meaningful for us to be able to open our first of several LNG facilities," he continued. "This is a big deal for Encana. We're really excited about it. And I think we're going to see great things happening."

The location wasn't only chosen for its proximity to Calgary, but also because it is adjacent to their Cavalier gas plant that processes methane from their coalbed methane (CBM) assets in the area.

"We're using coalbed methane gas, which is very pure methane," said Hill. "So, we have a very minimal pre-treatment required to remove impurities and water."

The plant will be able to produce 15,000 to 17,000 litres of LNG per day when fully operational.

The first customers for fuel produced at the site will be Ferus, who is working on converting their truck fleets to LNG as part of their partnership with Encana to build the second Alberta LNG plant near Grande Prairie, and CN, who is using LNG provided by Encana for their Alberta pilot project.

"One of the things I like to stress is Ferus and CN are first movers in this space," said Hill.

"It's important to really team up with like-minded companies that see the benefits of using natural gas beyond price," he continued, referring to the record low natural gas prices that are so enticing to consumers at the present time.

"Obviously, natural gas as a fuel is a lower cost than diesel or gasoline today. So, that's a benefit. But both of these companies see it beyond that."

Hill believes their interest in natural gas goes past the fact that it can be up to 40 per cent less expensive than gasoline or diesel to include the environmental benefits, which feature a 30 per cent reduction in carbon dioxide (CO2) emissions and a 90 per cent reduction in particulate matter that causes smog.

Additionally, natural gas is a domestic fuel.

"They see it as part of their sustainability program."

Hill seems particularly excited about the rail market because of the large volumes of fuel that industry can consume

"And CN is definitely a leader in this space on innovation," he said.

Interestingly, the ties between CN and the oil and gas industry are growing as the oil sands industry struggles to get their product to market and cope with the uncertain futures of TransCanada's proposed Keystone XL pipeline to ship Alberta bitumen to Gulf Coast refineries and Enbridge's proposed Northern Gateway pipeline to transport that fuel to an export hub at Kitimat, British Columbia.

Speaking during the Insight Canadian Oil Sands Summit on Feb. 6, CN's vice president of petroleum and chemicals James Cairns said that railways and pipelines are both good options - and both necessary - when it comes to moving oil to market.

"Before the first pipeline is full, you better have the second pipeline built," said Cairns. "Because if you don't, full means full."

Rail can offer temporary transportation when pipeline capacity isn't available.

Actually, a lot of the recent talk about transporting oil by rail began with light oil discoveries in the Bakken play of Saskatchewan and North Dakota where pipeline capacity couldn't match production.

"Rail had to be part of the supply chain," said Cairns, noting that it was never a question of logistic or economic viability.

"It had to happen."

The oil sands producers are facing a similar dilemma as they attempt to access foreign markets in the absence of Keystone XL and Northern Gateway at a time when the price differential between Western Canadian Select and Brent or West Texas Intermediate is growing to a debilitating level.

"Shipping by rail allows you to connect new production with markets that are not pipeline served," said Cairns.

It can also be economical because it doesn't include the cost of diluent necessary to ship heavy oil by pipeline.

Suncor Energy is one oil sands producer seriously examining the possibility of shipping oil by rail as they attempt to move their oil sands output to their Montreal refinery.

"It gives you a great deal of flexibility, particularly around some of the poorer quality streams from western Canada where you could get those in sooner than pipelines could be reversed," said Suncor's president and CEO Steve Williams.

"Even if pipelines are reversed, you have an opportunity to make a good margin."

It is possible that Canada could soon see large volumes of heavy oil transported by trains powered by natural gas.

Ferus, however, is already closely tied to the oil and gas industry as a supplier of cryogenic fluids such as liquid nitrogen and liquid CO2 that are used in enhanced oil recovery and hydraulic fracturing.

"It's not easy," Hill said of the conversion to natural gas.

"Changing your fueling pattern, changing the fuel, driver behavior - it's difficult," he continued. "We're experiencing the same problems and challenges in our own fleet of light duty vehicles with CNG. So, we're able to really communicate with them at the right level that we understand the frustrations and the challenges. Because we're doing it ourselves, too.

"It makes a good partnership."

Hill is encouraged by the way vehicle manufacturers are starting to embrace the natural gas option.

"Just in the last three years we've seen a significant shift in the market," said Hill, noting the emergence of natural gas fuelled trucks manufactured by Chrysler and General Motors after a decade during which the Honda Civic was the only natural gas vehicle available.

The heavy duty truck manufacturers are also coming onboard.

Until this year, the only engine options have been a small 8.9 litre engine and a large 14.9 litre engine, but an intermediate 11.9 litre engine will soon be available from Cummins Westport

"Kind of filling the gap in my view," said Hill, "which is really important to provide trucking firms a choice on the kind of horsepower they need. And torque. That's going to be a big move for the market.

"We anticipate that really accelerating the market in the on-road."

Hill noted that Encana has been using natural gas for off-road, high horsepower applications in their drilling operations since 2007, but that hasn't been an area where there has been a lot of movement outside of the company.

"We began to expand that here in the last three to four years," said Hill. "And also move into our pressure pumping services and using natural gas there on our large engines."

Now manufacturers such as Caterpillar are actively bringing natural gas into the high horsepower market with products such as natural gas locomotives and mine haul trucks.

"One of which would be fully capable of serving the oil sands up in Fort McMurray," Hill said of those mine haul trucks, further describing the synergies between oil and gas industry operations and unconventional uses of natural gas.

"And now we're seeing the marine market moving in this direction as well," Hill continued. "A lot of the ferries on the west coast of Canada and the west coast of the [United States], as well as the east coast in Manhattan, looking at natural gas."

Marine transportation outfit TOTE Shipholdings announced on Dec. 4, 2012 that they had contracted General Dynamics NASSCO to build the first two LNG containerships on the ocean.

"These are pretty significant movements that were not even on the radar three years ago," said Hill. "And really attesting to the abundant natural gas story that Encana and others have developed in North America."

Hill said that approximately one-third of the LNG produced at Cavalier will go to the on-road market, while the remaining two-thirds will go to the off-road market.

"We hope the market continues to expand and we expand the facility with the market," he added.

"Today, we just got an approval on a contract for another customer to fuel their trucks off the LNG from the Cavalier facility."

However, interest in the fuel produced at the plan is still difficult to gauge at this point.

"The interest was high, but it was just talk - tell me more, tell me when, come back when you have something," Hill said of the year and half leading up to commissioning of the plant.

"Now we have our production and dispensing facilities," he continued. "Now there's something tangible that they can come out and see, touch, feel - and talk to a customer or talk to somebody that's already using it."

Encana will be working hard throughout 2013 to ensure that the Alberta market is aware of the availability of LNG at the Cavalier plant and the abundance of natural gas feedstock.

Hill admits that it is a risky venture.

"A lot of uncertainty. A lot of very legitimate concerns" he said.

"What about this? What about that? Will this work? Will the price be here two or three years from now? Will I still have the same price? What about the cost of these trucks or these engines? Are they going to come down?

"That's why I said you really have to work with the first movers. You want to find those companies and work with them to develop a win-win solution for them and the fuel."

Still, there are rewards for leading the charge.

"Being a first mover, they get to take advantage of any pricing power they might have by being a lower cost fuel," Hill said of their first LNG customers.

"And also they can talk to their customers and say, 'I'm taking this step. I'm using natural gas. It's a better fuel. A lower greenhouse gas emissions. Lower criteria pollutants.' They can talk to their customers now before everybody else and say they're taking advantage of this and they can provide a better service to their customers. That begins to resonate with some of their customers.

"We're asking our supply chain to do the same thing," he continued. "Join us on this transformation. We're doing our bit. We're building CNG stations. And LNG. And join us. We should be using the fuel that we're drilling for. There's absolutely no reason it won't work. We're trying to demonstrate that.

"We're just excited to be part of it."

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