Natural Gas Quarterly - ACT Research · Natural Gas Quarterly . U.S. Class 8 NG Trends, Forecast, Analysis & Insight . Q1 2015 . Natural Gas Quarterly is published monthly by Americas

Natural Gas Quarterly

U.S. Class 8 NG Trends, Forecast, Analysis & Insight

Q1 2015

Natural Gas Quarterly is published monthly by Americas Commercial Transportation Research Company, LLC (ACT), 4400 Ray Boll B lvd., Columbus, IN 47203. Phone: 812-379-2085,

Fax: 812-378-5997, e-mail: [email protected] Copyright 2015 by ACT with all rights reserved. Reproduction, copying, or pub lication of this report in whole or part is not permit-

ted without prior approval. This document is for internal use only. Questions and subscription requests should be directed to K.W. Vieth, Publisher. www.actresearch.net

Diesel price drop continues in Q1’15

Fuel price spread narrows $1.50 to $0.71

NG payback length-ens from 3 to 7 years

NG Indicator Gauge Key

A neutral position on the indicator gauges above indicates that current conditions do not favor either option (diesel or natural gas, CNG or LNG). If the needle points to one side or the other, it should be interpreted as current market conditions support that side of the respective continuum rather than the other.

NOTE: Click on the respective gauge or key points above for detailed explanations supporting the position of each variable in the report. To return to the front cover, click on the footer of any page.

FUEL PRICE SPREAD NG EQUIPMENT

NG FUELING INFRASTRUCTURE NA Class 8 NG RS

NG equipment price premium

remains >$50K

Costs do not stop with truck purchase

Challenge: Tank life is longer than chassis life

Not all stations can accommodate HD vehicles

CNG outpacing LNG 8:1

New stations planned, but many in limbo

YTD March volume down

23% y/y

2014 sales slightly higher y/y

2015 Class 8 NG RS forecasts falling short of expectations

NG Truck Payback Index

28.8

(>10 years)

http://www.actresearch.net/

TABLE OF CONTENTS

Page Fuel Prices ........................................................................................................................ 1 Equipment Prices, Products & Technology Developments ......................................... 2 Fuel Infrastructure ........................................................................................................... 3 Sales Data ........................................................................................................................ 4 Adoption Forecasts ......................................................................................................... 5 Additional Considerations NG Economic Trends ............................................................................................ 6 NG in the News ...................................................................................................... 7 Commentary ....................................................................................................... 8-9 Natural Gas Insight ............................................................................................. 10 Order Form .......................................................................................................... 11 Other ACT Products & Services ........................................................................ 12 Glossary of Acronyms ........................................................................................ 13

Q1 2015 • Natural Gas Quarterly

FUEL PRICES

Q1 2015 • Natural Gas Quarterly • Page 1

DIESEL PRICE DROP CONTINUES IN Q1’15: The price of diesel fuel has

dropped dramatically the last two quarters. The latest U.S. Department of En-

ergy Alternative Fuels Data Center’s (AFDC) quarterly numbers (as of Janu-

ary 2015) show diesel at $3.00/gallon and DGE (Diesel Gallon Equivalent)

adjusted CNG at $2.38. A more current indicator would be independent fuel

pricing websites, yielding 3/31/15 prices of $2.82 for diesel and $2.11 for a

DGE of CNG. Diesel fuel prices will decline at a greater rate than NG because

the crude oil in a gallon of diesel is a much greater percentage of the total cost

of a gallon than the base cost of natural gas in a DGE of CNG/LNG. With the

current number of CNG/LNG heavy duty fueling stations, operators will not be

as inclined to drop NG prices on the basis of nearby competition, which is an-

other reason why ROI calculations are moving away from natural gas.

FUEL PRICE SPREAD NARROWS, $1.50 TO $0.71: At the end of 2012,

the differential in the price of diesel versus natural gas was around $1.50 per

gallon, compared to today’s 70-cent per gallon spread. The declining differen-

tial has a very negative impact on the payback timing for NG power.

NG PAYBACK LENGTHENS FROM 3 to 7 YEARS: Utilizing the assump-

tions made in the base 2012 ACT model and using $4.00 for diesel fuel and

$2.50 for natural gas (the $1.50 differential) and 7 MPG diesel compared with

5.95 MPG for natural gas (15% less than diesel), the payback time to convert

to NG fuel was 3.6 years/43 months. Using the same assumptions with $2.82

for diesel and $2.11 for a DGE of natural gas, the payback time has moved to

9.7 years/116 months. At this ROI, conversion to NG is not practical for the

vast majority of Class 8 buyers since it is beyond a normal trade cycle. Few

operators will consider natural gas fuel with the payback beyond three years.

Exceptions are those niches with longer trade cycles such as transit buses or

refuse haulers.

The graph below was designed to demonstrate the savings, or lack thereof,

between diesel and both CNG and LNG. Note that a tax disparity of $0.21 ex-

ists between CNG and LNG. LNG is taxed at the same rate as diesel, while

CNG is taxed on a GGE (Gasoline Gallon Equivalent) basis. Pending legisla-

tion is circulating in Congress that would correct this inequity. If/when this oc-

curs, ACT Research will adjust its models accordingly.

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

2009 2010 2011 2012 2013 2014

U.S. Retail Fuel Prices per DGEJan '09 - Jan '15

CNG LNG Diesel

Source: Alternative Fuel Price Reports (AFDC, US DOE), EIA , ACT Research Co., LLC Copyright 2015

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

2009 2010 2011 2012 2013 2014

U.S. Retail Fuel Prices per DGENG Adjusted Price for MPG Degradation

Jan '09 - Jan'15

CNG-MPG Adjusted LNG-MPG Adjusted Diesel

Source: Alternative Fuel Price Reports (AFDC, US DOE), EIA , ACT Research Co., LLC Copyright 2015

($1.00)

($0.75)

($0.50)

($0.25)

$0.00

$0.25

$0.50

$0.75

$1.00

$1.25

$1.50

2009 2010 2011 2012 2013 2014

U.S. Retail LNG & CNG Savings to DieselEnergy Price Equivalent (MPG Adjusted) Comparison

Prices per DGE - Jan '09 - Jan'15

CNG LNG

Source: Alternative Fuel Price Reports (AFDC, US DOE), EIA Real Prices Viewer, ACT Research Co., LLC Copyright 2015

NG EQUIPMENT PRICE PREMIUM REMAINS >$50K: NG truck prices aren’t

falling as fast as the industry had hoped. As the industry matures and with

some natural economies of scale, the price premium is expected to decline.

Since the extra cost of natural gas components are so significant today, it is

important to understand what constitutes the premium. Components include:

The engine as compared to a diesel of like spec

The fuel tanks, which vary widely based on the number of DGEs desired

Added dealer margin to cover costs of upfitting their shops

Non-value added costs, including transporting equipment from the assem-

bly line to a qualified upfitter.

Apart from those major components the rest of the truck is basically identical.

The following table is an estimated breakdown of the premium by component.

*Dealer Margin includes the capital cost recovery of upfitting their facilities to

service natural gas vehicles.

COSTS DO NOT STOP WITH TRUCK PURCHASE: There are several oth-

er operating factors that fleets must consider when evaluating the investment.

What costs, from initial purchase to maintenance to resale, will be incurred?

Can the truck be equipped with sufficient tanks to make routes without extra

stops for fuel, and is there access to fuel within designated routes? Is the fleet

truly weight sensitive and will the added weight of a NG tank be offset by the

removal of DPF and SCR systems in a spark-ignited NG engine? How does

downtime, driver/technician training, and refuel time factor into a fleet’s opera-

tion?

CHALLENGE: TANK LIFE LONGER THAN CHASSIS LIFE: CNG and LNG

tank manufacturers continue to innovate tank designs and fuel capacities.

Cenergy Solutions, for example, filed for a patent on a technology around

ANG (Adsorbed Natural Gas). This technology is still in its infancy. As more

trucks are ordered, the supply chain will become more efficient, lowering NG

component costs. With increased orders the truck OEMs are likely to explore

ways to retool their manufacturing lines to install NG tanks. A typical CNG

tank life is between 15 and 20 years. Separation of tanks from the trucks is

unlikely before the chassis is scrapped.


EQUIPMENT PRICES, PRODUCTS & TECHNOLOGY DEVELOPMENTS

Component Added Cost to CNG Truck

Added Cost to LNG Truck

Engine (ISX12 G) $13,000 $13,000

Tanks (160 DGE) (includes supporting hardware)

$48,000

(assumes Type IV before installation)

$33,000

Installation, Transport, and Other

$ 4,000 $ 5,000

Dealer Margin* $ 5,000 $ 5,000

TOTAL Upcharge $70,000 $56,000

Simple Payback in YearsEquipment

Upcharge 20,000$ 30,000$ 40,000$ 50,000$ 60,000$ 70,000$

0.600 10.6 15.9 21.2 26.4 31.7 37.0

0.750 4.5 6.8 9.1 11.3 13.6 15.9

0.900 2.9 4.3 5.8 7.2 8.7 10.1

1.000 2.3 3.5 4.6 5.8 7.0 8.1

1.150 1.8 2.7 3.6 4.5 5.4 6.3

1.300 1.5 2.2 2.9 3.7 4.4 5.1

1.450 1.2 1.9 2.5 3.1 3.7 4.3

1.600 1.1 1.6 2.1 2.7 3.2 3.7

1.750 0.9 1.4 1.9 2.4 2.8 3.3

Fleet Assumptions:

100000 - 100,000 miles per year 0.15 - 15% mpg loss on NG trucks

7 - 7 mpg on diesel trucks - Fuel infrastructure available

3.25 - Diesel price $3.25/gal 3 - Desired payback <3 years

Fuel Spread

(DGE)

Fuel

Pri

ce S

pre

ad (

$)


FUELING INFRASTRUCTURE

NOT ALL STATIONS CAN ACCOMMODATE HD VEHICLES: LNG stations

are new to the fuel supply landscape in the U.S.; therefore they all are being

designed to accommodate class 8 tractor trailer combinations. Similarly, the

new CNG stations or fueling islands at existing diesel stations being built are

designed to handle class 8 vehicles and provide diesel fueling expectations

(or faster). It should be noted, however, that not all CNG stations are class 8

friendly with many of the earlier and/or older stations more attuned to light ve-

hicles and cars. There are currently 570 CNG stations (70% of all CNG sta-

tions) that can handle class 8 vehicles. The LNG station count is 70.

CNG OUTPACING LNG 8:1: The ratio of existing public HD CNG to LNG

fueling stations was near 9:1 in January 2015, but dropped to 8:1 in March. In

Q1’15, six more HD LNG public stations became active, while only two HD

CNG public stations were added. Today there are no active HPDI NG engines

being produced that require LNG as a fuel. The new LNG stations are primari-

ly in the west to southwest supporting existing LNG truck populations as well

as servicing off-road applications and the oil patch. Spark-ignited (SI) natural

gas engines are the only new engines available. Although SI natural gas en-

gines can use a dedicated CNG or LNG fuel supply system, CNG is a lower

cost fuel. LNG requires the same base cost of the CNG plus the cost for lique-

faction and transportation. LNG is a purer form of methane (better engine per-

formance) and minimizes the risk of CNG contamination due to potential pro-

pane and water ingress, but it costs approximately $.50 more per gallon.

When conversion to natural gas fuel is considered, the added cost is a major

consideration over the life of the vehicle and ROI needs.

NEW STATIONS PLANNED, BUT MANY IN LIMBO: Although ACT has not

seen a fall in the number of planned new CNG stations since the first of the

year, there are about ten fewer LNG stations planned. Seen from a different

perspective, however, the analysis is more opaque. The same number of pub-

lic HD CNG stations are planned y/y, while 20 more public LNG stations are

on the planned list. Note that most of those plans were announced before die-

sel fuel prices plunged. It is not known if the pulled plans were put on hold for

a future date or scrapped altogether.

U.S. PUBLIC HD NG STATIONS BY REGION: March 2015

CNG Active = 47

CNG Planned = 20

LNG Active = 2

LNG Planned = 6

CNG Active = 61

CNG Planned = 17

LNG Active = 7

LNG Planned = 11

CNG Active = 197

CNG Planned = 25

LNG Active = 11

LNG Planned = 21

CNG Active = 81

CNG Planned = 23

LNG Active = 14

LNG Planned = 13

CNG Active = 61

CNG Planned = 4

LNG Active = 14

LNG Planned = 6

CNG Active = 123

CNG Planned = 9

LNG Active = 22

LNG Planned = 9

GRAND TOTALS

CNG Active = 570 LNG Active = 70

CNG Planned = 98 LNG Planned = 66

Source: US DOE Alternative Fuels Data Center, geology.com, ACT Research Co., LLC Copyright 2015

0

100

200

300

400

500

600

Jan Feb Mar

Q1'15 U.S. Public HD NG Stations

Active LNG Planned LNG Active CNG Planned CNG

Source: US DOE Alternative Fuels Data Center, ACT Research Co., LLC Copyright 2015

SALES DATA

YTD MARCH VOLUME DOWN 23% Y/Y:

U.S. and Canadian natural gas Class 8 truck

retail sales for these select OEMs started the

year a little slower, but showed sequential

gains in February and March. Despite the

improvement, year-to-date volume is 23%

below 2014’s level.

2014 SALES SLIGHTLY HIGHER Y/Y: Be-

cause there are additional units not record-

ed, as some lower volume OEMs do not re-

port sales, this number falls short of the total

number of Cummins Westport (CWI) natural

gas engine shipments (including the 320

horsepower ISL G, which is not a true Class

8 line haul engine). CWI shipments totaled

just over 10,500 units in 2014, up 200 units

from 2013. Note: There is a time lag between

the shipment of the natural gas engines and

the retail sale of the trucks they are being

placed into. In addition, a portion of natural

gas engines are destined for export markets.

2015 CLASS 8 NG RS FORECASTS FALL-

ING SHORT OF EXPECTATIONS: Original

ACT projections were that 2015 would see a

5% penetration of natural gas heavy duty

trucks. Based upon the actual results from

2014 and the sharp drop in oil prices at the

end of last year, that projection seems opti-

mistic.


-

100

200

300

400

500

600

700

800

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Un

its

U.S. & Canada Natural Gas On-Highway Class 8 Truck Retail Sales

2013 2014 2015

Includes all US and Canada Class 8 units for Freightliner, International, Kenworth, Mack, Peterbilt, and Volvo.

Excludes transit bus and refuse units not manufactured by OEMs above.

12 liter introduced in August 2013.

ADOPTION FORECASTS

CURRENT HD NG FUELED TRUCK MARKET IN NEUTRAL: NG powered Class 8 truck and bus sales have slowed when calculated as a percentage of the total market. Looking at 2014, their share of the total market was 4%, while in 2015 expectations are for lower penetration. The total U.S. Class 8 market (including NG buses) is forecast at 268,000 units in 2015, or almost 19% higher than 2014. With the significant decline in diesel fuel prices to under $3.00 per gallon and the subsequent narrowing of price spread between CNG and diesel, as well as the high NG vehicle price premium, payback times have lengthened significantly. These facts along with diesel truck operators’ uncertainty about NG vehicles has slowed the conversion to NG. Annualized Q1’15 NG Class 8 sales total about 4,200 units. Assuming recent high profile class 8 NG truck orders encourage others, a duplication of 2014 sales is a reasonable assumption for 2015 at this point. Adding these units to bus and vocational sales suggests a volume of 9,000 to 10,000 units resulting in an NG penetration of 3.3% to 3.7%. Note: The adoption forecasts presented in the table above were all prepared before the decline in diesel fuel prices started in the Q4’14. These formal forecasts will be revisited and adjusted appropriately when the direction of diesel fuel prices and the evolving relationship between oil and natural gas are more clear.


Additional forecasts and NG transportation fuel details can be found in other ACT publications. For details: http://www.actresearch.net/products-for-natural-gas/

2013e 2014e 2015 F 2016 F 2017 FFOR HIRE:

TL 1% 2% 3% 4% 5%

LTL 0% 4% 2% 2% 3%

Expedited 1% 4% 6% 9% 11%

Owner Operator 0% 0% 0% 1% 1%

PRIVATE 1% 2% 4% 5% 6%

VOCATIONAL:

Refuse 40% 43% 46% 51% 53%

Municipial 1% 2% 5% 6% 10%

Construction 1% 1% 1% 2% 3%

Other 0% 0% 0% 0% 0%

TRANSIT BUS 30% 30% 33% 35% 35%

NG SHARE OF CLASS 8

TRUCK AND BUS SALES 3% 4% 5% 6% 7%

SALES OF NG TRUCKS

AND BUSES (000) 6 9 13 15 16

Memo: 2009e 2010e 2011e 2012e

Total NG Vehicles 2009-12 (000) 3 4 5 6

U.S. Class 8 Natural Gas Adoption Rates--Most Likely/Base Case Scenario

2013e 2014e2015 F 2016 F 2017 F

TOTAL SALES 187,610 224,030 267,000 246,000 212,000 FOR HIRE

TL 324 774 1,442 1,860 2,290 LTL 36 581 346 319 412

Expedited 41 387 692 956 1,007 Owner Operator - - - 89 76

TOTAL FOR HIRE 401 1,742 2,480 3,224 3,785

PRIVATE 675 1,774 3,653 3,985 4,579

VOCATIONAL

Refuse 2,732 3,507 4,471 4,567 4,090 Municipial 53 125 374 431 594

Construction 184 220 523 723 1,039

Other - - 13 12 12

TOTAL VOCATIONAL 2,968 3,852 5,381 5,733 5,735

TOTAL TRUCK 4,045 7,368 11,513 12,941 14,099

Transit Bus 1,500 1,500 1,625 1,750 1,750

TOTAL CLASS 8 NG

TRUCK AND BUS SALES 5,545 8,868 13,138 14,691 15,849

U.S. Class 8 Natural Gas Vehicles - Most Likely/Base Case Scenario (Units)

NG ECONOMIC TRENDS

COMMODITY COST SPREAD: As of March 16, 2015, one million BTUs of

natural gas costs $2.80, while oil is selling for $44.39 (WTI) a barrel. The im-

plication is that the raw material cost in a DGE of CNG and LNG is approxi-

mately $.39 a gallon ($2.80/7.2 as there are 7.2 DGEs in one million BTUs of

natural gas). The difference between the raw material cost and the retail price

of natural gas at the pump consists of the refining costs, compression costs,

distribution and marketing costs, liquefaction (LNG), and taxes.

From a barrel of crude oil (42 gallons), approximately 10 gallons of diesel fuel

can be refined. You can’t convert all 42 gallons of crude oil to 42 gallons of

diesel or gasoline. A certain number of oil-based products are generated from

a barrel of crude, and the ratio of one product to another is relatively constant.

On the right, the chart “Correlation to Commodity – a Breakdown,” (the latest

information available as of January 2015, which lags behind the above costs)

outlines the cost breakdown of a gallon of diesel or a DGE of CNG or LNG.

Although the actual numbers will vary (we know that a gallon of diesel current-

ly sells for less than $3.00), the percentage approximations are in the right

order. From the Correlation to Commodity chart, the cost of crude oil to make

one gallon of diesel is $1.20. Similarly, the raw material cost to make one

DGE of natural gas is approximately $0.64 for CNG or $0.59 for LNG as indi-

cated in the chart.

HOW COMMODITY PRICE TRANSLATES TO RETAIL PRICE: Although

the retail price is what consumers see at the pump, the ratio of raw material

cost of a gallon of diesel fuel to the raw material cost of a DGE of natural gas

sets the stage for how much the price of a DGE of natural gas can change in

relation to a gallon of diesel. This explains how diesel prices can fall faster

than natural gas as the price of crude declines and why the price of diesel es-

calates faster than natural gas when the price of crude increases.

The leveraging down of diesel fuel prices has a detrimental impact on the ROI

calculations at today’s energy prices. When the multiplier is low, there is less

enthusiasm for adopting natural gas as a transportation fuel. When the multi-

plier is higher, the ROI to convert to natural gas is covered in much less time.


Taxes –18%

Distribution & Marketing –

18%

Refining –24%

Crude Oil –40%

Natural Gas Cost – 27%

Compression/Drying – 20%

Liquefaction –23%

Taxes – 15% Taxes – 22%

Capital Recovery, Margin &

Balance – 38%

Distribution & Marketing – 33%

Natural Gas Cost – 22%

DIESEL$3.00/gallon

LNG$2.66/DGE

CNG$2.38/DGE

Source: EIA, Clean Cities Alternative Fuel Price Report January 2015 (AFDC, US DOE), Blu LNG, ACT Research Co., LLC Copyright 2015

Correlation to Commodity – a Breakdown

$0.54

$0.54

$0.72

$1.20

$0.36

$0.90

$0.48

$0.64

$0.59

$0.88

$0.61

$0.59

Petroleum/NG Energy Content/PriceRatio

MPG Adjusted

2009-2015 (Week 15)

Source: EIA, ACT Res earch Co., LLC: Copy right 2015

2009 2010 2011 2012 2013 2014 2015

0

1

2

3

4

5

6

7

8

9

10Energy Content Ratio

Petroleum/NG Energy Content Ratio

NG IN THE NEWS


While the casual observer may have concluded that the recent plummet of

diesel prices has obliterated the adoption of natural gas as a commercial

transportation fuel at least in the short-term, a quick internet search reveals

that natural gas still remains in the news. Some of recent stories include:

FLEETS ADDING CNG AND LNG:

1) Canadian truckload carrier C.A.T. Inc. plans to lease 100 CNG sleeper

tractors from Ryder System. Ryder's trucks will replace nearly one-third of

the C.A.T. (formerly Canadian American Transportation) fleet of 325 vehi-

cles. As part of the agreement, Ryder will also service the CNG vehicles

at its Montreal facility that's now being upgraded to comply with natural

gas standards. C.A.T. will use the dedicated-route CNG trucks in its deliv-

ery fleet that travels from Montreal to Laredo, Texas. (October 2014)

2) Using funds provided from the Texas Natural Gas Vehicle Grant Pro-

gram, Dean Foods is adding 57 MD trucks and 7 HD tractors powered by

CNG to its fleet. Additionally, the food and beverage company will have a

fueling station at its Houston facility. (March 2015)

3) Raven Transport plans to add 115 HD LNG trucks to its Southeastern

fleet running irregular routes. (April 2015)

4) UPS has announced plans to add 1,400 CNG units to its fleet, including

800 tractors and 600 delivery trucks. Additionally, UPS will add 15 fueling

stations for the growing alternative-fuel fleet. (April 2015)

OTHER FLEET TYPES ALSO ADOPTING NG: Besides trucking fleets,

there doesn’t seem to be a shortage of articles demonstrating that natural gas

is still being adopted for use in refuse hauling and transit buses. For example,

the Regional Transportation Commission of Southern Nevada recently an-

nounced plans to add 55 CNG buses to its fleet, with an option for 250 more.

(March 2015)

EUROPEAN CNG PACKAGER EYES NORTH AMERICA: Safe SpA, an

Italy-based subsidiary of Landi Renzo SpA that has focused on providing

CNG compression packages and related equipment for 40 years, has made

inroads into the North American market by appointing Broadwind Energy as

Safe's exclusive equipment packager and master distributor. Illinois-based

Broadwind has specialized in providing gears and gearing systems to the en-

ergy and infrastructure markets. Now, Broadwind will package and distribute

Safe's CNG equipment in the U.S., Canada and Mexico, as well as provide

service and technical support in these regions. (October 2014)

RENEWABLE NATURAL GAS (RNG): When biomass decomposes, it re-

leases methane gas or natural gas. The process is well understood as to how

to take this raw methane, clean it, and inject it into a natural gas pipeline and

blend it with the natural gas already in the pipeline. In this way, natural gas is

transported from where it originates via pipeline to where it will be utilized ei-

ther in the form of CNG or, with liquefaction, LNG. The basic biomass comes

from landfills, municipal sewage, animal waste, scrap food, and other sources.

The question becomes what part of today’s natural gas demand could be sup-

plied from RNG?

The answer depends upon how efficient recovery systems are projected to be

and what is included as biomass. As a broad answer, some would project that

RNG could replace about 5% of natural gas consumption currently used for

electric power generation and approximately 50% of natural gas used in the

transportation sector.

HOW SAFE IS THE SHIPMENT OF LNG?: In any discussion about adopt-

ing natural gas for transportation, the question of safety arises. A number of

opinions are generally presented but few facts. Here are some facts to ponder

via a late December 2014 release by Edward Dodge, a technology writer,

which can be found in its entirety at http://theenergycollective.com/ed-

dodge/2175891/how-dangerous-lng. “The LNG industry has been shipping

bulk quantities by container ship since the 1960’s...the industry has conducted

over 33,000 voyages since 1964 covering more than 60 million miles without

there ever being a significant spill, loss of cargo, or environmental inci-

dent...P&L insurance rates are 25% less for LNG container shipping than for

crude oil shipping.” (December 2014)

INFRASTRUCTURE IN THE NEWS: While the level of fleet adoption news

is waning, the level of articles announcing new and/or expanding NG fueling

sites continue to occur with regularity.

http://www.safegas.it/en

http://www.landiusa.com/

http://www.bwen.com/

COMMENTARY

NG TRUCK INDEX FAVORS DIESEL: By entering all the industry chang-

es into our online calculator, the Natural Gas Truck Index is down to 28.8. In

other words, the net of all the industry changes resulted in a reduced incentive

for our hypothetical fleet to invest in natural gas. Of course, with some factors

not considered in our model including subsidies, grants, and shipper incen-

tives, the return on investment decision could be different from our example.

As with any new technology, you can expect the dynamics of the industry to

continue to change.

OIL PRICE DECLINE CHALLENGES NG EQUIPMENT PAYBACK: The pre-

cipitous drop in oil prices has severely challenged the payback on a natural

gas tractor. One of the unknowns is where oil and diesel prices will be over

the next couple years. If prices remain relatively low while the cost of an NG

truck remains relatively high, the value proposition of switching to natural gas

will remain challenged. We have created an “Index” which takes your fleet’s

profile and the current market conditions and provides an index as a quick

reference tool. If the index results in a figure greater than 100 it signifies that

your targeted payback can be reached. Conversely if the index results in a

figure lower than 100 it means the time might not be right based on the eco-

nomics alone.

CALCULATOR HELPS FLEETS DETERMINE PAYBACK: Subscribe now

and put our research to work for you. We’ll watch all the variables and keep

them up-to-date so you’ll know when to strike on an opportunity. To see your

fleet’s NG payback visit our website: http://calc.actresearch.net.


114.8

88.2

108.7

74.7

28.8

-

20

40

60

80

100

120

140

2012 2013 2014 2015

Natural Gas Truck Index 3 Yr Payback = 100Index

http://calc.actresearch.net

COMMENTARY


28.8Payback = 10.4 yrs

NG Truck Payback Index

NATURAL GAS INSIGHT: WHAT’S NEXT FOR NG ENGINES?

DIESEL ENGINE EVOLUTION: Why is it that all of today’s diesel engines

for heavy duty trucks are pretty much the same whether they are manufac-

tured by Volvo, Mack, Detroit Diesel, PACCAR, Navistar or Cummins? They

are all six cylinder in-line configurations with turbo-charging and after-cooling,

use diesel particulate filters (DPF) and selective catalyst reduction (SCR) sys-

tems with diesel exhaust fluid (DEF) for aftertreatment and are electronically

controlled. There are minor variations of displacement and hardware mount-

ing but, over time, the diesel engines have evolved to look much the same.

Gone are the V6, V8 and V12 cylinder configurations, superchargers, air

cooled, two stroke cycle and other variations. Because trucking is a “lowest

total cost wins” business, engines have evolved to be built, maintained, and

overhauled in a configuration that will deliver that lowest total cost.

NG ENGINES HAVE ROOM TO IMPROVE: What about natural gas en-

gines for heavy duty trucks? Are they at the end of their development? Cur-

rently available natural gas engines for heavy duty trucks and their predeces-

sors are/were all of the six cylinder in-line configuration. Today’s Cummins

Westport designs are very similar to John Deere and Detroit Diesel natural

gas engines that are no longer produced. Does this mean that natural gas

engines are nearing the end of their development and they will always be at a

disadvantage on fuel economy, or is there room for improvement? Fortunate-

ly, there is room for improvement; although they will probably remain as six

cylinder in-line configurations. The fact that 80% of the natural gas engine is

based upon the diesel engine design will probably not change, but the fuel

delivery system will change, making the natural gas engine for heavy duty

trucks more fuel efficient.

A spark-ignited natural gas engine uses a modern spark plug ignition system

adapted from today’s efficient gasoline passenger cars. The fuel delivery sys-

tems on today’s natural gas engines for heavy duty trucks have a number of

successive changes that can increase efficiency. The path of changes has

already been adopted on passenger car gasoline engines. Passenger car en-

gines have evolved from carbureted engines to throttle body fuel injection sys-

tems. Next, individual injectors in the intake manifold for each cylinder were

adopted. Today’s most modern design is GDI, Gas (meaning gasoline) Direct

Injection. As emissions became a central focus for passenger cars, more effi-

cient systems were required. The technology moved away from increasingly

complex two barrel and four barrel carburetors to throttle body fuel injection,

keeping the best parts of the carburetor and adding a fuel injection nozzle.

From throttle body, engineers moved to individual injectors mounted in the

intake manifold for each cylinder. The traditional throttle plate was used to

control the amount of air entering the engine. The fuel injectors and “brain

box” on the engine (the ECM or electronic control module) controlled the fuel

mixture. The next step was to keep all of the electronics and inject the fuel

directly into the combustion chamber, a difficult task given the higher pres-

sures encountered directly in the combustion chamber compared with the

vacuum of the intake manifold.

LEARNING FROM THE PASS CAR MARKET: Today’s heavy duty natural

gas truck engines use a system that is old compared with today’s passenger

cars. Compressed air, EGR (Exhaust Gas Recirculation) and natural gas are

all being mixed behind the throttle plate. As the throttle plate is opened (the

operator pushes on the pedal), the mixture moves to the combustion chamber

where the spark plug ignites it. A more efficient way would be to inject the fuel

and/or EGR after the throttle plate, closer to the combustion chamber. Similar-

ly, if the natural gas could be injected directly into the combustion chamber

and ignited with a spark plug, the engine would be that much more efficient

while at the same time reducing emissions. This is an oversimplification, and

there is still engineering work to be done, but as the demand for natural gas

engines increases and more are built, there are more sales to underwrite the

engineering costs involved. The point is that there is a clear path already es-

tablished with the progression of the spark-ignited gasoline engine.

THE NEXT STEP, NEW FUEL SYSTEM TECHNOLOGY: The natural gas

engine will continue to mirror the basic configuration of the diesel engine, and

there are some clearly defined next steps in the development of the natural

gas fuel system. With increased demand and expanded volumes, new fuel

system technology will be adopted. The race for comparative fuel economy

advantage will continue between the diesel and natural gas engine, but the

differential will begin to narrow with the introduction of the next advancements

on natural gas engines. As technology changes the differential between diesel

and natural gas fuel costs, the ACT Fuel Payback Calculator can be used to

measure the impact on the return on investment.


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#53 - September 28-30, 2015

#54—March 28-30, 2016

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GLOSSARY OF ACRONYMS


A

AFDC Alternative Fuels Data Center

(U.S. Dept. of Energy)

B

BTU British Thermal Unit

C

CNG Compressed natural gas

COE Cab over engine

CWI Cummins-Westport Innovations

D

DEF Diesel exhaust fluid

DGE Diesel gallon equivalent

DING Direct injection natural gas

DME Dimethyl Ether

DPF Diesel particulate filter

E

ECM Electronic control module

EGR Exhaust gas recirculation

EIA Energy Information Administration

G

GGE Gasoline gallon equivalent

GHG Greenhouse gases

H

HD Heavy duty

HOV lanes High occupancy vehicle lanes

HPDI High pressure direct injection

L

LNG Liquified natural gas

LTL Less than truckload carrier

M

MMBtu Millions BTUs

Mcf 1,000 cubic feet

O

OEM Original equipment manufacturer

P

PING Pilot injection natural gas

PPM Parts per million

R

RNG Renewable natural gas

ROI Return on investment

RS Retail sales

S

SCR Selective catalyst reduction

SING Spark-ignited natural gas

T

TL Truckload carrier

TRR Technically recoverable shale gas

reserves

U

UOM Unit of measure

W

WTI West Texas Intermediate

Y

YTD Year-to-date

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Documents

Natural Gas Quarterly - ACT Research · Natural Gas Quarterly . U.S. Class 8 NG Trends, Forecast, Analysis & Insight . Q1 2015 . Natural Gas Quarterly is published monthly by Americas