UPS LNG Vehicle
UPS is expanding its fleet of LNG trucks. (Photo courtesy of Natural Gas Vehicles for America)

PIRA Energy Group, a NYC-based energy market consulting firm, released a report on medium- and longer-term natural gas prospects in the U.S. transportation fuel market. PIRA says the sheer volume of U.S. recoverable gas resources relative to expected demand suggests that benchmark Henry Hub gas prices will remain deeply discounted relative to oil prices beyond this decade.

As a result, PIRA’s special report concludes that future gas demand in Natural Gas Vehicles (NGVs) has enormous upside potential, led by private sector initiatives, with or without federal government assistance.

PIRA reports that adoption of natural gas into both U.S. commercial trucking and all varieties of fleets—vehicle groups generally operated by corporations and government agencies—is approaching a critical threshold, which ultimately could lead to enormous gas demand growth at the expense of diesel fuel. In an overall high-case scenario, PIRA predicts NGV gas demand would be capable of reaching 14 BCF/D by 2030, suggesting that as much as 2.4 MMB/D of diesel fuel demand could be at risk. Liquefied natural gas (LNG) consumed in Class 8 trucks would be responsible for approximately 70 percent of that total, 10 BCF/D (1,700 MB/D diesel equivalent [MBe/D]), according to PIRA. Fleet vehicles typically consuming compressed natural gas (CNG) would account for the additional 4 BCF/D (700 MBe/D). PIRA’s Reference Case forecasts natural gas will capture a more moderate, but also impressive, 7 BCF/D (1,200 MBe/D) share of the U.S. on-highway transportation fuels market by 2030.

Infrastructure hurdles, technological uncertainties, and other issues expose PIRA’s NGV high case to downside risks, especially in heavy trucking fuel scenario. Consequently, PIRA’s 2030 Reference Case marks down Class 8 truck gas demand by almost two-thirds to 3.6 BCF/D (600 MBe/D). By comparison, however, PIRA’s Reference Case for fleet vehicles pegs gas demand at 3.4 BCF/D (600 MBe/D) in 2030, or only 15 percent below the high case, which underscores less complex hurdles and, therefore, more moderate downside risks than PIRA’s high case for Class 8 trucks. 

Fleet use of NGVs stands to have the fastest penetration in terms of market share, according to PIRA. For fleet vehicles where the principal NGV alternative to diesel is CNG, 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. A high degree of NGV visibility and share of new orders in the public transit and refuse market are standout examples of CNG vehicle growth taking root.  

PIRA says the challenge that faces widespread LNG adoption for Class 8 trucking looks daunting. 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. The interdependence of these prerequisites leads to the conundrum of how to move forward in a way that all necessary steps can move together. Although the timing remains quite speculative, the private sector appears to be responding to this challenge without help from the federal government, which previously looked essential.

PIRA sees interdependent building blocks required for meaningful NGV adoption by heavy trucking. First, natural gas marketers must sell truckers on the notion that purchasing an LNG truck can be a relatively safe and fast payback investment. Relative to other estimates, PIRA’s economic analysis suggests that payback periods for-heavy duty vehicles typically should range from one to two years.  The success of gas marketers’ efforts to sell natural gas for trucks will be a driving force for both the sale of new generation Class 8 trucks, as well as the capital investments for building the required fueling infrastructure. When regional markets reach a critical consumer base threshold, the build-out of LNG fueling infrastructures can move forward.

Another 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 truck engine options are extremely restrictive, in particular a lack of medium-size engines that can compete effectively with diesel engines. But the Cummins / Westport Innovations (CWI) joint venture is scheduled to make available a potentially groundbreaking 11.9 liter LNG engine in early 2013, and the implied payback period associated with this midsize LNG truck appears likely to generate high consumer interest. Moreover, Cummins and Westport Innovations each brings its own core competencies to the partnership. On the production side, Cummins is ranked in the top 10 globally by revenue among truck manufacturers, and, therefore, this venture mitigates the need for capital-intensive greenfield capacity to propel manufacturing forward. On the engineering side, Westport components and technology are widely utilized by LNG engine manufacturers.