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.

 

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.

 

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.

 

Cruze Could Boost Natural Gas Vehicle Market

— September 6, 2013

IMPCO has announced a compressed natural gas (CNG) conversion for the 1.4L turbo Chevrolet Cruze.  The conversion is the first bi-fuel system approved by the U.S. Environmental Protection Agency (EPA) for a 2014 model year sedan (the Honda Civic GX is a dedicated CNG-only system).  IMPCO’s new conversion adds a CNG tank to the trunk, giving the Cruze 200 miles of CNG range while cutting cargo capacity in half.  The cargo space, though, is slightly larger than the CNG Civic trunk size (7 SF for the Cruze vs. 6.1 SF for the Civic).  Both the Cruze and Civic utilize Type 3 cylinders, which may even be supplied by the same cylinder manufacturer (Structural Composites supplies cylinders for the GM truck conversions by IMPCO, as well as the Honda Civics).

So, is this announcement an omen of the so far elusive tipping point for the CNG consumer market?  The challenges facing CNG vehicles in the consumer market are certainly numerous.  A lack of convenient CNG refueling stations is probably the number one challenge, followed closely by the lack of passenger car availability and higher upfront costs.  The Cruze actually will address the first two issues, as the bi-fuel vehicle retains its ability to run on gasoline, which means the vehicle won’t leave owners stranded (though I may be stretching there).  Still, to more directly address the lack of CNG refueling, IMPCO’s parent company, Fuel System Solutions, does offer home refueling appliances.

No Groundswell

Prices have not been announced, but it seems unlikely that a CNG Cruze will lead to a large swell of consumer demand.  Beyond the loss of cargo space, the bi-fuel system seems likely to add between $5,000 and $6,500 to the cost of the Cruze, and the vehicles won’t be sitting on dealer lots with discounts written in soap on the windshield.  The caveat to this is that if IMPCO proves successful with the Cruze, competitors such as Altech-Eco, Westport, and Venchurs could be persuaded to develop conversions for Ford’s popular sedans.  This prospect is not so farfetched now that Ford is offering CNG prep packages for both its 3.7L V6 F-150 pickup and 2.0L 4 cylinder Transit Connect.

Regardless of whether the new CNG Cruze powers a market turnaround, it definitely points to the movement of CNG into smaller engines as the market inches toward more consumer-friendly vehicles.

Annual Sales of Honda Civic, Chevrolet Cruze, and Natural Gas LDVs, United States: 2009-2012

 

(Sources: Navigant Research, Automotive News)

 

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