Navigant Research Blog

With Regulations Looming, Shipping Industry Weighs Biofuels Options

— April 9, 2012

While aviation biofuels have become a hot topic in the advanced biofuels industry, old-fashioned emissions regulations and escalating diesel costs are making marine shipping’s dependence on bunker fuel seem outdated.  If aviation is the hare, than marine shipping may very well be the tortoise that could emerge the winner in integrating renewable fuels in this decade.

Aside from enjoying an easier path to broader market integration, marine shipping is faced with one very large incentive driving demand for alternative fuels: MARPOL.  Originally signed in 1973, MARPOL (short for “marine pollution”) is an international convention creating a verifiable, enforceable regime to prevent pollution discharges from ships.  It has been one of the key drivers of sustainability in the marine shipping industry.

Among other things, MARPOL sets limits on nitrogen oxide (NOx) and sulphur dioxide (Sox) emissions from ship exhausts as well as particulate matter, and prohibits deliberate emissions of ozone depleting substances.  Emission Control Areas (ECA) – coastal areas, regulated by national governments, have more stringent requirements.  In 2011, the International Maritime Organization (IMO), the UN agency that regulates the shipping agency, adopted mandatory measures to reduce emissions of greenhouse gases (GHGs) from international shipping, including new requirements on energy efficiency for ships.

Shippers’ Options

According to industry representatives speaking at World Biofuels Markets held in Rotterdam, Netherlands in March, the new regulations dictate that by 2015, vessels must reduce their sulphur footprint in certain ECAs, including North America.  The impact of these restrictions will be to spur the adoption of biofuels such as lignin, algae, and biomethane based fuels, as shipping lines will not be able to route vessels away from key markets to avoid regulation.

Shipping lines have three options: 1) manage fuel use by switching among options to burn the “right” fuel in the “right” place; 2) incorporate scrubbers to clean SOx and NOx from the exhaust; or 3) switch to alternative fuels such as biofuels and liquefied natural gas (LNG).

To the first and last points, biodiesel is an especially good candidate for replacing shipping fuel since it is biodegradable, non-toxic, and essentially free of sulphur and aromatics.  It can also be dropped into the existing fuel supply chain with little or no need for engine modification and its biodegradability reduces the risk of marine pollution in case of spills.

Two key developments demonstrate that a shift is already underway:

  • Maersk Line, one of the world’s largest shipping companies, is testing algae-based biofuels in anticipation of 10 percent of the world’s shipping fleets utilizing biofuels by 2030.
  • Solazyme currently has a contract to supply 450,000 gallons of algal biofuels for U.S. Navy testing ahead of its plan to deploy its “Great Green Fleet” by 2016.

As discussed in Pike Research’s upcoming biogas industry report, biomethane – upgraded biogas that can be mixed with natural gas – is also attracting interest in the maritime industry and driving investment in liquefied natural gas (LNG) infrastructure at ports.

As I noted in a recent post, with access to concentrated demand centers and no viable alternative to liquid fuels, the aviation industry is gaining traction as a potential near term “win” for biofuels.

Even so, targeting biofuels and bioLNG in maritime shipping could prove to be a much easier path for biofuel and biogas producers.  While supplanting fossil fuel dependence for commercial and military aviation has obvious benefits, the hurdles are generally more onerous given the scale of risk involved.  Engine failure caused by a bad batch of biofuels, for example, would have more dire consequences for the passengers on board a plane than a cruise ship.

Compared to ground and aviation transport sectors, the international maritime shipping industry, which carries 90 percent of world trade, has been a laggard in improving its sustainability profile.  Increased utilization of biofuels will go a long way to enabling the industry and its supply chains to become increasingly carbon neutral.


REEVs and PHEVs: A Distinction, or a Difference?

— October 17, 2011

Recently, at the EV 2011 VE conference in Toronto, I had the opportunity to drive the new plug-in Toyota Prius and the Chevrolet Volt back to back.  The differences in the electric-drive behavior of the two vehicles have the potential to catch people off guard as they weigh their EV choices.

GM is promoting the Volt as an electric car with a range-extending gasoline motor (REEV).  The car will deplete the battery to a certain threshold, then turn on the internal combustion engine (ICE) to recharge the battery and power the wheels.  During this charge depletion period, the driver can drive in any way she wants – jackrabbit starts, freeway speeds, a/c blasting – and the ICE won’t start until the battery hits a certain point.  If you do drive the vehicle like a teenager on her first drive without Mom or Dad, you won’t reach 40 miles.  You may not even get 20 miles, but the ICE won’t start until the batteries hit that charge depletion threshold.

With the Prius, it’s a slightly different story.  Toyota is promoting the plug-in Prius as a plug-in hybrid (presumably as opposed to an REEV).  The vehicle has an EV mode that favors the electric motor, but it also has a top speed of 62 miles per hour.  I say “favors the electric motor” because during a merge onto the freeway with a full battery charge, for example, you’ll hear the ICE start when your speed climbs to 63+ mph.  Even in the city, as I drove a Prius claiming 8 miles of EV range remaining (out of 15 miles total), when I tromped on the accelerator to get the vehicle to the 40 mph speed limit as fast as possible, the ICE kicked on to assist with acceleration and then promptly shut off again as I backed off.  I was definitely not driving like a typical EV or hybrid driver (more like that foolish teenager) – yet during my short test drive, the ICE ran for less than a minute. 

A few days later I attended a presentation by Chrysler on its Ram PHEV trucks.  Company officials referred to these vehicles as “Blended PHEVs.”  Blended PHEVs appear to be similar to the PHEV drivetrain of the Prius.  Unfortunately, I was not given the opportunity to drive the Ram PHEV to find out for myself. 

I suspect that there will be a lot of mainstream car buyers surprised by the fact that the Volt and Prius plug-in do not behave the exact same way when in EV mode.  And while I don’t hear the complaints about GM’s marketing the Volt as a range extended electric car nearly as often as I did earlier this year, I doubt this comparison would quell that anyway.  Ultimately, I doubt the plug-in Prius PHEV characteristics will turn off most drivers who are unlikely to use gas for 15 miles when driving the vehicle “properly.”  In fact, I’m more inclined to think the price and the huge number of current Prius owners will tip the scales towards Prius’ success.

However, the Volt and Prius clearly demonstrate that the contrast between an “REEV” and a “PHEV” is a bit more than a semantic difference, despite the similar basic architecture.  Whether the distinction between PHEVs and blended PHEVs is significant (I assume a Volt would be considered a PHEV and the Prius and Ram blended PHEVs) … well, that I’ll leave to the marketers to try and sort out.  I’ve said it before, and I’ll say it again: Watch out for customer confusion ahead.


Redesigning the Internal Combustion Engine

— September 28, 2011

Much of what you hear from Pike Research is focused on alternatives to the gasoline-fueled internal combustion engine (ICE).  Yet, as we often point out, gas-fueled ICE vehicles will remain the dominant vehicle through this decade and likely well into the next.  With hybrids and turbochargers, the efficiency of ICE vehicles will increase significantly.  However, the basic design of four-stroke engines with pistons pushing on a camshaft and valves for exhaust and air has remained relatively unchanged for decades.  I’m not saying this to shortchange the engineering work that has gone into improving these engines – that has been substantial – but the basic architecture is the same. 

Now, a couple of start-up companies are looking to change the design of motors in interesting ways.  Scuderi Group has designed what they call a split cycle engine.  In this design, the compression stroke and the power stroke are separated. Once these strokes are separated, the compression cylinder can be reduced in size which improves compression efficiency.  The air crossover tube provides air to the power cylinder.  The power cylinder sees greatly reduced temperatures post combustion which reduces nitrogen oxide (NOx) emissions in comparison to typical four-stroke engines.  The result is a four cylinder engine with two power cylinders and two smaller compression cylinders.

To improve efficiency, the Scuderi engine can still take advantage of a turbocharger.  But Scuderi claims that to truly improve efficiency, they can add a high pressure air tank between the compression and power cylinders (something they refer to as an “air hybrid”).  This air tank permits the engine to shut off the compression cylinders and use air from the tank to provide air to the combustion chamber.  It also allows the engine to shut off the fuel supply during idling or braking and use compressed air from the tank for the power stroke.  This turbocharged, air hybrid Scuderi engine has been tested to produce 65 mpg with 85g/km of CO2 emissions in a European high economy class vehicle, a 25% improvement in comparison to the average of 52 mpg and 104g/km of CO2 in this class.

Another design from EcoMotors transforms the engine to have two opposing cylinders with opposing pistons.  So, the pistons are essentially pushing against each other during compression.  The engine is still a four-stroke engine, but thanks to the moving pistons on each side of the cylinder, valves are no longer necessary, simplifying design of the engine.  EcoMotors claims up to 50% increase in fuel efficiency with their motors, with 50% fewer parts.  They have partnered with a Chinese firm, Zhongding Holding (Group) Company, Ltd., to manufacture and commercialize the engine.

When will we see these technologies in passenger cars on American roads?  With the high fuel economy rules coming, I would not bet against some special applications of these technologies.  However, car companies spend hundreds of millions of dollars to develop and test new engines over many years.  Even if one signed up today, I wouldn’t expect to see it in a vehicle prior to 2017 model year.  And other designs are competing for the R&D dollars in automotive firms, including rotary and turbine engines.

In my conversation with Sal Scuderi, he pointed out that of the 170 million engines sold per year, only 60 million of these are used in automotive applications.  The rest are power generation or other stationary applications.  Both Scuderi Group and EcoMotors are targeting this stationary market.  I believe this is logical first step since the safety and durability issues are more easily controlled in stationary applications.  New engine designs are more likely to be accepted in these markets.  But if the new designs prove as reliable, efficient, and cost effective as claimed in stationary applications (or in emerging automotive markets like China or smaller vehicles like scooters), expect to see movement towards non-typical designs in the automotive market, as well.


NGV Sales in a Post-Incentive America

— September 14, 2011

In the last few days I’ve been answering a lot of questions about natural gas vehicle (NGV) sales. Recent announcements about new NGVs and new fueling stations have drawn the attention of the media, and questions have naturally arisen as to how big the market will be.

In late 2010, I forecast that the NGV market in the United States would grow by 25% annually. I listed several prerequisites that would have to happen to achieve that rate, including the passage of some version of the New Alternative Transportation to Give Americans Solutions (NATGAS) Act, a.k.a. the Pickens Plan. Back in Dec. 2010 (which now seems like the Pleistocene Epoch, in legislative terms), there were actually three versions of the NATGAS Act in the House and Senate, with many bipartisan cosponsors, and passage of some form of the bill seemed more likely than not. However, with the arrival of the new congress and the new budget showdown this summer, only one bill now exists (H.R. 1380), with many co-sponsors jumping off and piling on the bill over the summer.

There were two key features to these proposed NATGAS Acts that would help the NGV market grow, both of which are in H.R. 1380:

  1. A vehicle purchase tax incentive to help reduce the incremental cost of the vehicles and make bi-fuel vehicles eligible
  2. A fuel tax incentive that lowers the cost of fuel by 50 cents per gasoline gallon equivalent

There are other incentives in the NATGAS Act for new refueling stations, but they’re not large enough to have a significant impact on the market. All federal purchase incentives for vehicles and new stations expired at the end of 2010, and while the fuel-tax incentive was extended through 2011, the market has largely been sustained without incentives.

All of this raises the question of how important these incentives are to the market. If the NATGAS Act is really lost in the shuffle, as it appears to be, should I be diligently working to refresh the forecasts without taking into consideration these incentives? The short answer is after reviewing the forecasts, I think they still stand. There are several reasons for this.

First, let me be clear on this: there are still government incentives for purchasing NGVs. Many states offer incentives (California’s are particularly strong). There are regulatory incentives with fleets being forced to move to lower-carbon alternative fuels. And there are incentives for OEMs to build NGVs to meet the corporate average fuel economy (CAFE) in light-duty vehicles and the new heavy-duty truck fuel economy rules.

Second, the higher petroleum costs in comparison to natural gas costs are a significant incentive themselves. According to the Clean Cities Alternative Fuel Price Report in July, the retail cost of diesel is $3.95/gallon and gasoline is $3.68/gallon, compared to $2.07/gge for CNG. In commercial trucks, where vehicles are more widely available and are higher users of fuel, the $1.88 difference is a substantial incentive.

If the NATGAS bill is passed, passenger cars could see their cost recovery falling from 8.8 years to 1.9 years (in this example). Without the NATGAS purchase incentives, the passenger car market sees less of an incentive because the fuel efficiency of passenger cars helps make gasoline a more efficient fuel. As a result, the main “incentive” – fuel costs – carries less weight. If that same passenger vehicle traveled 36,000 miles per year, the cost recovery over an equivalent gasoline vehicle would be 3.4 years.

The growth of passenger cars that utilize CNG will still be stunted due to a lack of CNG refueling stations and the push by automakers and policy makers towards hybrids and electrics. Even when the incentives were in place, the passenger car market was relegated to high-mileage vehicles like taxis and limos that could often use a few central refueling points. That situation has gotten a little better in areas awash in natural gas (Texas, California, New York, Utah, parts of the Midwest) but largely remains unchanged.

At the end of the day, I believe our forecasts hold steady for the moment. Assuming petroleum fuel costs continue to rise (a safe assumption despite what political candidates may claim), then the financial benefit of NGVs for truck fleets will continue. Passenger cars, which have never been a large part of the market, will continue to see benefit in fleets but will remain a niche product in the consumer market.


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