Navigant Research Blog

Waiting for the Methane Hydrates Boom

— November 20, 2013

Even as the heralded natural gas energy revolution is still gearing up, the natural gas vehicle industry may be looking ahead to the next revolution.  While shale gas is having a significant impact on U.S. energy economics, some in the natural gas truck and bus industry are already eyeing the potential that methane hydrates could secure natural gas as the energy source for transportation in the 21st century.

During the research for my upcoming report, Natural Gas Trucks and Buses, methane hydrates came up twice in conversations, which made me curious as to how real this prospect is.  Methane hydrate (also known as methane calthrate) is methane trapped inside a water molecule, so that the molecule is flammable.  Estimates for the quantity of methane available in methane hydrates vary widely, from 100,000 trillion cubic feet (tcf) to 100 million tcf of methane.  Worldwide methane consumption was 113 tcf in 2010, according to the U.S. Energy Information Administration.  As my colleague Sam Jaffe wrote in a recent blog, though, the methane hydrates revolution is far from a certainty due to environmental and economic concerns, as well as a lack of mining infrastructure.

The Next Revolution?

The Canadians, rich in shale gas, ended their research into methane hydrates this year, which makes the Japanese the leader in R&D on mining technologies.  In March of this year, Japan produced 120,000 cubic meters of gas from methane hydrates in a 6-day offshore test.  On October 31, the Japanese officially requested that the U.S. collaborate on developing mining technologies, with a target of production beginning in 2018 or 2019.

In terms of politics and energy consumption, 2018 seems like a long way off.  But natural gas power plants can take up to 3 years from design, approval, and construction to operation, and most vehicle manufacturers are already planning or actively working on 2017 model year vehicles.  That’s why methane hydrates are coming up in conversations now.

What isn’t clear is whether the research into methane hydrates mining can get political support before the shale gas revolution has run its course or before biomethane and coal seam gas become economically competitive.  Clearly, in Canada, the answer is no.  Now that methane hydrates are known to exist and have been proven technically minable, countries with the means and needs for new energy sources (Japan, Germany, South Korea, and perhaps even China) are likely to push ahead to improve the economics of this potential new revolution.  If methane hydrates can be recovered in an environmentally sustainable and economically viable way, they are unlikely to remain underwater for long.


Dimethyl Ether: The Next Big Truck Fuel?

— October 29, 2013

I recently heard Roy Horton, alternative fuel and driveline marketing product manager for Mack Trucks, discussing the alternative fuel plans for Mack, and something new came up: dimethyl ether (DME).  DME is a gas made from natural gas, coal, or biomass, converted under modest pressure (about 5 bar, or 75 psi) into a liquid.  DME has been around for several years, often used to mix with liquid petroleum gas (LPG) to reduce LPG supply deficiencies in many Asian markets.  DuPont Fluorochemicals markets DME under the product name “Dymel A” as a propellant for aerosols.

DME is attractive for a few reasons: it’s easy to handle with low pressure tanks (75 psi vs. 3,600 psi for compressed natural gas, or CNG); it produces no particulate matter (but does produce carbon monoxide and nitrogen oxide); it can be produced from multiple feedstocks; it is non-toxic and non-carcinogenic if ingested; and it has a cetane rating of about 60.  The higher the level of cetane, a hydrocarbon, the lower the temperature at which the fuel auto-ignites and the quicker it vaporizes.  Lower cetane numbers mean slower ignition in the cylinder.   Slower ignition produces more particulate matter and reduces the fuel economy.  DME’s high cetane number means that, like diesel, the fuel can be used with direct injection and auto-ignite.  Diesel has a cetane number of between 45 and 55, depending on its grade (biodiesel has a cetane number of about 55).

The Infrastructure Question

Volvo, which owns Mack Trucks, became interested in DME after a review of seven different carbon-neutral fuels in Sweden in 2007, in which DME led the pack.  Volvo began customer testing of bio-stock-produced, DME-fueled trucks in 2010 in Europe, which ultimately led to the announcement this year of retail sales of MY 2015 Volvo and Mack trucks running on DME.  In conversations, rival large truck companies, such as PACCAR and Daimler Trucks, have mentioned that they are also watching DME developments; whether that means a truck brought to market could largely depend on infrastructure.

Similar to other alternative fuels, infrastructure for DME remains a key issue yet to be worked out.  Oberon Fuels in California is the first to produce DME as a vehicle fuel in the United States, using natural gas from the gas grid.  The price for DME as a truck fuel remains high, roughly comparable to diesel.  The high cost comes, in part, because production for vehicles, distribution, and retail operations is still in the early stages.

Cost, Cost, Cost

So, are fleet managers willing to pay extra for a renewable fuel that has a significantly better environmental position?  I’m skeptical because DME will compete with CNG and LNG for alternative fuel budgets in heavy duty trucks, where ultimately cost trumps everything else.  In the near term, the incremental cost for DME trucks is not likely to be recovered by the cost of fuel since DME is similarly priced to diesel.  Since CNG and LNG are both positioned as environmental fuels with fast payback on the investment, DME will be at an economic disadvantage (and that position has not worked out for hybrids in the heavy duty market).  Whether DME can gain ground as a truck fuel in the long term will ultimately depend on improving the economics of the fuel and the trucks, and how good Volvo is at convincing its competitors to jump into the market.


Natural Gas Vehicles Dampen Hybrid Truck Market

— October 8, 2013

The market for natural gas powered trucks is growing rapidly, and hardly a day that goes by without another story about natural gas vehicles of some type.  For several years, the interest in natural gas fueled medium and heavy duty (MD/HD) trucks was thought to come at the expense of diesel as opposed to competitive green drivetrains.  Last week, though, Andrew Douglas, national sales manager of Kenworth Trucks, told an audience at the Green Fleet Conference that Kenworth was finding that sales are “very small” for hybrid trucks as natural gas continues to grow rapidly.  Kris Hus, powertrain product strategy manager of Freightliner, confirmed that his company is seeing the same thing.

The implication is that natural gas is displacing demand for hybrids.  The current stock of hybrids are almost all parallel hybrids – in other words, the electric drive is connected to the driveline in parallel to the internal combustion engine (ICE).  However, series hybrids, with the ICE and electric motor decoupled, may provide greater improvement in fuel economy.  Hino representatives indicated in informal conversations that they are pleased with the growth in sales of their hybrid, which features a parallel hybrid system.  Still, it is telling to that the Cummins Westport joint venture, which manufactures most of the natural gas engines in the MD/HD original equipment manufacturer market, reports increasing sales (Q2 revenue up 12% from 2012), while the truck market overall is down 4% from 2012 according to Ward’s Auto.

Prolonged Payback

A look at cost data would seemingly confirm the challenge facing hybrid trucks from compressed natural gas (CNG).  Without considering maintenance savings, the cost recovery for hybrids stretches well past the 2 to 4 years that fleet managers often look for in new technology, while both CNG and propane can remain in the desired timeframe.

Average Truck Cost Comparisons, United States: 2013

CNG table - blog

(Sources: Navigant Research, Alternative Fuel Data Center)

*Private station prices according to the Alternative Fuel Data Center, July 2013

If fleets are shifting from diesel to CNG in greater numbers and CNG is absorbing the green truck budget from fleets in greater numbers, what does that mean for the hybrid truck makers?  That’s an issue likely to be on the minds of those attending the Hybrid Truck Users Forum (HTUF), which convenes next week in Chicago.  The Forum has sessions that are dedicated to national hybrid truck incentive programs, deployment of high efficiency technologies, and EPA 2014 greenhouse gas compliance issues for hybrids.  These sessions will likely help the industry chart a course for increased adoption.

One of the later sessions of the forum looks at how natural gas can serve as a range extender for HD applications.  CNG is proving to have a significant impact on discussions of the future of the truck market, and while in the past I’ve been skeptical that CNG is pushing other options out, it now appears that hybrids may not offer a fast enough payback to avoid being overshadowed by CNG or plug-in trucks.


Alternative Drivetrains Poised for More Growth with Fleets

— September 26, 2013

Light_Ladder_webThe trucking and fleet vehicle industry is facing some enormous challenges but is seeing strong growth this year.  The long-haul trucking industry is facing a well-publicized driver shortage, and all trucks are seeing increasingly strict regulations for emissions, fuel economy, and driver safety.  With the continued slow rebound of manufacturing, automobile sales, and construction, the fleet industry is also starting to feel a bit more comfortable.  Since gasoline and diesel prices are relatively stagnant and economic prospects are improving, is it possible that the momentum felt in the alternative fuel vehicle market for fleets is likely too slow?

The answer to that question is likely to be different for the different types of drivetrains.  There is a tremendous amount of excitement and growth in the natural gas vehicle market, and that momentum continues to be built on a strong economic foundation.  Both the compressed natural gas (CNG) and propane truck markets are generating payback periods that can be as short as about 1.5 years in high fuel use applications.  These short paybacks encourage adoption and can help quickly cover infrastructure as well.  The smaller vehicles that have higher fuel economy see longer paybacks and rely more heavily on government or company efforts to reduce environmental impact – a more tenuous position as the economy rebounds – but fleet budgets remain tight.

Liquefied natural gas (LNG) trucks are more economically challenging.  This is not only a refueling infrastructure challenge.  The trucks also have longer payback periods than CNG trucks with more variance in LNG prices in different parts of the country.  LNG trucks are increasingly likely to feel competitive pressure for fleet dollars coming from CNG rather than diesel (though that is not to understate the competition from diesel).  From a logistic perspective, because of new truck driver “hours of servicerules, it may be that long-haul LNG trucks that have a driving range of 980 miles are not likely to be used significantly different than a CNG truck that gets 870 miles of range.  Trucks are likely to only be used for about 500 to 550 miles before switching drivers, so even with two drivers LNG and CNG long-distance trucks are likely to see similar distances before refueling is required (or at least accessible).

Electric vehicles in fleet markets remain heavily contingent on gasoline and diesel prices.  The cost of operation for a plug-in electric vehicle (PEV) is significantly lower than that of liquid or gaseous fuels, but the acquisition costs remain significant and, therefore, payback periods can be long depending on the drive cycle and the cost of fuel.  The passenger car PEV market is seeing falling prices, but the medium and heavy duty truck market continues to see high costs and low production numbers.  The result is that fleets are likely to have a tough time making a strong case for moving to truck PEVs with long payback periods.  However, PEV passenger cars can be economically beneficial for fleets without easy (or inexpensive) access to CNG or propane, as the cost to install recharging infrastructure remains below refueling infrastructure costs of either fuel.

Overall, the alternative drivetrain market is finding fuels that fit specific niches without significant overlap except in a few specific cases.  It is with this perspective that fleets and manufacturers will gather in Phoenix, Arizona for the Green Fleet Conference.  It will be interesting to see whether current and anticipated gasoline and diesel prices, driver regulations, and potential labor shortages cast a pall over the euphoria.


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