Navigant Research Blog

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.


Building the Ultimate Consumerist E-Bike

— April 21, 2011

As an avid cyclist, I spend a lot of time behind the handle bars pondering important things like whether SRAM or Shimano is better, whether that guy in the Dodge sees me, and whether Tri-Berry flavored Gu is really a different flavor than Jet Blackberry Gu. The biking in the Motor City is actually pretty terrific because (and I don’t know if you’ve heard this anywhere before) people have been leaving Detroit over the last couple decades, so the traffic is light in many areas. This has given me another thing to ponder over the years – why more people don’t bike to work around here?
This morning, as I was scanning the news, I caught a fun piece that actually has some pretty interesting insight behind it. The Commute by Bike blog did an imagining of what an Oprah-sponsored and Apple-manufactured bike would be, calling it the “oBike.” I should clarify for Pike management and clients that I do not consider this site to be a source of “news” per se, but they do have interesting reviews and it’s among my RSS streams periodically it gets read among the actual news sites. Anyway, my job security aside, what was of particular interest is the concept that for a bike to become “the ultimate consumerist bike” it has to be something that generates a following, drawing in consumers by trying “not to think like a cyclist.”

This is where the electric bikes come in. Most e-bike manufacturers already recognize that those most likely to purchase and use these vehicles are not avid cyclists. They are often middle age and many are just getting into (or back into) bicycling as a form of transportation. Demographically, this makes sense as young people tend to lose interest in bikes for motorcycles or automobiles, and those who want to be considered cyclists generally steer away from e-bikes.

This has resulted in many companies offering e-bikes that have very trendy designs, e.g. purpose built e-bikes, rather than a traditional bicycle with a motor and battery attached (though there are many of those too). These purpose-built e-bikes have riding positions that are more comfortable, more upright and often allow the rider to set their foot flat on the ground while still seated. The trendy designs are even drawing in demographics who may not have been an original target. This has even captured the attention of automobile manufacturers who are increasingly showing off e-bikes and e-scooters modeled in the design of their cars or trucks. In other words, they are aiming for that “oBike” concept.

There is a second important piece of this fad puzzle: The vehicles will have to be sold, according to Commute by Bike, through Apple stores. Regardless of your opinion of Apple stores, this does raise an interesting point. In the automotive world, Tesla Motors is moving this direction by setting up their own retail dealers designed to give the feeling an Apple store.

E-bike manufacturers have been stuck in a bit of a no-man’s retail land, as e-bikes are largely ignored in local bike shops, big box stores often don’t know how to sell the vehicles, and specialty e-bike stores remain few in number. Specialty stores, like electronics giant Best Buy, may have been a good fit in the past, but as Best Buy shifts its business model there is a legitimate question as to how e-bikes might fit in the future. An e-bike manufacturer with money to burn may see success setting up its own trendy dealer network, though that is no small undertaking with a heavy cost burden.

So, what’s that mean for “ultimate consumerist e-bike” dream? Unfortunately, I don’t think it will exist near term. While the e-bike designs may point to a stylish vehicle that could pique the interest of non-cyclists, the U.S. market for e-bikes seems likely to remain comparatively small and companies will continue to struggle to figure out the retail channel for several more years.


Fuel Cell Myth #2: There is Not Enough Platinum in the World to Roll Out a Global Fuel Cell LDV Fleet

— March 16, 2011

Low temperature fuel cells use platinum as a catalyst. PEM (low temperature and high temperature), DMFC, PAFC and, in some cases, the anode on AFCs use platinum. Platinum is used due to the very slow dissociation in the chemical conditions found in a fuel cell. In other words it is linked to durability. If you were to strip out all of the platinum from a fuel cell the durability would tank. One of the most enduring myths in the industry is that there is not enough platinum in the world to sustain the full roll out of a fuel cell LDV global fleet. Never mind rolling out a sustainable fuel cell industry! Although a blog is certainly not enough space to go into this at length, it is certainly capable of a romp through the issues.

#1: Platinum Availability

Increasing interest is coming to bear on the risks in the cleantech industry. Materials risk, security risk, and metals risk are just some. For fuel cell technology the risk is the availability of the key materials and metals, shown in the table below.

As an aside the focus, and increasing concern, over REMs for SOFCs has only recently become apparent. REMs including Yttria (yttrium oxide), lanthanum, and ceria (cerium oxide) which are critical to the ceramic cells that are at the core of every SOFC. With China’s recent decision to enforce strict new quotas on REM exports, supply for new technologies, such as SOFCs, could be restricted to ensure continued supply for other commercially available applications. For more information on REMs and Cleantech please refer to the Pike Research report “Analyzing REM Demand and Risk from the Global Cleantech Industry: 2011-2017,” which my colleague Euan is publishing this quarter.

With the majority of Platinum located in just one country, South Africa, the focus is clearly on how much there is in the ground and how much of that can economically (and safely) be mined. According to a recent paper published in the journal Platinum Metals Review by Prof. Grant Cawthorn, a lot of the debate on how much metals there is in the ground is based in fact on the strict definitions that the mining companies are allowed to publish as “Reserves” and “Resources” and not on any geological measurement of the potential precious group metals (PGMs) that exist in South Africa.

The definitions provided in the paper are:

“A mineral ‘reserve’ is an ore body for which adequate information exists to permit confident extraction. Briefly, it requires that all aspects including adequately spaced drilling, assaying, mineralogical and metallurgical studies, mine planning, beneficiation, environmental, social and legislative issues, and financial viability have been addressed. Mining companies would typically plan their exploration and evaluation strategies such that they had a minimum of ten years of ore in this category. “

“A mineral ‘resource’ is an ore body for which there are reasonable and realistic prospects for eventual extraction. Addressing of all the issues listed under ‘reserve’ would have been initiated and all such results would be positive. Mining companies might aim to have a further ten years of ore in this category.”

So realistically, these combined provide a maximum of a 20 year window of information. Taken into account these clear boundaries on definition the big four mining companies (Anglo Platinum, Implats, Lonmin, and Northam Platinum) have published an estimate of at least 1200 million ounces of platinum group elements of which more than 50% is platinum. So conservatively some 600 million ounces of platinum could be recovered within the next 20 years. This, of course, assumes no major disruption to the mining industry in South Africa from issues such as rolling blackouts.

Of the recovered metal a number of industries, especially car catalysts, already claim demands on the metal so how much is available for the fuel cell industry? Actually speaking to some of the mining companies the answer that comes back tends to be along the lines of, “How much do you need so we can dig it out of the ground?” Granted, this is very simplistic paraphrasing of the discussion but in essence it is that there is enough spare capacity to fulfil demand. But with the long time frames needed to open up new shafts the critical part of this equation is working out how much the fuel cell industry will need.

#2: Platinum Loadings in the Fuel Cell Industry

We all know platinum loadings were very high and have come down significantly since 2006. The U.S. Department of Energy (DOE) have kindly published the graph, reproduced below, showing just how much they have come down. Don’t forget that the 2015 target is to reduce the platinum content even further down to 0.2 g/kW without a degradation in stack performance.

Outside of the automotive fuel cell industry platinum loadings are not information for public consumption so although it would be interesting to the show the graph of loadings for say PEM UPS units this is not possible. So let’s just stick with the automotive stacks.

Assuming that in 2015 we have a 0.2 g/kW stack, with according to a number of companies plenty of wiggle room left to reduce this still further, and we have, say for arguments sake, 50,000 FCVs with 80 kW stacks then the platinum demand will be 800 kilograms of platinum. Not exactly going to break the industry is it!

But this is the point at which a number of the calculations go wrong. The first is that they assume no further decreases in platinum thrifting, or removing of platinum in the fuel cell. The second, and just as important, is that they assume no platinum recycling. As platinum does not disassociate with use it can removed from the stack at the end of the stack life and be used. DOE targets for platinum recycling are some 98% of reusable material. So for every kilogram in they are working towards being able to remove and reuse 980 grams. Finally, they often do not assume and spare capacity in the mines and use the definitions or reserve and resource to mean to the total amount of Platinum in the ground, and not as shown above, that which could be mined in the next 20 years.

#3: How Much Platinum Will be Needed by the Fuel Cell Industry?

This is the million dollar question and, sorry for this, I am going to have to refer you to the forthcoming “Analyzing PGM Demand and Risk from the Global Fuel Cell Industry 2010-2017” which we will publish in the second quarter of this year. Interesting area and it will be interesting reading.


How Will Affordable Hydrogen Fueling Evolve for Fuel Cell Cars?

— March 3, 2011

My previous blog post talked about vehicle side of the clichéd “chicken and egg” conundrum. This post covers the infrastructure side and again pivots off a presentation from the Fuel Cell and Hydrogen Energy 2011 conference. In the last day’s keynote session, Markus Bachmeier of The Linde Group provided a breakdown of potential cost reductions for hydrogen fueling following two pathways; one of low throughput stations and the other of high throughput stations. As one of the world’s leading industrial gas companies, Linde has a clear interest in use of hydrogen as a fuel. Over the past few years, Linde and other industrial gas companies such as Air Liquide, Air Products, and Praxair have taken an increasingly center stage role as the conventional energy companies have lost interest in hydrogen fueling in the United States and, to a lesser degree, elsewhere. (This is in contradiction to the conspiracy theory in Who Killed the Electric Car? suggesting that fuel cell vehicles are a plot by the oil companies to maintain control of auto fueling.) As with the automotive supply chain costs, the big factor for hydrogen fueling costs is volume, according to Linde. In a March 2010 presentation, Linde showed that a massive drop-off in cost per kilogram occurs when station usage reaches 100 cars per day. Customers will likely buy three to five kilograms a fill-up (typical tank size is five to six kilograms), so this translates into 300 to 500 kilograms of hydrogen per day.

In his more recent speech, Bachmeier analyzed the potential cost of hydrogen from a very high throughput station, able to provide 100 kilograms per hour, against a station that produces only 50 kilograms per day. His conclusion was that it is too expensive for a small station to produce hydrogen, while the high throughput station can produce hydrogen affordably at a 200 car per day volume.

Two big questions came to me from this presentation. First, how will stations survive in the long ramp up to the high throughput volumes? My recent analysis of the LDV market suggests these volumes could occur in 2013-2014, but only in a few select markets where there is industry/government investment in anticipatory station build-out. Second, will small, flexible hydrogen producers such as ITM Power or H2Logic offer disruptive business models or technologies to change the cost equation? This is one trend cited in Pike’s recent white paper on 2011 fuel cell trends.

I am exploring these questions now as I develop Pike’s new report on the hydrogen infrastructure. Your thoughts on this are welcome as I work through the analysis.


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