Road to NGVs Hopefully Paved with Good Inventions to Match Intentions

April 2015, Vol. 242, No. 4

Richard Nemec, Contributing Editor

Even in the midst of an oil price crash globally, alternative fuels for transportation stimulate conversation at just about any business or public policy gathering, and increasingly natural gas has had a ringside seat for those discussions. In fact, even sustainability advocates who see zero-emission as the ultimate goal give the natural gas sector credit for creating more interest in alternative fuels, particularly among businesses.

From a consumer’s perspective, the face of alternative fuel vehicles can vary quite broadly. Sleek passenger car Tesla and General Motors electric vehicles (EV) are the future of alternative fuels on the one hand while heavy-duty tractor-trailer trucks using compressed natural gas (CNG) or liquefied natural gas (LNG) are the new face of the natural gas vehicle (NGV) sector. Both EV and NGV advocates tout clean, affordable alternatives but to decidedly different market segments. The camp of supporters for NGVs may be growing faster.

With the advent of the shale gas bonanza in North America, many producers and oil/gas field service companies have jumped on the NGV bandwagon. The depressed oil prices in early 2015 will be a severe test of who stays aboard and who jumps off.

“I don’t know if we have seen the bottom of crude and diesel prices,” said Steve Josephs, a founder and engineering director at Chicago-based NGV fuel and fueling station developer, ampCNG. “Oil is going to be a very volatile commodity, so it could easily be back at $100/bbl as easily as staying at $45/bbl.”

Josephs said ampCNG is able to provide what he called “some level of certainty” to its customers by locking in low natural gas prices going out for the next two years. “Gas has gotten really cheap so we lock in a price for a year or two,” he said. “We can lock in the low prices for a few years for only a few pennies a gallon because for natural gas, the volatility just isn’t there. The futures commodity curve on natural gas is pretty flat right now,” he opined in February.

Meanwhile, 2015 opened with Ryder System Inc., a major commercial fleet management and supply chain solutions leader, passing the 30 million-mile mark for NGVs. The Ryder fleet includes CNG and LNG vehicles serving customers in California, New York, Michigan, Texas, Arizona, Utah, Maryland, Georgia and Louisiana, along with parts of Canada. Similarly, the giant San Francisco-based combination utility, Pacific Gas and Electric Co. (PG&E), fueled 16,000 NGVs in 2014, dispensing 3 million gasoline gallons of CNG at 24 utility-owned and operated fueling stations.

Ryder’s Dennis Cooke, president for global fleet management solutions, noted at the 30 million-mile milestone that businesses are continuing to look for ways to lower costs and advance environmental sustainability in their fleets. “When companies outsource to Ryder [to build and manage their fleets], they get the benefits of our extensive experience operating and maintaining natural gas fleets, so they can reduce risk, maximize performance and speed return on investment,” Cooke said.

Even in a utility that is heavily committed to expanding the use of EVs, PG&E’s Nick Stavropoulos, executive vice president for gas operations, said he thinks natural gas makes sense as a transportation fuel for light-, medium- and heavy-duty NGVs.

“It is a proven fuel that can improve local air quality and reduce greenhouse gas (GHG) emissions,” said Stavroupoulos, adding that PG&E at the start of 2015 owned and operated 710 NGVs in its fleet.

Both the U.S. Energy Information Administration (EIA) and the NGV national trade organization, NGVAmerica, have published recent reports concluding that natural gas as a transportation fuel should maintain an edge over gasoline and diesel fuel. EIA cites historical data from the Department of Energy’s (DOE) Clean Cities Program that natural gas became more competitive against the two more common liquid fuels with the de-coupling of oil and gas commodity prices in late 2008. NGVAmerica reiterated this in its January 2015 white paper, “Oil Price Volatility and the Continuing Case for Natural Gas as a Transportation Fuel.”

“Our analysis reveals a compelling case for the continued transition of NGVs, especially among commercial and government fleets for which transportation costs represent a significant portion of their budgets,” the NGVAmerica report said.

At about the same time, another report was released by Boulder, CO-based Navigant Research, predicting that globally NGVs will continue to grow steadily from about 2.5 million vehicles today to 4.3 million in 2024. However, it cautioned that in North America NGVs will still be a relatively small niche, even with a favorable set of economic and environmental drivers. Annual sales of NGVs should hit 80,000 for North America in 2024, the Navigant report predicted, noting that light-duty vehicles will make up nearly 75% of those sales.

“Increasingly, stringent fuel economy and tailpipe emissions standards in every major market around the world provide an impetus to vehicle manufacturers to provide alternatives to traditional gasoline- and diesel-fueled internal combustion engines,” Navigant’s researcher noted. Navigant also acknowledged NGVs may not always be the alternative of choice, and problems in some major supply regions, such as Russia, also could eventually affect the switch to natural gas in transportation.

The strong players in the NGV space, however, like Newport Beach, CA-based Clean Energy Fuels Corp., think the volatile pattern in oil and diesel fuel markets gives natural gas a “natural” edge in the long term. “Natural gas remains an inexpensive and cleaner fuel alternative for America’s fleets,” said Clean Energy’s spokesman Patric Rayburn, who expresses confidence that 60% of the new refuse trucks and over a third of the new transit buses will be fueled by natural gas in 2015.

“Our customers are some of the largest fleets in the country that need to forecast energy prices months and years into the future to accurately meet budget projections,” he said. “Short-term and erratic fluctuations in fuel prices aren’t necessarily welcome by fleet managers.”

One of those Clean Energy customers is the Dallas Area Rapid Transit (DART), which began operating a set of LNG buses nearly two decades ago, and has since embarked on an effort to switch all of its buses to CNG. Its Executive Director Gary Thomas said “the next 40 buses we’re about to order will run on CNG. There’s no shortage of arguments as to the benefits of using natural gas as a replacement fuel for diesel or gasoline.

“Natural gas is cleaner, by some 30% in carbon output and toxins,” Thomas said. “It’s cheaper by as much as $1 a gallon equivalent, even as we watched the price of gas and diesel plummet in recent weeks [at the end of last year].”

While some in Congress and local elective office push back at various government incentives for alternative fuels, Thomas and his colleagues are pushing just as hard to get long-term tax incentives that will make it easier for private and public sector fleet operators to make the shift to natural gas as a transportation fuel.

“Creating long-term [incentives] will dramatically enable operators like me to plan and grow,” Thomas said. “In doing so, we can invest more in people and infrastructure. That’s something every community needs, including Dallas.”

In February, NGVAmerica and others in the NGV space praised a bipartisan effort in the Senate this year to reintroduce legislation (S. 344) to create what advocates call a level playing field for natural gas to compete with diesel by proposing to tax the two transportation fuels on an energy-equivalent basis rather than by equal volumes. Current taxing by volume makes the tax on LNG as a transportation fuel 70% higher than diesel fuel.

“The introduction of S. 344 demonstrates continued support in Congress for natural gas as a transportation fuel,” said NGVAmerica President Mathew Godlewski. “Senators [Richard] Burr [R-NC] and [Michael] Bennet [D-CO] recognize the important role that natural gas can play in improving our air and supporting American jobs at home.”

NGVAmerica makes the case, as do other advocates in other forums, that natural gas lowers emissions and displaced foreign oil, improving the U.S. balance of trade and energy security. But with the shifting global energy economics, led by the oil price crash, can this be taken as a given in the future?

A focus for NGVs is found in the trucking sector, and it is also a part of the North American economy that is being targeted by various climate change initiatives. The business sustainability consultants BSR (Business for Social Responsibility) recently completed an update of earlier work attempting to understand the carbon emission impacts of transportation fuel for trucking.

While the BSR report sees oil as continuing to play a dominant role for decades, it also allows for the possibility that alternative fuels, such as natural gas, can begin having a major effect in trucking and among business fleets more generally.

“While the future mix of fuel is impossible to predict, we expect it to become more diversified and a ‘poly-fuel’ economy to emerge,” said BSR’s report released last January. “Fuels create many critical sustainability impacts and addressing them should be high priority for companies and policymakers.”

From both price and environmental advantages, the NGVAmerica white paper sees natural gas prevailing in fleet transportation in the years ahead. It sees “long-term stability and low prices for natural gas relative to oil as likely to remain for many years – perhaps even decades.”

This factor dovetails well with fleet asset management, which the NGV report said, is a long-term game. “It is prudent to continue to invest in transportation fuel portfolio diversification by transitioning more vehicles to natural gas,” the white paper said.

In late February, a study by the University of Texas, San Antonio’s Institute of Economic Development concluded that a three-year state grant incentive program to promote NGVs in the Texas Triangle transportation corridor (Houston, Dallas-Fort Worth, Austin and San Antonio) was an unabashed success, resulting in $128 million of economic stimulus. Institute economists predict the $52 million worth of grants longer term will generate $484 million in total economic output in the state by 2018, $302 million in gross state product and 3,076 new full-time jobs, according to Tom Tunstall, an economist heading the institute.

Regardless of price environments, and ebbs and flows in government-based incentives, technology advances continue in all parts of the NGV sector, although most advocates don’t think there is a breakthrough advance that is going to revolutionize natural gas’ role in transportation. Almost weekly, though, somewhere around North America there are new pieces of equipment and new processes introduced for the space. Fueling equipment for vehicles and refueling stations is a frequent beneficiary of these advances.

Whether it is advancements in 250- to 600-horsepower CNG compressors or new approaches to breakaway fueling nozzles, materials and component, configurations are regularly being equipped with better “mousetraps.”

Early this year, San Francisco-based PSI Technologies introduced a new emergency CNG fueling kit that can provide a boost to an empty tank, allowing vehicle operators caught short to get to a place to refuel. The PSI “eCNG package” is geared for roadside assistance for NGVs, including a lightweight carbon fiber-on-aluminum cylinder made by Worthington, together with Parker Hannifin valves and hoses, and NGV-2 connectors from OPW for the fuel transfers. These are all equipment suppliers to the NGV sector whose list of competitors keeps growing.

Worthington’s cylinder can provide three-quarters of a diesel gallon equivalent of CNG, what PSI called “a modest supply,” to boost an empty tank until it can be fully refueled. The “cascade method” is used with high pressure from the eCNG package, providing flow to the low-pressure of the empty NGV tank. No additional compression or pressure boost is needed, PSI officials maintain.

The global industrial product behemoth General Electric has what is branded as “CNG In A Box” fueling station equipment, and a niche firm, Nebraska-based Hexagon Lincoln, regularly rolls out improvements in its fueling tank design and materials, such as one in mid-February providing an all-composite CNG fuel cylinder (Type IV), its largest yet at 27 inches in diameter, with the capacity of 160 diesel-gallons-equivalent.

Some of the major fuel and fueling station supplier/developers, California-based Clean Energy Fuels, Salt Lake City-based Trillium CNG and Chicago-based ampCNG, encourage and harness fueling technology advances, but ampCNG’s founder/engineer Josephs doesn’t see the future of natural gas in transportation as dependent on major technology advances.

“A key is getting more efficient compressors,” he said. “There is always room for that type of equipment to be more efficient and quicker.

“We’re getting the job done using equipment and techniques that represent relatively mature technology, and the good thing is that it is reliable and people know how to service it. Now you have a commercial life of 10 years out of a piece of equipment. I think our focus should be on getting more stations on the ground than looking for technological innovations; the technology is pretty solid, pretty mature and works very well.”

Josephs’ ampCNG firm is unique in that it got into the business of providing NGV fueling by acquiring a NGV fleet tied to the nation’s largest biogas project as part of a set of dairies in Indiana. With that project, the company earned its mettle in the business of CNG hauling and trucking, and it now has more than 160 trucks that at the end of this year are expected to pass the 27 million-mile mark collectively through two fleets the company still operates.

There are about 1,500 CNG stations in the United Sates compared to 100,000 locations providing gasoline and diesel for heavy trucks. Less than 100 CNG stations can handle big tractor-trailer rigs. At the start of the year, ampCNG had 19 stations in its network and another six opening this year with 25 more in the pipeline, Josephs said.

“My personal view is that we probably need 3,000 [NGV] stations in the United States to handle heavy trucks,” he said. “Then there would be a mainstream network for providing CNG fueling for heavy trucking. The stations work; the trucks work; what we need is one of these stations every 50 miles on the major highway runs throughout the nation.”

Another niche-within-a-niche for NGVs is renewable natural gas (RNG), and it may eventually be the fuel of choice, given the climate change and clean fuel incentives behind the search for alternatives to the world’s thirst for gasoline and diesel. However, even its advocates note there are challenges to making a reality out of vehicles fueled by a combination of landfill, digester and waste treatment gas supplies.

Harrison Clay, president of Clean Energy Fuels’ unit, Clean Energy Renewables, told participants on a webinar earlier this year that the challenges to RNG are substantial, particularly on the production side where he sees the costs exceeding the price of conventionally produced natural gas in the national pipeline grid.

“The price of conventional natural gas is at historic lows, and pretty much everyone I know in the industry thinks prices will stay at historic lows,” Clay concluded. “RNG production costs are obviously higher than conventional natural gas prices.”

According to Clay, RNG production costs vary from $5-12/MMBtu, with the lower part of the range being large-scale landfill gas or digester projects – such as ampCNG’s Indiana dairies – and the higher prices being the relatively smaller-scale waste treatment and other projects.

Even with the oil price nosedive in early 2015, Josephs still touts the fact that back then ampCNG was still about 50-75 cents cheaper than diesel fuel. “What we find is the trucks are a little more expensive because of the innovations in the current engine and tank systems. The engines work very well and the storage systems work really well, but they’re just a little pricey at this moment [February 2015],” he said.

If the trucks were less “pricey,” the 75-cent/gallon advantage would have fleet operators overwhelming the CNG sector trying to sign deals, Josephs said, but he sees a silver lining in the clouds surrounding low oil prices in the anticipation that diesel will stay relatively expensive. “The price advantages for natural gas as a transportation fuel may spur more innovation in terms of engines and fuel tanks,” he said.

“In terms of the stations, we rely on the really robust U.S. pipeline infrastructure. Fleet owners like the fact that in most cases we don’t have to truck the fuel in. It’s right there as close as the nearest local gas distribution pipeline system,” Josephs said.

Richard Nemec is a Los Angeles-based West Coast correspondent for P&GJ. He can be reached at: rnemec@ca.rr.com.

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