Industry Market Trends
Natural Gas Trucks Gaining Momentum
October 9, 2012
Trucking powered by natural gas is approaching a critical threshold, recent findings suggest. However, even as the move toward more natural gas in truck engines gains traction, key obstacles to mass adoption remain. Annual worldwide sales of natural gas trucks and buses are expected to more than double over the next seven years, growing from less than 70,000 in 2012 to more than 180,000 in 2019, a recent study by Pike Research indicates. Pike Research expects natural gas-powered trucking to grow at a compound annual growth rate (CAGR) of 14 percent between 2012 and 2019, while the market for natural gas buses is forecast to grow at a CAGR of 19 percent during the same period. Almost 1 million of these vehicles will be sold between 2012 and 2019, the study concludes. "Even if current low prices for natural gas rise, fleet operators remain keenly interested in protecting themselves from the high cost of diesel fuel," Dave Hurst, senior research analyst at Pike, said in an announcement of the study. "This market is being driven by several key sectors, in particular refuse trucks, utilities, transit and, to a lesser degree, construction. As those sectors grow, the fortunes of natural gas trucks and buses will follow suit." At Next-Gen Transportation News, Hurst and John Gartner, research director at Pike, recently cited four primary demand drivers propelling the market for natural gas vehicles: economic interest; environmental benefits; availability of fuel and vehicles; and energy security. In the United States, record increases in domestic natural gas production have pushed prices to 10-year lows this year, thanks to prolific shale deposits. The shale gas boom cut the price of natural gas by about 45 percent over the past year. Vast amounts of natural gas in shale rock formations have been unlocked by improved drilling techniques, making the fuel cheap and plentiful across the U.S. "Diesel prices have fallen substantially as they have tracked the downturn in oil prices from $110 a barrel to about $79. As a result, the gap between natural gas and oil prices is narrower than it has been in months," DC Velocity reported this summer. "Based on current prices, it would cost about $2.90 a diesel equivalent gallon for liquefied natural gas (LNG) and about 70 cents a gallon less for compressed natural gas (CNG), a heavier form of gas that is not well suited for longer-haul truck services because it weighs down equipment already laden with cargo, thus increasing a carrier's costs." Prices are likely to remain depressed, making natural gas an attractive alternative to more expensive diesel for the foreseeable future, according to a separate report that addresses natural gas prospects in the U.S. transportation fuel market. "Future gas demand in natural gas vehicles has enormous upside potential, led by private sector initiatives, with or without federal government assistance," the second report, from PIRA Energy Group, says. Natural gas demand for large trucks and fleet vehicles could reach 14 billion cubic feet per day (bcfd) by 2030 - about 20 percent of today's daily gas production - a significant rise over the 90 million cubic feet per day consumed in the U.S. last year, according to PIRA's high-case scenario. In its lower scenario, total demand would hit 7 bcfd. The increase from the higher case scenario could reduce diesel demand by 2.4 million barrels per day, about two-thirds of current daily consumption in the heavy trucking market. Fleet use of natural gas vehicles stands to have the fastest penetration in terms of market share, PIRA said in a statement. Trucks running on LNG would make up 70 percent of the projected 14 bcfd, with fleet vehicles consuming CNG making up the rest. PIRA says adoption of natural gas into both U.S. commercial trucking and all varieties of fleets is approaching "a critical threshold," which could ultimately lead to enormous gas demand growth at the expense of diesel fuel. However, widespread LNG adoption for Class 8 trucking faces a number of obstacles. Critical issues such as technological uncertainties and problems in the natural gas refueling infrastructure point to downside risks. "For starters, the market needs to build a consumer base for trucks that are not yet built, and that also lack a viable fueling infrastructure," according to PIRA. "The interdependence of these prerequisites leads to the conundrum of how to move forward in a way that all necessary steps can move together." A pivotal building block will be the ability of manufacturers to produce and sell LNG trucks capable of satisfying the wide-ranging needs of commercial trucking. Currently, available LNG trucks lack options for medium-size engines that can compete effectively with diesel engines. Yet the shift toward natural gas in truck engines has already begun, with engine makers offering more affordable alternatives to the diesel and gasoline engine, as well as more fueling stations appearing across the U.S. As PIRA notes, the Cummins/Westport Innovations joint venture is scheduled to make available an 11.9-liter natural gas engine that can run on LNG in early 2013, and "the implied payback period associated with this mid-size LNG truck appears likely to generate high consumer interest." Meanwhile, Clean Energy Fuels Corp. is addressing another major concern among fleet operators, particularly long-haul truckers: scarcity of refueling stations. The company plans to cover major trucking routes with a network of 150 stations by the end of 2013. Shell Oil Co. and TravelCenters of America LLC announced this year that they plan to offer natural gas pumps at 100 truck stops nationwide. "For fleet vehicles ... the past year has witnessed a striking advance of private initiatives across the stakeholder spectrum - from major vehicle producers, to fueling infrastructure firms, to fleet operators," PIRA says. "A high degree of NGV [natural gas vehicles] visibility and share of new orders in the public transit and refuse market are standout examples of CNG vehicle growth taking root."