I wanted to see what the latest thinking was on the future of natural gas as a transportation fuel and looked to the new Energy Information Administration’s latest Energy Outlook that was released Dec 16th. This 30 year forecast is updated annually to factor in new information and trends and certainly the use of natural gas in transportation has evolved a lot just in this past year.
With the launch of a new heavy duty natural gas engine from Cummins that is now going mainstream the demand for both Compressed Natural Gas (CNG) and Liquefied Natural Gas (LNG) is poised to grow. The question is how much and how fast?
Well looking first at the next five years we can see that the existing use in Automotive and School Bus applications is fairly flat. The growth is expected to be Transit Bus use where we have a proven workhorse engine, and in Heavy Duty Trucking. Over all sectors the EIA expects the use of Natural Gas as a transportation fuel to grow 31% over the next 5 years to almost 600 million gallons. This seems conservative given the amount of demand I have seen developing with our customers, and I would love to hear your best guess.
Now looking 30 years out may not be much better than asking your crystal ball what is going to happen, but it is interesting to look at where the curve starts to bend north in a big way and what drives that growth. From that perspective we can see that the real impact does start to hit more in 10 years than in 5 and that is comes from the scale up of those Heavy Duty engines.
So if demand is going to go from roughly 400 million gallons now to the equivalent of over 8 billion gallons in 2040 wouldn’t that destroy the price advantage of natural gas compared with gasoline and diesel? It is after all that price advantage that is driving all this.
Well I think no is the answer to that question. Even at that level of consumption the amount of natural gas we’d be consuming for transportation compared with the overall market is small. No I take that back, not small, tiny. The chart below shows just how tiny with transportation use being the small red slice. I don’t know of any major commodity market where 3% of the use is going to drive overall prices up.
Now prices could go up anyway as we are talking about a massive increase in natural gas use for power generation, but with the shale boom getting bigger every day it seems we have strong consensus that there is more than enough natural gas to go around.
This is just one man’s opinion, well I guess in this case one government agency’s opinion actually. What do you think?
How many CNG rigs do you have and where are they based?
Your regionalization appears key to success with CNG use.
Do you have fueling stations at each of your 12 terminals?
Doug, even a 3 year ROI is good IMHO. Certainly prices are cyclical and we will see high traditional fuel prices creep (or come roaring) back.
When that occurs if CNG prices remain below the curve you will have done well.
I started converting trucks in our fleet (Jack B. Kelley, Inc.) to LNG in 1994, a little ahead of the curve. Our motivation was to find a fuel that was better for the environment, better for our employees health (my father was a truck driver in he early years and died at 63 of cancer probably caused by diesel fumes and diesel smoke), domestically sourced and cheaper than diesel. Natural gas was and is the only fuel that meets all those criteria. About 80% of the refuse trucks on order today are natural gas. Over 50% of the transit buses on order are natural gas. It is a bridge fuel, but the bridge may be long. Took the industry 60 years to convert from gasoline to diesel. I applaud Mansfield for utilizing CNG and hope the current pricing situation doesn’t deter future deployment.
The dramatic decline in crude oil prices and resulting decline in diesel prices has certainly been a game changer. Companies that had been on the fence or were considering CNG/LNG as an option have certainly taken pause to rethink. Do you have any CNG/LNG class 8 rigs on order? How has the price decline impacted your ROI on your CAPEX?
Bob, we are deploying 8 more CNG trucks in our Atlanta fleet now, and intend to deploy in Tampa next. The economics have changed and payback is extended from 1.5 years to 3 years at current prices, but we are committed and believe that these diesel prices will not last. Do agree that this will slow down the adoption rate in general.
I agree and have followed and studied the use of natural gas in the transportation sector. One thing to keep in mind is that even IF demand drives the price of natural gas up substantially in the next 5-10 years, you will not see a dramatic increase at the pumps for CNG/LNG. While a slight increase in oil means a sharp increase at the pump, natural gas is a smaller component of the overall price for CNG/LNG than oil is to gasoline/diesel.
I agree that the rapid increase in consumption of natural gas coupled with the demand to export LNG to our trading partners world wide will drive up the cost of natural gas. However at the same time conventional motor fuel prices would also be expected to escalate if not for the CNG / LNG offset. So that part is a wash. The primary factor to the 10 year spike as opposed to the 5 year spike is the upfront conversion cost for vehicles and the lag in getting infrastructure in place. Many companies want the cost savings offered by CNG /LNG but don’t have the capital to build their own fueling stations and you can’t convert vehicles if you don’t have a place to fuel them. As the song goes, “weeks turn into years, how quick they pass”.
Bob, I agree that as consumers substitute CNG/LNG for gasoline or diesel that the price of gas and diesel would be pressured downward. I think however the ease of exports and overall global growth for diesel in particular mutes this economic fundamental in this case. The US is exporting over a million barrels per day of diesel already and it’s growing fast, so that is going to keep prices up and the savings to be obtained by using CNG/LNG attractive for a long time.
Reblogged this on Pankaj Oswal.