April 2010 Vol. 237 No. 4

Features

The (Great) Outlook For NGVs In 2010

With the new year comes opportunities, but none greater than for the natural gas vehicle (NGV) market. For the first time, all the stars are lining up for the NGV industry to capitalize on its substantial market potential. As a result, 2010 may be the take-off year for NGVs in the U.S. From a base of 300 million gasoline gallon equivalent (GGE) in 2009, the use of natural gas in vehicles could grow to 10 billion GGE in 2020 or more. That’s 37 Bcf of natural gas in 2009 to 1,250 Bcf in 2020. What are all those “stars” that are lining up? Consider the following:

Clean Burning
The air quality benefits of NGVs are substantial. Natural gas burns cleaner than gasoline and diesel fuel. Not surprisingly, the first vehicles certified to the U.S. Environmental Protection Agency’s (EPA) ultra-low emission, super-ultra low-emission and Tier 2/Bin 2 standards were NGVs. The natural gas-powered Civic GX has won numerous awards for its environmental performance. In 2009, the Civic GX was rated the “Greenest Car in America” by ACEEE – for an amazing seventh year in a row. Compared to the gasoline Civic, the natural gas-powered Civic produces 95% fewer emissions of volatile organic compounds and 75% fewer emissions of nitrogen oxides – pollutants that contribute to ozone formation.

In fact, the vast majority of light-duty NGV models available have been certified to the Federal Tier 2/Bin 2 standard; only Bin 1, which requires zero emissions, is more demanding. In the heavy-duty area, Cummins Westport’s and Emission Solutions’ heavy-duty natural gas-powered engines were the first engines to certify to the full-2010 federal emission standards, achieving extremely low NOx emissions levels well ahead of their diesel competition.

Further, the benefits of NGVs are expected to continue to improve as new automotive technologies become available. A recent National Academy of Science (NAS) report, entitled “Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use” includes some very positive findings concerning NGVs. The report, which analyzes vehicle technologies as of 2005 and expected by 2030, projects that, with further expected improvements in vehicle technology and fuel efficiency, natural gas-powered vehicles will provide superior benefits in terms of criteria pollutant reductions compared to nearly all other types of vehicles, even electric and plug-in hybrid electric vehicles.

EPA is now calling for even tighter national ozone emissions standards. As a result, NGVs will look even more attractive to local policymakers as a compliance option.

NGVs Reduce GHGs
Concern about climate change and greenhouse gas (GHG) production is driving much of the public policy debate. NGVs can play a role in reducing such GHGs. Per unit of energy, natural gas contains less carbon than any other fossil fuel, and, therefore, produces lower carbon dioxide (CO2) emissions per vehicle mile traveled. While NGVs do emit methane, another principal GHG, the increase in methane emissions is more than offset by a substantial reduction in CO2 emissions compared to other fuels.

The California Air Resources Board (CARB) has conducted extensive analyses on this issue, and concludes that burning compressed natural gas produces about 22% fewer GHGs than burning diesel, and 29% less than burning gasoline. The comparisons are based on well-to-wheels analyses, and include all methane emissions. These reductions are equal to – or better than – some renewable liquid fuels.

Biomethane
The prospects for renewable natural gas makes NGVs’ GHG case even stronger. Natural gas may be a fossil fuel, but its main component (methane) doesn’t have to be. In fact, renewable natural gas or biomethane can be produced from any organic material, including landfill gas, sewage, animal and crop waste and even energy crops. The U.S. Department of Energy (DOE) did a preliminary study a number of years ago that concluded that, from animal waste, sewage and landfill gas alone, America could reasonable produce 1.25 quadrillion Btus of biomethane PER YEAR. That’s equivalent to about 6% of the natural gas used in this country.

The CARB analysis mentioned above also evaluated the GHG reduction potential of biomethane produced from landfill gas, and concluded that that this biomethane, when used in vehicles, reduces GHG emissions by almost 90% when compared with gasoline and diesel fuel. In the future, blending conventional supplies of natural gas with biomethane would make NGVs an even more effective GHG reduction strategy.

Fleet Savings
Public policy benefits like reducing oil dependence, urban pollution and greenhouse gases are fine, but vehicle owners – especially business fleet owners – are overwhelmingly driven by economics. If they can save money, they’re far more interested. Fortunately, for most customers – especially high fuel-use customers, NGVs are a good economic investment. NGVs do cost more money to buy. The Honda Civic GX, for example, has an incremental cost of about $6,000. For a big 18-wheeler, the added cost could be as high as $80,000. Not an insignificant first-cost premium.

But the combination of much lower fuel cost, lower maintenance cost and federal (and, in some cases, state) economic incentives, translates into a very favorable ROI for fleets. For example, a trash truck, which uses 7,500-10,000 gallons of fuel per year, could recover its investment in less than 2.5 years, and see a net life-cycle savings of up to $80,000. Step-vans, which are used for delivery of baked goods, snack foods, overnight mail, etc., could see a payback in less than 1.4 years, with a net life-cycle savings of up to $66,000. Even school buses, which don’t drive that far per day, can get a payback within three years.

Historically, natural gas traded in an 8- or 9-to-1 ratio with oil (barrel of oil to thousand cubic feet of natural gas). The U.S. Energy Information Administration forecasts that the wellhead price of natural gas won’t exceed $8 per Mcf until 2030. When the recession ends and the global demand for oil again begins to exceed supply, world oil prices will rise. At $100 per barrel and $8 per Mcf, the ratio is over 12-to-1. At $150 per barrel, the ratio is almost 19-to-1. The economics of NGVs will only get better.

Reduce Diesel Demand
Only natural gas can put a dent in diesel use. According to the DOE, the average consumer drives about 12,000 miles per year, using about 500 gallons of gasoline. Light-duty fleet vehicles use more but, in general, the amount is still relatively small. On the other hand, we have a huge fleet of larger, heavy- and medium-heavy duty trucks and buses in this country. These are the high fuel-use (mostly urban) fleets – trash trucks, transit buses, short-haul port trucks, goods delivery vehicles of all kinds, etc. These vehicles use much more fuel than most light-duty vehicles. An 18-wheeler, for example, may drive 120,000 miles per year and get only six miles per gallon. That’s 20,000 gallons of diesel fuel!

Consequently, trucks and buses consume about a quarter of the on-road energy – mostly in the form of diesel fuel. That’s equivalent to about 4.5 Tcf of natural gas. There are many alternative fuel and advanced technology options competing for the light-duty market (e.g., natural gas, propane, ethanol, electricity, plug-electrics). But for diesel-powered trucks and buses, the options come down to only two – natural gas and biodiesel.

Biodiesel’s potential is very limited. Because of technical and other restrictions, diesel vehicles cannot use blends of more than 20% biodiesel, and most use only 5% or 10%. Plus, the availability of domestically produced feedstocks for biodiesel production (mostly soy beans) is limited, so a growing use of biodiesel would mean more of it would have to be imported. Natural gas, on the other hand is an excellent heavy-duty fuel, with many models available today. As a result, even the environmental community is now supporting the use of natural gas in this market.

For example, at a National Clean Energy Roundtable last February, Former Vice President Al Gore said “Electrifying the auto fleet, using natural gas for the 18- wheelers and the heavy vehicles as a transition – then we can get off of all those imported liquid fuels that come from foreign oil and foreign products and solve the security and economic problem and put people to work in the process.” Sierra Club President Carl Pope has made similar public statements.

NGVs Are Ready Now
The facts are NGVs are a here-and-now technology. Many promising vehicle technologies are “over-the-horizon” and need technical or other breakthroughs to be commercially competitive. Not NGVs. NGVs are here today. No breakthroughs are required. If you look at the product offerings available, that becomes clear. Natural gas options are now available from (1) every major trash truck manufacturer; (2) all but one major transit bus manufacturer (and it now appears that the last holdout will be offering natural gas buses); (3) two of the three largest school bus manufacturers; and (4) many of the work/vocational truck chassis makers such as Kenworth, Freightliner and Peterbilt.

Also, while only one light-duty vehicle is being sold in the U.S. by an original equipment manufacturer (the Honda Civic GX), there is a long list of light-duty Ford and GM sedans, vans, SUVs and pick-up trucks for which EPA-and CARB-certified aftermarket conversion systems are available. And new NGV models keep being added all the time.

Abundant Local Supply
We have the fuel – and it is ours. One of the historic barriers that made policymakers and customers cautious about embracing NGVs was concern about whether U.S. natural gas supplies would be adequate. That barrier was shattered last year as the Potential Gas Agency and the EIA issued reports forecasting huge increases in the U.S. natural gas resource base. Readers of Pipeline & Gas Journal already know this story, so it won’t be repeated here. Suffice it to say that the U.S. natural gas resource base is more than adequate to serve traditional markets and serve a growing and robust NGV market.

Government Recognition
The federal government is (finally) recognizing the value of NGVs. Partially because of the historic concern over the availability of domestic natural gas, Congress and the White House in the past focused on other alternative fuel and advanced vehicle technologies. That is now changing. For the first time, the House and the Senate have each created a “natural gas caucus” to focus policy attention on the role that American natural gas can play in achieving our national energy and environmental objectives.

For the past five years, there has been no NGV RD&D program within DOE. This Congress approved a $5 million appropriation for NGV RD&D (the House vote was 429-4). The “New Alternative Transportation to Give Americans Solutions” (NAT GAS) Act has been introduced in both houses of Congress (HR 1835 and S. 1408). That bill would significantly extend and expand existing NGV incentives. The House version of the NAT GAS Act has 130 bipartisan co-sponsors. The Senate version also has bipartisan support, and has Majority Leader Harry Reid as an original sponsor.

Even the White House has NGV supporters. In 2008, both then-Senator Barack Obama and then-Congressman Rahm Emanuel (now the president’s chief-of-staff) introduced legislation that would have provided expanded incentives for NGVs and natural gas fueling. All these developments are a reflection of the fact that the benefits of natural gas, in general, and NGVs, in particular, are finally being recognized in Washington, and natural gas use will be increasingly supported through federal policy.

Global Acknowledgment
The world is embracing NGVs. Natural gas is the fastest growing alternative transportation fuel in the world. Pakistan has over 2.25 million NGVs. Argentina has 1.7 million. Brazil has 1.6 million. Germany has almost completed installing a network of 1,000 NGV fueling stations to serve the entire country. Over 60 countries have growing NGV markets. Some are driven by the need to displace foreign oil. Others are driven by the need to reduce air pollution. Still others are driven by the need to reduce greenhouse gases.

In all countries, the relative economic benefit of natural gas vs. petroleum is a driver. In 2003, there were only 2.8 million NGVs in the world. Today, there are over 10.6 million. It is projected that there could be 65 million NGVs in the world by 2025.

Conclusion
In the past, it seemed as though the NGV industry was always lacking something. Either the products, economics or the industry support wasn’t there. In fact, NGV supporters including many gas utilities that promoted NGVs in the early 1990s did back away from the market. Today, not only are many of these gas utilities re-engaged, but many gas exploration and production and gas pipeline companies recognize the tremendous potential and are embracing NGV market.

As we move into 2010, the NGV industry has the products, environmental benefits, economics and momentum. The opportunity for rapid growth is here. We just have to capitalize on it.

Author
Rich Kolodziej is president of NGVAmerica, a national organization dedicated to the development of a growing market for vehicles powered by natural gas and biomethane. He can be contacted at 202-824-7366 or rkolodziej@ngvamerica.org.