Low prices for abundant natural gas, along with smoother regulations and volatile gasoline and diesel prices, are driving operators of fleets to increase their consideration of both compressed natural gas (CNG) and liquid natural gas (LNG) as a fuel.  Additionally, the impending launch of the Cummins Westport ISX12 G engine is generating real excitement in the natural gas truck market.  This 400 hp engine slots between Cummins Westport’s ISL 8.9L and Westport’s 15L engines.  The result is a vehicle market that is expected to grow at a rate of 14% this year in North America (compared to a global rate of about half a percent).

The two forms of natural gas vehicle fuels are both growing, but although CNG systems are more compact and cheaper to install on trucks, LNG systems give longer vehicle range.  The result, as The New York Times reports, is that the long distance trucking industry is increasingly looking toward LNG as an option to replace diesel.

But that’s only half the story.  The number of LNG stations is set to grow significantly in the next couple of years.  Navigant Research forecasts that about 200 new LNG stations will be open in the United States by 2015, with more in the works.  This expansion is critical to sustain sales growth in the vehicle market.  At the moment, in answering the chicken-and-egg question of whether vehicles or refueling stations have to come first, the answer is clearly that vehicles are ahead of the stations.

Rising Demand, Rising Prices

At the same time, there are new concerns about the price of natural gas.  The Henry Hub gulf coast spot price is $3.81/million BTUs, its highest point since September 2011, and well above the low of $1.95 seen last April.  Demand for natural gas is on the rise for electricity production as well as vehicles, but supply continues to outstrip demand.  At the moment, natural gas cannot be exported to countries without free trade agreements with the United States, but that may change.  President Obama’s new Department of Energy nominee, Ernest Moniz has stated that he supports LNG exports to non-free trade agreement countries, which could have a greater impact on demand.  Charles Ebinger of the Brookings Institute, however, testified that the price of electricity would not be significantly affected by wider LNG exports.

Does that mean the price of CNG and LNG as a vehicle fuel will also be relatively unaffected?  This question is challenging to answer, because prices for CNG and LNG will not going be influenced in the same ways.  In looking at CNG, Navigant Research estimates that about 17% of the gasoline gallon equivalent (GGE) price at the nozzle is related to the price of natural gas (about $0.35 to $0.40).  The remaining 83% of the price is determined by the cost to compress and cool the gas, profit margins, taxes, and so on.  So, even if the price of natural gas does eventually hit the $8/MBTUs that Forbes contributor Richard Finger expects, CNG will see a about a $1.40 GGE increase but will likely still be priced below gas and diesel.  According to America’s Natural Gas Alliance, the natural gas price component of LNG, on the other hand, consists of about 45% the diesel gallon equivalent (DGE), so an increase in the cost of natural gas has a bigger impact on the LNG price.

The result is the price of natural gas has to remain low in order to help grow the LNG truck market.  The incremental costs for an LNG truck can run between 60% and 80% more than a diesel truck.  The result is that the combination of government vehicle purchase incentives and the fuel incentive ($0.50 per GGE) become even more critical to keeping the payback on the LNG trucks attractive as the price of natural gas climbs.

The European Cycling Federation (ECF) recently said that for every car sold in Europe, almost two bicycles are sold.  Car sales in the EU27 in 2011 were 13,146,770, according to the European Automobile Manufacturers’ Association (AECA), while Coliped reports that 20,039,000 bicycles were sold that year.   Additionally, ECF data shows that between 2010 and 2011, e-bicycle sales grew by 22% while car sales declined by 2%.  In 2012, car sales declined an additional 8%.  Perhaps worse news for automakers, AECA is reporting that 1Q 2013 sales were down almost 9%.

Annual Bicycle, E-Bicycle, and Passenger Car Sales, European Union: 2000-2012

(Sources: European Automobile Manufacturers’ Association, Coliped, Navigant Research)

Navigant Research expects the growth of e-bicycles in Europe to continue.  According to our recent report, Electric Bicycles, the market in Europe is on track to grow to between 1.0 million and 1.2 million sales in 2013.  But the question remains: Does this mean that Europeans are shunning cars for bicycles and e-bicycles?

On its own, the sales data is not necessarily an indication of the causal relationship between car and bicycle purchases.  However, it can’t be ignored that riders in Europe are using their bikes more for transportation.  Even the French market, where all bicycle sales are down 9%, saw the smallest decline in city bicycles (-4%) while e-bicycles increased 15%.  The increasing use of bicycles and e-bicycles designed for cities or commuting clearly hits at the one of the core points of passenger cars.

Cyclists Have More Fun

Perhaps more compelling is the fact that bicycle mileage is increasing.  CBS (Statistics Netherlands) data shows that e-bicycles in the Netherlands have contributed to a 9% increase in the distance cycled, surpassing train mileage in 2011 to rank second behind cars.  The bicycle rental service OV-Fiets saw a 32% increase in round trips between 2010 and 2011, reaching 1.1 million.  While the Netherlands is often considered a somewhat special case because of its massive advantages in bicycle infrastructure, the developments there are not considered unusual in other parts of Europe.

This points to two important trends: More people are using traditional and e-bicycles than have in the past, and those that use e-bicycles are likely to travel further than traditional bicycles (3 km further, according to research completed in 2008).  Add to that the many efforts in Europe to make bicycle travel easier, such as the increasing bicycle-friendliness of trains, and the result is likely moving European commuters out of the driver’s seat and into the saddle.  This doesn’t spell the end of the European car market, but it does point to increasing challenges in getting back to the 15 million sales mark of the mid-2000s.  Or perhaps we are overthinking this, and people just want to have more fun while they commute.

CODA Automotive has been a poster child for how challenging it is start a new car company in America.  Despite using “gliders” from Hafei and installing their own drivetrain, the company has struggled to get production vehicles launched, resulting in a 2-year delay from their first announcement of a launch in the fall of 2010 (it actually launched in May 2012).  The style and crashworthiness of the vehicles have been loudly questioned.

After the company endured low sales, significant layoffs, and supplier problems over the last several months, it comes as a surprise to few that CODA Automotive has formally declared bankruptcy.  CODA’s demise proves that, even if an automobile company is successful in raising funds (almost $600 million in CODA’s case), it ultimately can’t compete without actually selling large numbers of vehicles.  An automaker’s success, whether cleantech or old tech, is ultimately reliant on moving metal: the car has to be good –very good.  That’s the reason Hyundai and Subaru are growing while Dodge struggles to find its footing and Suzuki said goodbye.

CODA’s combination of tired styling, questionable safety, and little evidence of reliability made for a big challenge in attracting mainstream buyers.  Tesla has prospered because the company now has 3 years of history for exciting products in unique niches.  Fisker had the potential to follow Tesla’s playbook with a killer product, but slow production, quality challenges, supply chain problems, and lack of products in the pipeline have most likely doomed Fisker, as well.

The few owners of CODA vehicles are now stranded.  After shelling out $40,000, they now have a vehicle with little to no dealer and repair shop support.  Not only is this is a problem for these owners, but it also could dampen the spirits of potential buyers of innovative vehicles from other start-ups.  Many drivers are willing to take a risk on a piece of cool technology from a new company, but rarely does that technology cost almost as much as the average annual income in America.

It’s clear that fuel economy remains an important part of the purchase decision for a vehicle, but it doesn’t appear to be the greatest driver of innovation in this arena.  In 2011, about eight in ten people we have surveyed say that fuel economy is either “important” or “extremely important” in their purchase decision.  While this points to market demand today, the industry is focused on developing technology to meet new corporate average fuel economy (CAFE) requirements that won’t take effect until after model year 2017.

At the Automotive Megatrends conference in Dearborn, Michigan, the looming fuel economy and zero emission vehicle (ZEV) requirements dominated the powertrain discussions that I participated in.  For example, the panel on alternative drivetrains focused heavily on technology that can meet the CARB’s zero emission vehicle (ZEV) requirements.

ZEV Reality Check

Some argue that this sort of government intervention in the market is unrealistic, when ultimately the free market will decide.  This was made clear in Toyota’s presentation during the alternative drive panel, in which Tom Stricker, Vice President of Technical & Regulatory Affairs and Energy & Environmental Research, pointed out that hybrids have achieved 6% of the market in California in the past 13 years.  The question he essentially asked was: is it realistic to think that the market will reach 2.5 times that share for ZEVs within the next 13 years?

The answer is likely no, but the circumstances are certainly different than they were a decade ago.  Rising fuel prices are pushing greater interest in reduced petroleum fuel consumption.  There’s greater product support, with six ZEV models in showrooms (seven if you were to count CODA) only 2 years after introduction, compared to half that number of hybrids 2 years into their launch.  Not only are the vehicles available, but they are clearly cars customers want and customer satisfaction is high.

Of course, the challenges for ZEVs remain.  Public recharging infrastructure isn’t yet ubiquitous.  Our survey found a large disconnect between the expected and actual price of electric vehicles.  Finally, consistent range throughout the year remains a challenge.  Even so, 13,916 ZEVs sold nationwide last year.

To meet the upcoming mandates, I expect that we’ll see some additional experimentation in the coming years, in battery leasing, price reductions, and perhaps even different battery size options.  Of course, legal battles and delayed regulations aren’t off the table either.