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Twin Ports high on short list for LNG plant investment
Photo: Stacey Phillips
The Northland’s next big investment may be in the industrial sector and could total up to $70 million.
Thanks to the region’s significant mining, pipeline and transportation infrastructure, a major developer of plants that convert natural gas into liquid has placed Duluth-Superior high on its list of potential development sites.
“We have identified several areas in and around the Great Lakes region. The Duluth and Superior area is probably our number one choice,” said Stacey Phillips, director of business development at WesPac Midstream LLC, who made the comment at a May conference in Superior.
Liquefied natural gas, also called LNG, is already being used in some countries as a replacement for diesel fuel. Its benefits currently are being studied by several industries in the United States, where a plentiful supply has become available through new fracking technology.
“It would offer a triple-bottom-line benefit in our area,” said Nancy Norr, director of regional development at Minnesota Power. “There would be a direct investment of $50-$70 million to build a liquefaction plant, there’s a cost benefit to users, and there are environmental benefits,” explained Norr, who participates in a regional LNG strategy group.
Using LNG as a replacement for diesel fuel is of particular interest to the maritime shipping industry, which faces federal pressure to reduce cargo vessel smokestack emissions. Some older ship engines burn a heavy type of diesel fuel that generates much more air pollution than other diesel and gas power plants. The Great Lakes Maritime Research Institute (GLMRI) has been studying LNG as an alternative maritime fuel for several years because its environmental profile would meet today’s strict pollution limits. The group is a consortium of the University of Wisconsin – Superior Transportation and Logistics Research Center, the University of Minnesota Duluth Swenson College of Science and Engineering and the Labovitz School of Business and Economics.
But there are many more applications. LNG also can be used by the rail industry in train locomotives, by the mining industry in large trucks and pumps, by over-the-road trucking companies, and by the agriculture industry for applications such as drying grains.
“When you look at the long-term fuel cost savings and the environmental benefits, the LNG industry can make a real compelling case,” said APEX President and CEO Brian Hanson, who also works with the strategy group. “It’s hard to say which industry will embrace LNG first.”
Liquid vs. gas
Although LNG offers many advantages, the fuel can’t be dispensed with the same ease as gasoline or diesel fuel, which typically are in a liquid state. Natural gas doesn’t become a liquid until it’s chilled to -260 degrees. That temperature can only be attained at a liquefaction plant, and it can only be maintained in special tanks for a limited time period. Construction costs begin at about $50 million for a small plant such as the facility that California-based WesPac plans to build.
Before investing that amount of money, WesPac needs an anchor customer willing to make a long-term LNG purchase commitment. Regionally, the company hopes to develop maritime customers. It envisions having six Great Lakes facilities between Duluth and Quebec City, which would ensure commercial vessels can be refueled throughout the St. Lawrence Seaway system. Changing fuels is nothing new to the maritime shipping industry, according to Dr. Richard Stewart, director of the Transportation and Logistics Research Center at UWS and co-director of the Great Lakes Maritime Research Institute.
“We’ve done it several times on the Great Lakes,” he said in a 2012 presentation. “When we converted to oil, it cost a lot of money to convert these ships. We had to tear out the engines, change the bunker system and train the crew for new safety procedures. It was a big deal.”
But such conversions invariably are worthwhile, he added.
LNG “has tremendous environmental benefits, very strong cost advantages on fuel and maintenance. There’s a major market potential for conversion,” he said.
The Twin Ports poses one problem for WesPac: The shipping season is only nine months long.
“We can’t be shut down for three months of the year,” Phillips said, so proponents are working to identify additional customers to create a year-round LNG market.
Iron Range mining firms consume massive amounts of energy and, like maritime shipping companies, frequently face intense scrutiny by environmental regulators. Although it produces less energy per gallon (86,000 BTUs compared with 139,000 for diesel), LNG’s price advantage more than makes up for the difference (LNG was $2.50 per gallon this spring versus $3.91 for diesel).
“A gallon of diesel is burned for every ton of iron ore produced. That’s 40 million gallons of diesel consumed each year,” Norr said. “That’s attracting (LNG) developers to us.”
New mining operations such as Essar Steel Minnesota or PolyMet are the best LNG candidates, Hanson said.
“They wouldn’t face conversion costs because they’ll be buying equipment that is new – new pumps, new conveyors and mobile applications such as trucks,” he said.
Essar is monitoring the LNG movement, said Kevin Kangas, director of government and public affairs at the company’s Nashwauk taconite mine and processing plant, which currently is under construction.
“It offers the potential to reduce operating costs,” he said, although makers of heavy equipment (such as the 240-ton trucks used in iron mines) have not yet completed the LNG testing phase. “We’re in discussions with Caterpillar on how to incorporate LNG into our fleet, initially on a trial basis and perhaps permanently in the future. We’ve thought about it and we’re interested.”
Potential LNG buyers could also be “stranded plants” that currently are not served by natural gas because of their distance from the nearest pipeline, Norr said. If natural gas is delivered in liquid form (as LNG), it would be compressed 600 times and would expand by that amount when converted back to a gas and injected into a remote pipeline.
“Natural gas does not extend throughout all of Northeast Minnesota. Along the North Shore, it extends to Silver Bay but not further north. There are a number of stranded industrial sites that don’t have access to natural gas that could be users as well,” she said. It could be delivered in tanks transported by truck or, where track is available, by rail.
Hanson conceded that acceptance won’t be immediate or universal. Some people have safety concerns, and others oppose every type of fossil fuel.
“We believe it’s a very safe fuel. If it is released, the vapors will rise and dissipate,” Phillips said. A LNG liquefaction plant has operated for decades in Wrenshall without incident. It doesn’t distribute the product to the public but converts natural gas to liquid so it is available for distribution into pipelines during peak demand periods.
In terms of environmental impact, Hanson argued LNG is a good choice when compared with other fossil fuels.
“If you’re going to burn a fossil fuel, natural gas converted to liquefied natural gas is a very good choice,” he said. “There are those who say ‘no’ to all fossil fuels and to natural gas fracking. We’re not going to be able to answer that question, but I believe interest in LNG is going to continue. It’s an industry with an excellent record. It’s going to happen.”Previous BusinessNorth Exclusives Articles:
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