Navigant Research Blog

How to Save a Half Billion Gallons of Diesel

— April 16, 2014

Trying to reduce fuel use by Class 8 over-the-road sleeper cab tractors is a key challenge facing the trucking industry and regulators.  The trucks use a tremendous amount of fuel (averaging about 6.6 mpg and traveling 80,000 to 100,000 miles per year) and have to provide the driver comfort as the trucks stop overnight.  In order to provide the overnight creature comforts (sometimes referred to as hotel power), the trucks need to have a source of energy, whether an offboard source, the large truck diesel engine, or a small energy source called an auxiliary power unit (APU).  The APU industry has been espousing the fundamental truth that utilizing APUs reduces fuel use, emissions, and associated costs by reducing idle times of the large truck engines.

Yet, one of the challenges is trying to understand just how much fuel and emissions are being offset by APUs.  Having spent a large amount of my time at the Mid-American Trucking Show (MATS) this past March, I was able to speak with almost every APU manufacturer displaying at the MATS and have been able to pull together an estimate for these savings.

First, a little more background.  It is not entirely clear when APUs first became widely available, but by the early to mid-2000s, Bergstrom, Thermo King, Carrier, and RigMaster, along with a number of other competitors, were all offering APU systems.  Today there are a lot of commonalities between the machines.  The vast majority of APUs are of two designs, either all-electric or diesel-powered.  Diesel-powered APUs use diesel from the truck’s fuel tank to fuel 2-cylinder small diesel engines from Yanmar, Caterpillar, Perkins, and others.  All-electric systems store energy in absorbed glass mat lead-acid batteries that can then be used to provide power to air conditioning compressors or inverters.  Other technologies that are being tested include fuel cells, lithium ion batteries, and compressed natural gas systems, but the cost-effectiveness of these systems remains essentially unmarketable.

Methodology and Findings

For the purpose of this macro analysis, I had to make several assumptions when it comes to the number of APUs on the road.  First, since there isn’t consensus on when the Class 8 sleeper cab APU market even started, I considered the start date to be roughly 2005, with about 35,000 units on the road by the end of that year.  While recognizing that this is a rough estimate, this at least gave me a starting point for calculating the scrappage rate of APUs.  Based on conversations during MATS and some combing of forums, I assumed the average lifespan of an APU to be about 6 years, and from there the number of APUs on the road today, which is estimated to be about 309,000 units, with about 25% being all-electric.

These 309,000 units translate into 486.5 million gallons of diesel saved by APUs on Class 8 sleeper cabs in 2013 (or about 1,576.5 gallons per APU).  Put into economic terms, at the average retail price of $3.89 per gallon for diesel in January 2014, the fuel costs offset by APUs are a staggering $1.89 billion.  Even taking into consideration the cost of new APU units ($8,000 estimated) and maintenance ($145 annually), the offset is $1.49 billion.  Put into environmental terms, the Argonne GREET model calculated the greenhouse gas emissions per gallon of diesel fuel consumed to be 20.2 lbs carbon dioxide equivalent (CO2-eq) per gallon of diesel fuel, so the emissions offset are 9.827 billion lbs of CO2-eq.  Of course, this analysis does not take into account the 116 truck stops that have electrification to allow drivers to shut off the engines overnight, which would further improve these fuel savings figures.

Estimated Gallons of Diesel Used by Class 8 Sleeper Cabs for Hoteling: 2013Dave H. APU chart for blog

(Source: Navigant Research)

Certainly, from a macro standpoint, it’s hard to argue the benefit of APUs.  Fleets with a large number of trucks are likely to see cost benefits that are compounded over a number of trucks.  The picture is more complicated for truck owner-operators that have to justify the extra upfront cost and calculate the payback on a single unit.  This payback typically ranges between 2 and 4 years depending on the APU selected and the cost of fuel, which makes the owner-operator market seem like a good place for some targeted tax incentives.


For Trucks, LNG versus CNG Debate Rages On

— April 4, 2014

Whether liquefied natural gas (LNG) or compressed natural gas (CNG) will fuel the trucks of the future in North America has been an open question for some time.  The stakes are high because the cost structure and infrastructure needed for the two fuels are significantly different.  The fuel tanks and fuel delivery system for natural gas trucks are more expensive for LNG than for CNG.  On the infrastructure side, LNG is distributed much like oil products are now: produced in a central location and trucked to retailers.  CNG is most often distributed through the gas grid to the retail location (though some trucking of CNG does occur).

This equates to LNG being much more capital-intensive than CNG.  Yet, LNG has advantages over CNG.  Trucks can store more LNG in a smaller space, which typically equates to either longer truck range or the same fuel in a smaller volume package than CNG trucks.  Because the energy density of LNG is higher, it has often been spoken of as the better fuel for over-the-road (OTR) trucks.

Controversy Rages On

This controversy has given new fodder for Seeking Alpha, the investor advice website.  Seeking Alpha has had a running narrative on the problems with Clean Energy Fuels Corp.’s strategy in the LNG market.  The press on the site contributed to CEO Andrew Littlefair’s update on the industry, which was in reality a thinly veiled response to investor nervousness surrounding LNG.  While most of the press on Seeking Alpha about Clean Energy Fuels has been decidedly negative, competing stock picking website The Motley Fool has analysis with a more positive spin.  Motley Fool commentators have pointed out that Clean Energy Fuels is not solely an LNG provider; it also has significant CNG investment, as well as LNG interests outside the trucking industry (specifically in the marine and rail industries).

From Navigant Research’s perspective, LNG in heavy duty trucks and buses has always seemed likely to be a niche fuel.  While growth is anticipated, CNG is likely to see faster growth and remain a much larger market.  The main reason comes down to costs.  The cost of LNG trucks is significantly higher than that of CNG trucks and the fuel costs more as well, so the incremental cost payback period is at least double that of the CNG trucks.  Additionally, the advantages of LNG trucks are insignificant when compared to CNG trucks.  Vehicle range for the two is almost identical.  CNG does take somewhat longer to refuel (though, as noted in many of the Seeking Alpha articles, this advantage is shrinking) and drivers’ hours of service rules may limit these concerns anyway, since drivers must take more breaks than in the past.

All this said, LNG does make sense in cases where trucks are being used in consistent, high mileage routes, and therefore the fuel seems unlikely to disappear – particularly in areas where LNG liquefaction plants already exist, such as near natural gas electricity turbines, ports, or rail yards.

Total Annual LNG and CNG Heavy Duty Truck Sales, North America: 2013-2022

Total Annual LNG and CNG Heavy Duty Truck Sales, North America

(Source: Navigant Research)

Navigant Research has estimated that the investment in LNG refueling infrastructure slightly outpaces CNG worldwide ($1.31 billion and $1.27 billion, respectively, in 2013).  The liquefaction plants (not included in those figures) are more difficult to pin down, since these facilities are often not targeted specifically at transportation and vary significantly by production size.  However, GE has supplied financing of $200 million for two LNG production facilities, giving an indication of facility costs.  The liquefaction plant market seems likely to be more focused on electricity production, rather than transportation, which could put the liquefaction facilities investments that are targeting vehicle refueling at more risk.  So, as controversies go, this one does have huge implications for investors.


Detroit Auto Show Looks Ahead – Far Ahead

— February 4, 2014

This year, the North American International Auto Show (NAIAS, a.k.a. the Detroit auto show) provided what I think is an interesting metaphor for the auto market of the future.  I’m not talking about the variety of prototypes and next-generation drivetrains – that’s the auto market within the next decade.  I’m talking about some of the trends in the show that point to what the auto market will look like in 30 to 50 years.  And it will look a lot different.

While Ford’s all aluminum F-150 was definitely the talk of the show, sharing the spotlight with the new Corvette Z06, many of the other introductions and prototypes were focused on two main segments.  There were a number of introductions in the luxury (including new BMW M cars, Mercedes C Class and S-Class coupe, Cadillac ATS coupe, and a Hyundai large sedan) and sports car (the Z06 was joined by a new Porsche 911 Targa, Ford Mustang, and Kia and Toyota concepts) segments.  Other niche vehicles and concepts introduced included  the Subaru WRX STI and VW Beetle Dune.


Interestingly, the fervor for electric vehicles that was shown in 2011 and 2012, yet largely disappeared in 2013, showed a few new signs of life in 2014.  Audi showed the E-Tron shooting brake and the BMW i3 and i8 took a much more prominent place in the BMW press.  But what I thought was particularly interesting was the fact that some of the biggest highlights were vehicles in niches (granted, the F-150 and pickups in general are a large niche in America, but a niche nonetheless).

So, what does all this tell us about the auto market of the future?  To oversimplify a bit: niche vehicles will become even more critical to automakers’ future fortunes as peak cars increasingly become the norm.  Almost immediately following the NAIAS, the University of Michigan Transportation Research Institute released an update of their report, Has Motorization in the U.S. Peaked? Part 4: Households Without a Light-Duty Vehicle, which finds that the number of households in the United States that are carless has increased by 0.5% since 2007 (reaching 9.2% in 2012).  In fact, the Detroit metro area, home of the NAIAS and most U.S. automakers, has seen a 5% increase in carless households.  Additionally, J.D. Power is reporting that those 25 and younger make up 6% of the total auto market and that these consumers are more likely to “like their vehicle to stand out from the crowd,” “like to drive on challenging roadways with hills and curves,” and “take pride in ownership,” which sounds to me like a recipe for niches like luxury, sports cars, and other specialty vehicles.

So, looking ahead 30 years or so, I foresee a market where cars could be much more profitable (while less numerous) and where cars are not the primary source of transportation for commuting, but rather, something more akin to a hobby or a status symbol.


Building an Energy Efficient Detroit

— January 30, 2014

The headlines coming out of Detroit recently have largely been focused on bad news.  However, as anyone who lives here knows, Detroit and the surrounding area has a lot more of interest going on than what the headlines and images of “ruin porn” portray.

Most recently, Wayne County (the county that contains Detroit) voted to allow Property Assessed Clean Energy (PACE) financing by working with Lean & Green Michigan to administer the financing.  While PACE financing often conjures images of solar panels glistening in the California sun, in Detroit, it seems likely to be more closely associated with building remodeling and renovations.  In terms of PACE financing, Michigan’s is certainly small in comparison to the rest of the country, which was anticipated to reach $250 million in 2013.

However, the opportunity for using PACE financing to improve Detroit’s building stock is a significant one.  The city, state, and federal governments are going to great expense to clear abandoned structures in a city where the precise number of building to be razed or refurbished isn’t even known (the figure most often cited is 78,000).  A public-private partnership is doing a survey of every structure in Detroit to determine the extent of the blight.  But really, this is all just a prelude to the real work of figuring out what to do with the abandoned neighborhoods and city blocks.

Closing Down Coal

At the same time as PACE financing gains momentum in Michigan, the state is starting to push toward a future with less coal being burned.  Michigan Governor Rick Snyder has laid out goals for the state’s energy policy, including increasing renewable energy (particularly from onshore wind), reducing coal usage, and improving reliability.  While he campaigned against a failed 2012 ballot proposal that would have required 25% of electricity production in Michigan come from renewable resources in 2025, Snyder now says that the current requirement of 10% by 2015 is too easily achievable.  Of course, the first pass at the new energy policy is heavy on broad goals with little specifics to offer much guidance.  The cynical environmental watchers will also point out that a good part of the push away from coal has more to do with economics than the environment: Michigan has lots of natural gas but imports all its coal from other states.

At this point, the alignment of the goals for PACE financing and the state’s push for more environmental energy production seems likely to happen by happenstance, rather than by intent.  The timing of the PACE financing announcement, however, is fortuitous.  The city’s tools for helping with energy efficiency costs have come to an end, leaving only modest state tax rebates and utility programs.  Michigan is already gaining notice as one of the leaders for growth in renewable energy.  PACE financing can play a key role in keeping the new commercial building stock as energy efficient as possible – and perhaps even improving the distributed generation picture in Detroit.


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