Navigant Research Blog

For Trucks, LNG versus CNG Debate Rages On

Dave Hurst — 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.

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