Last week, Royal Dutch Shell PLC began rolling out a strategy that will dramatically change the energy world.

With revenues larger than the economies of Alberta, Saskatchewan and British Columbia combined, Shell is betting big on natural gas to replace oil as the world's foremost transportation fuel.

This is the game-changer.

It was only a handful of years ago when small, independent oil companies proved that a technology called fracking worked and was able to blow up deep shale rocks to release natural gas. They sold out to majors who, in turn, sold reserves to super-majors like Shell that have fuel refining and retailing expertise and operations.

There have been pilot projects involving the use of natural gas, liquefied or compressed, as fuel in trucks, but this week Shell made a big move.

The giant announced a partnership with an American gas station operator to supply liquefied natural gas (LNG) for heavy-duty trucks at 100 fuelling stations across the US by 2013.

The company will build LNG plants to service this chain and others that will follow.

In Canada, Shell has made a similar deal with a truck fuelling chain along 1,600 kilometres of highway between Fort McMurray and Vancouver. Shell has called this its "Green Corridor project."

Liquefied, or frozen, gas is an ideal transport fuel for large trucks and compressed gas for smaller vehicles. Roughly 92 per cent of transportation fuels are petroleum-based, but could be replaced by natural gas, compressed or liquefied. This will take years, but Shell's move breaks the catch-22 that has slowed adoption of gas.

Gas is greener too and the United States has a glut, one century's supply of gas at current consumption rates. This, on top of the glut of conventional gas in Canada and the U.S., has driven natural gas prices down to the point where fuel switching makes sense.

Shell has made its move because it doesn't expect a rebound in gas prices anytime soon, and the company's gas production outpaced oil production in 2012 for the first time in its history.

The shale gas phenomena is going to primarily impact oil but also the coal industry. Recently, three large power plants in the U.S. announced they will close and generate power from natural gas.

Eventually, Shell and others will build out a complete infrastructure to offer LNG, and possibly, CNG, to all trucks.

The use of LNG is limited to big vehicles because the gas must be kept at minus 162 degrees celsius and only large-scale fuel-ups by big trucks would justify the additional cost of providing special coolers at filling stations.

Shell is going to roll out this strategy around the world. An LNG initiative in gas-rich Indonesia was just announced by Shell.

"We see opportunities for a concept like this one in other areas of the world as well," said Jose-Alberto Lima, Shell's vice president for LNG and gas sales in the Americas.

Shale gas deposits exist all over the world, in France, Poland or Ukraine in Europe and in China and Indonesia in Asia.

Plans are to refine and sell LNG as fuel for trains, ships and to power large engines used in mining or manufacturing.

Engines have been developed to run on compressed natural gas (CNG) or LNG. The CNG is used by smaller vehicles and requires thicker fuel tank walls to contain the pressure. But LNG is better for huge trucks.

Despite this, some large trucking firms in the U.S. are using CNG in their fleets already.

The desirability of gas as a transportation fuel has been a crusade for several years by legendary oilman T. Boone Pickens. He has championed natural gas as a means of cleaning up the environment and also eliminating foreign oil imports. And he has lobbied for tax breaks that he believes will lead ordinary motorists to switch to gas from gasoline.

President Obama backed Picken's proposed tax breaks and in January said "we, it turns out, are the Saudi Arabia of natural gas."

But the breaks fell victim to election politics and Congress narrowly defeated the tax proposal in March.

Even so, Shell and others are betting heavily that the breaks will happen and, even if delayed, won't matter given the long-term price scenario for gas compared with oil.

The ramifications of Shell's initiative, or tax breaks, would not be good news for energy exporters like Canada.

Shale gas has lowered prices, but in the past five years the large volumes being produced in the U.S. have sliced Canada's gas exports to the U.S. by half.

Worse yet, if gas replaces oil as a fuel too, and its sister-fuel shale oil continues to balloon in production levels, Canada's oil sands export ambitions may have to be trimmed too.

This article previously appeared in the Financial Post

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