PIRA Energy Group, a NYC-based energy market consulting firm, released a report that addresses both 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 natural gas prices will remain deeply discounted relative to oil prices beyond this decade. The lower prices are driving fleets commercial trucking, corporate and government fleets to move to the cheaper alternative.
The lengthy period of low-cost natural gas relative to oil has tremendously broadened support for the view that inexpensive North American gas is here to stay, says the group.
PIRA's report concludes that future gas demand in such NGVs has enormous upside potential, led by private sector initiatives, with or without federal government assistance.
In an overall "high case" scenario, NGV gas demand would be capable of reaching 14 billion cubic feet per day by 2030, suggesting that as much as 2.4 million barrels per day of diesel fuel demand could be at risk, says the report. Liquefied natural gas used in Class 8 trucks would be responsible for approximately 70% of that total, while fleet vehicles using compressed natural gas would account for the rest.
The group notes, however, that the "high case" scenario could be adversely affected by infrastructure hurdles, technological uncertainties, and other issues -- especially the heavy trucking fuel scenario.
That's why PIRA's Reference Case forecasts natural gas will capture a more moderate, but also impressive, 7 billion cubic feet per day share of the U.S. on-highway transportation fuels market by 2030. This scenario marks down Class 8 truck natural gas demand by almost two-thirds to 3.6 BCF/D -- but for fleet vehicles using CNG, it pegs natural gas demand at 3.4 BCF/D in 2030, or only 15% below the high case, which underscores less complex hurdles in these fleets.
PIRA notes that 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.
Challenges for LNG Adoption
Widespread LNG adoption for Class 8 trucking faces a number of stumbling blocks.
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," notes the company in a news release. "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."
The success of natural gas marketers' efforts to sell natural gas for trucks will be a driving force for both the sale of 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," PIRA notes.
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 lack medium-size engines that can compete effectively with diesel engines. But the Cummins / Westport Innovations (CWI) joint venture is scheduled to make available a 11.9-liter natural gas engine that can run LNG in early 2013.
"The implied payback period associated with this midsize LNG truck appears likely to generate high consumer interest," PIRA says.
Learn more about natural gas in our special web section, "Natural Gas: What Fleets Need to Know."