September 2009 - Analysis - Natural gas
A transport fuel with a future
Petroleum Economist
September 28, 2009
Concerns over energy supply security, greenhouse-gas emissions and oil-price volatility are generating greater interest in natural gas vehicles, writes Ian Lewis
NATURAL gas has long been a popular fuel for fleet vehicles in South America. But new legislation is set to encourage the use of natural gas vehicles (NGVs) in the US – which could be a boost for Latin American NGV manufacturers.
According to the International Association for Natural Gas Vehicles (IANGV), almost 10 million vehicles around the world run on natural gas – either solely or in a bi-fuel engine capable of running on either compressed natural gas (CNG) or gasoline. These are mainly fleet vehicles, such as short-haul delivery lorries and vans, taxis and buses, which can refuel at a central point.
"In general, it's better to keep natural gas or biogas for fleet development, because you can target your funding on a small number of compression units," says Ben Lane, director of Ecolane, an environmental consultancy specialising in low-carbon transport. "In many places, it doesn't make sense to roll out the infrastructure for the wider public."
NGVs are cheap, so long as gas is cheap at the pump, and they produce around 20% fewer greenhouse-gas emissions than their gasoline-powered equivalents. They also eliminate virtually all of the smog-producing contaminants from tailpipe emissions – a significant plus point in polluted cities such as Los Angeles or Bangkok.
Latin America still dominates the NGV market, accounting for around 40% of the total largely because of the effects of subsidised gas prices and government support for the industry during the 1980s. Those factors made it viable for a range of fleet vehicles to be converted to natural gas and have helped turn Argentina and Brazil into hubs for NGV manufacturing and technological development.
Argentina has more than 1.7 million NGVs on the road, representing about 15% of the total number of vehicles in the country, including many of the taxis in Buenos Aires and other large cities. The bigger Brazilian economy is catching up fast, as are other Latin American economies (see Table 1). "Colombia and Peru are promoting natural gas," says Richard Kolodziej, the IANGV's president.
While the continent has an expanding cross-border gas-pipeline network, it generally lacks the infrastructure at a national level to deliver gas directly to businesses and houses. As a result, using natural gas as a transport fuel available at centralised refuelling stations is often an economically attractive solution.
Venezuela is another Latin American NGV market poised to take off. The country was estimated to have almost 50,000 NGVs in 2003, but a difficult political background and a lack of incentives for the industry pushed the figure down to less than 5,000 by 2007, according to IANGV estimates. However, recently published government regulations aim to rejuvenate the sector.
In mid-2009, the energy ministry said 30% of new vehicles manufactured and sold in Venezuela in 2009 must come equipped with dual-fuel engines capable of running on either gasoline or natural gas. The quota is set to increase to 40% in 2010 and 50% in 2011, according to the government's plan. This could put more than 100,000 more NGVs on the road in the next few months, as privately owned cars, taxis and light-duty vehicles in government-run fleets and elsewhere convert, according to the Latin American NGV Association. However, the erratic course of Venezuelan politics and economic development over recent years suggests that a wait-and-see attitude should be adopted when assessing the country's potential.
Other countries, notably those in Asia with access to cheap domestic natural gas supplies, have also recognised the potential of natural gas as a fuel in recent years – usage in Pakistan and Iran, in particular, has soared. However, in Western countries, CNG has remained a niche fuel. Just under half the NGVs on the road in Europe are in Italy – largely light-duty commercial vehicles – but elsewhere the expense of imported natural gas has largely restricted progress to relatively small-scale projects and experimentation with biogas – gas derived from organic matter (see box).
In the US, relatively cheap and freely available oil over recent decades stunted the growth of alternative fuels, including CNG. Of its 250 million registered vehicles, just 110,000-120,000 are NGVs; but the search for cheaper, cleaner substitutes has brought natural gas into the spotlight. That could have knock-on benefits for Latin American NGV manufacturers, conversion companies and component makers, some of which are well placed to supply the US.
The US has large proved natural gas reserves and a surplus of production capacity, in part because of reduced demand during the recession. This has seen gas prices tumble and made CNG look increasingly attractive at a time when memories of oil at $150 a barrel are still fresh and worries over energy security persist.
"We are very pleased with interest being shown in the marketplace as well as among policymakers. With the realisation that we have to move away from petroleum, we have everyone's attention," says Stephe Yborra, director of marketing and communications at NGV America, the country's industry association
However, unfamiliarity with the technology and the paucity of refuelling infrastructure are significant obstacles to persuading users to make the switch from gasoline to NGVs. New US legislation, offered to the Senate in July, aims to overcome such reticence by expanding existing tax incentives for those buying natural gas as a vehicle fuel and for the construction of refuelling stations, as well as providing extra funding for technological development. One measure would make all NGV purchases eligible for a tax credit equal to around 80% of the cost of converting a vehicle to natural gas up to a threshold of $12,500, compared with the maximum of $5,000 permitted under existing legislation.
Bipartisan support
Both the Senate bill and its equivalent introduced to the House of Representatives earlier this year have strong bipartisan support. The Senate legislation is sponsored by Democrat senator Robert Menendez and backed by powerful figures, such as Senate majority leader Harry Reid, Republican senator Orrin Hatch and also by T Boone Pickens, who has been campaigning for and investing in technologies that reduce US energy imports. They are confident much of the proposed legislation will be passed by Congress in coming weeks.
Pickens has drawn up a plan focused on further bolstering CNG use in heavy-duty lorries, saying he would like to see 1.3 million of them running on natural gas by 2014. He has spent heavily on promoting natural gas as a stop-gap fuel to reduce energy imports until renewable transport-fuel technology improves.
While the overall number of NGV vehicles on US roads has remained fairly static over recent years, the switch in the balance of the fleet towards heavy duty, big-mileage vehicles, such as buses, has resulted in a 15% annual increase in natural-gas consumption by vehicles between 2005 and 2008. And that figure could rise much further if most of the measures being considered by Congress are passed. "We think we could double our fuel use in the just a couple of years, if this legislation goes through," says NGV America's Yborra.
The US CNG sector received a boost in March, when telecoms firm AT&T said it planned to spend an estimated $350m on buying around 8,000 CNG vehicles, as well as further spending on other types of alternative-fuel vehicle. In June, it said BAF Technologies would convert 600 Ford E-Series vans to CNG technology by the end of the year.
Limited infrastructure
Yet despite across-the board incentives that cover light-, as well as heavy-duty, vehicles, the legislation is unlikely to result in a significant escalation in the use of natural gas-powered cars for personal use in the US. With only around 1,100 NGV refuelling stations in the country – and with California the only state to have more than 100 of them – the chances of a rapid escalation in the use of privately owned NGVs to a significant level seem limited.
The Honda Civic GX natural-gas-fuelled car has regularly topped green car polls since it was first manufactured in the US in the late 1990s, but it has been the only purpose-built NGV produced in the US by a big manufacturer in recent years – and the numbers produced remain small, at around 2,000 units a year.
Greater competition among alternative fuels for private-use cars is also likely to mean natural gas will remain most popular for fleets of larger vehicles. Says Ecolane's Lane: "Cars can use hybrid technology, while articulated lorries, for example, cannot. However, you can convert an articulated lorry to natural gas."
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