Research Triangle Energy Consortium

A story is breaking that Cheniere Energy is applying retroactively for an alternative fuel tax credit for using  “boil off” natural gas for propulsion of their liquefied natural gas (LNG) tankers in the period 2018 to 2024, the year that tax break expired.  The story leans towards discrediting the merits of the application. Before we get into that, first some basics.

LNG is natural gas in the liquid state. In this state it occupies a volume 600 times smaller than does free gas, thus making it more amenable to ocean transport. It achieves this state by being cooled down to – 162 degrees C. Importantly, it is kept cool not by conventional refrigeration, but by using the latent heat of evaporation of small quantities of the liquid.  If the resultant gas is released to the atmosphere, it is a greenhouse gas 80 times more potent than CO2 over 20 years.  In recent years, tanker engines have been repurposed to burn natural gas.  The “boil off” gas, as it is referred to, is captured, stored and used for motive power. As with most involuntary methane release situations, capture has the dual value of economic use and environmental benefit. In the case of LNG tanker vessels, the burn-off can handle most of both legs of the voyage.  Short haul LNG trucks also have boil off gas, and it is unlikely that the expense of recovery and dual fuel engines is incurred.

Also, by way of background, Cheniere Energy is a pioneer in LNG. It began with their construction of import terminals in the 2008 timeframe. Shortly after that US shale gas hit its stride and LNG imports evaporated. This was followed by US shale gas becoming a viable source of LNG export, and Cheniere again took the lead in pivoting to convert import terminals to export capability. Today they are the leading US exporters.

Now to the merits of considering boil off natural gas as an alternative fuel. The original intent of the law, which expired in 2024, appears to have been to encourage substitution of fuel such as diesel with a cleaner burning alternative. However, the letter of the law limits this to surface vehicles and motorboats. LNG vessels are powered by steam (using a fossil fuel or natural gas), and more lately by dual fuel engines using boil off gas and a liquid fuel ranging from fuel oil to diesel. Using a higher proportion of boil off gas certainly is environmentally favorable, mostly because sulfur compounds will essentially not be present and particulate matter will be vastly lower than with diesel or fuel oil. If this gas was not used for power, hypothetically, it would be flared, leading to CO2 emissions and possibly some unburnt hydrocarbons. Capture and reuse provide an economic benefit, so should it qualify as an alternative fuel?

An analog in oil and gas operations could be instructive.  Shale oil can be expected to have associated natural gas because light oil tends to do that because of the mechanism of formation of these molecules. Heavy oil, for example, could be expected to have virtually no associated gas. When oil wells are in relatively small pockets and/or in remote locations and because of the relatively small volumes or remoteness, export pipelines are not economic. This gas is flared on location.  Worldwide 150 billion cubic meters was flared in 2024, an all-time high. Companies such as M2X Energy capture this and convert it to useful fuel such as methanol, and in the case of M2X the process equipment is mobile. The methanol thus produced could be considered green because emissions of CO2 and unburnt alkanes would be eliminated.

Were that to be the case, the use of boil off gas has some legs in consideration of it being an alternative fuel. However, the key difference in the analogy is that in the case of the LNG vessel, an economic ready use exists. Not so in the remotely located flared gas. But is an economic ready use a bar for consideration? Take the example of CNG or LNG replacing diesel in trucks. They likely quality for the credit. The tax break approval may well come down to a hair split on the definition of motorboat.  An LNG vessel is certainly a boat, and has a motor, but does not neatly classify as a motorboat in the parlance*. But if the sense of the law is met, ought the letter of the law prevail?

Vikram Rao

*That which we call a rose, by any other name would smell as sweet, Juliet in Romeo and Juliet, Act II, Scene II (1597), written by W. Shakespeare.

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