Oliver Dixon looks at the disparate strands that currently populate the natural gas debate, and asks whether attempts to introduce NG in Europe and North America will be welcomed by the heavy duty trucking industry
The idea that natural gas might offer an alternative to both diesel and gasoline is not a new one, nor is any debate around the issue. But over the past few months, the conversation both within Europe and North America concerning the viability of natural gas has intensified.
It is, it must be said, a broad discussion, populated by numerous voices which takes into account geopolitical, economical, national interest and environmental considerations and has joined energy suppliers, equipment manufacturers, and consumers, with an unsurprisingly discordant result.
The case for diesel…
There’s a good reason why diesel powers the vast majority of the global heavy duty truck fleet. It is an extremely dense power source, and an engine thus powered develops maximum torque at a far lower engine speed than a gasoline engine. For HD trucks, designed to move heavy loads, this is clearly an attractive quality, so the adoption of diesel as the fuel of choice for the global heavy duty fleet is not a surprising one. And, were everything else to remain equal, there is little reason to regard diesel as anything other than the most appropriate fuel for the bulk of heavy duty applications.
But everything else isn’t equal. The price of diesel has risen markedly in both North America and Europe over the past decade. Trucking company operating margins have gone in the opposite direction, and the trading environment is as tight as it has ever been. With fuel representing the single largest input cost of the majority of trucking operations based either in Europe or North America, any means of reducing this cost is likely to be given considerable attention.
While considerations of cost are clearly the key operational driver towards a possible wider spread adoption of natural gas as a fuel for the HD segment, other issues are now presenting themselves as significant contributors to the debate.
…faces a convincing case for NG
Corporate social responsibility (CSR) and sustainability covers much ground. While it is clearly foolish to regard transportation – or for that matter any economic function – as impact-neutral upon the environment, in the battle for public perception, environmental awareness is seen entirely reasonably as a plus. There is nothing new here. However, for the big shippers, this CSR-sympathetic approach is now being demanded of suppliers too. If natural gas is seen as a positive in terms of CSR image, then so it should benefit from a significant tailwind.
The notion of energy security has long been a key consideration: the oil shock of 1973 demonstrated just how crucial an uninterrupted energy supply was to a modern hydrocarbon-based economy. The International Energy Agency (IEA) mandates that each member hold oil stocks equivalent to at least 90 days of net imports and maintain emergency measures for responding collectively to disruptions in oil supply of a magnitude likely to cause economic harm to its members.
The US is becoming sufficient in NG
But discussions surrounding energy security in the US have taken a slightly different turn. In 2005, the US imported 12.5 million barrels of oil per day. It was more or less completely dependent upon oil sourced from regions that, by any reasonable geopolitical measure, could not be seen as reliable.
By 2014, according to IEA figures, the US will import just six million barrels a day. This significant reduction is in part a function of reduced usage, but also a result of the increase in domestic production of crude oil. However, six million barrels per day is still significant, and, despite the rather excited news flow to the contrary, the US is unlikely to achieve oil independence any time soon. Charles K. Ebinger and Kevin Massy of the Brooking Institute echoed such sentiments in a recent memo to President Obama:
“The oil and gas boom has had many commentators breathlessly heralding an era of US energy independence. This is unlikely to materialize either practically or economically. Under even the most optimistic scenarios for domestic hydrocarbon production, the United States will continue to import millions of barrels of crude oil per day for the foreseeable future, albeit increasingly from our own hemisphere rather than the Middle East. And as long as the United States is connected to the global trading system, it will be subject to supply and demand shocks beyond its borders, meaning that price disruptions anywhere in the world will be passed on to U.S. consumers.”
According to a recent Deloitte survey which polled 250 oil and gas executives, 75% believe the US already is natural gas sufficient or will be within ten years. The US Energy Information Administration (EIA) figures lend credibility to this survey: of the natural gas consumed in the United States in 2011, some 95% was sourced domestically.
The EIA’s Annual Energy Outlook 2013 Early Release projects US natural gas production to increase from 23 trillion cubic feet in 2011 to 33.1 trillion cubic feet in 2040, a 44% increase. Almost all of this increase in domestic natural gas production is due to projected growth in shale gas production, which will grow from 7.8 trillion cubic feet in 2011 to 16.7 trillion cubic feet in 2040. Granted, natural gas adoption rates are miniscule at present within the US vehicle fleet, but that aside, there is clearly some headroom for wider spread adoption without supply constraint. Against this, we have to set the twin issues of the true size of the shale reserve and the well-documented concerns surrounding the environmental sustainability of its recovery.
But let’s assume that the supply of natural gas within North America is both viable and environmentally sustainable. If this proves to be the case, then two of the three primary drivers towards adoption are clearly in place. Self-sufficiency of supply equates to energy independence, while the cleaner burning, CO2-friendly nature of natural gas plays well to the audience in terms of environment and CSR. We can infer that the apparent abundance of supply over demand should also offer some – albeit unquantifiable – differential in terms of cost too. So what will it take to get the stuff out of the ground and into the tank of the North American HD fleet?
At present, industry figures suggest that a diesel equivalence comparison with natural gas in terms of cost shows a fairly marked differential of US$1.50 – US$2.00 per diesel equivalent gallon at current natural gas prices. This is a significant difference, but the lack of widespread availability causes it to remain something of an abstract number.
Today, there are around 150,000 gasoline and 75,000 diesel filling stations within North America. Natural gas (CNG) outlets number just over 1,100. This lack of infrastructure is clearly an issue: especially given the furore caused by the mooted adoption of DEF for EPA 10 compliance, and the infrastructure arguments that were rolled out during the lead in to 2010. The latter was predicated upon the ability – or otherwise – of the industry to supply gallon jugs of an inert liquid to truckstop shelves. Piping natural gas to those same truckstops would seem like a rather more involved undertaking, but it is clearly one that has to be addressed before any form of wider spread adoption can even begin to be considered. Does this make natural gas a simple energy play in this context? At one level, yes, but infrastructure issues are not the only restraint here.
Limited choice in NG engine offerings…
Diesel is currently the dominant fuel in the HD segment, and there are plenty of diesel engines from which to choose. Natural gas does not suffer from the same plentitude, with only two engine choices on offer. Both produced by the Cummins Westport JV, the ISL G is an 8.9-litre 250-320 bhp offering that falls short of the requirements of mainstream Class 8 trucks, while the HD15 15-litre unit, which outputs 400-550 bhp, is realistically the only choice available to HD operators requiring a like-for-like natural gas alternative.
This lack of choice appears to act as a restraint in two ways. On the one hand, what amounts to a single engine choice may serve to delegitimise natural gas as a genuine alternative to diesel in the mindset of the mainstream North American trucking industry. And perhaps in part because of the scarcity value, the on-cost of specifying a natural gas unit is significant: the incremental cost generally cited ranges between US$45,000 – US$100,000 over a comparable diesel-powered truck. This additional expense lies in the engine (30%) and the gas tanks (70%), and is clearly noteworthy. So too are the costs inherent in retrofitting service bays for natural gas trucks, at US$200,000 – US$300,000. In summation, opting for natural gas requires considerable upfront investment.
…but this may be about to change
A key catalyst to development here looks to be the launch later this year of the Cummins Westport ISX 12 G 12-litre unit. While this is being slow-marched to market, it will be followed in 2014 by Volvo’s dual fuel 13-litre unit, and in 2015 by Cummins’ own gas-powered 15-litre unit. It seems reasonable to assume that a broader engine choice will serve to address both the legitimacy argument and possibly reduce the initial cost implications too.
If the natural gas product range increases, then it seems reasonable to assume that so too will the willingness on the part of the suppliers to grow infrastructure. If these two key restraints are removed, then the third, less obvious but equally important barrier to adoption should also be mitigated, and a larger adoption rate should allow some semblance of residual value discussion to take place.
Will North America welcome NG?
Natural gas exists in a strange place at present. There is an abundance of supply, and the technology exists to harness it. And while some fleets have pointed to improved fuel efficiency at EPA 10 as narrowing the reckoning somewhat, a more cost effective fuel type is never going to be dismissed out of hand.
There is much more to debate here: the argument that sets CNG against LNG is one that is still in its infancy, while at a broader level the sustainability of the North American gas supply remains in question. Clearly, if the differential between diesel and natural gas narrows significantly, then this too will skew any future reckonings.
That said, and with a number of other caveats, it is hard to believe that the North American trucking segment should not constitute a significant end market for natural gas in the coming years. The barriers to adoption are clear, but are far from insurmountable, while the benefits are both demonstrable and quantifiable.
OEMs have a clear and vested interest in retaining diesel as the fuel of choice at a global level. A focused effort upon natural gas for North America alone is unlikely to be welcomed by equipment suppliers which increasingly prefer to view the world as a common market.
Europe prepares to deploy its NG infrastructure
However, at the end of January, the European Commission published the Clean Power for Transport package, which includes a proposal for a Directive on the deployment of an alternative fuels infrastructure, aimed at developing harmonised standards and setting clear targets for the rollout of consolidated alternative fuels, among which CNG and LNG play an important role. The paper demands a maximum 150km distance between CNG and 400km between LNG fuelling stations at a national level Europe-wide by 2020.
If we add this European initiative to the situation in North America, then the obvious conclusion is one that sees the likely marketplace for natural gas growing significantly in two major global truck markets. At this point, globalised equipment suppliers would seem to have little choice but to fall into line.
Is natural gas going to have an impact on the North American trucking industry? Without a doubt, but it is an impact that will take some time to arrive. Perhaps the hardest task at present is not one of selling the logic, but of managing the expectations. Transport is, ultimately, a highly conservative, change-averse industry. But changes do happen: natural gas will play a significant role in the years to come. How significant remains to be seen.
Oliver Dixon is Editor, World Truck Analysis