A milestone power utilities achieved this spring should jolt transportation operators and shippers. In April, the amount of electricity generated by natural gas-fired power plants for the first time equaled that produced by coal-fired plants, with each accounting for 32 percent of total U.S. power generation that month.
That’s the lowest share of total net power generation for coal since the 1970s. For natural gas, it’s a huge gain supported by low prices and large stockpiles built up by the shale gas boom. In April 2010, coal accounted for 41 percent of total net power generation and natural gas, 23.3 percent. In comparison, nuclear power, the third-largest source of electricity, accounted for 18 percent in April 2011 and 19.9 percent this past April, according to the U.S. Energy Information Administration.
When it comes to energy production, the data shows, the most solid growth is in gas.
Marketed production of natural gas increased 7.9 percent last year to 66.2 billion cubic feet per day, the largest annualized jump since 1984, while consumption rose 2.6 percent to 66.8 bcf/d, according to the EIA’s Natural Gas Year in Review report for 2011, released July 10. As of June 2012, U.S. working stockpiles — meaning natural gas available to the market — totaled more than 3.1 trillion cubic feet.
The sheer abundance and, as a result, low cost of natural gas is reshaping U.S. energy markets, sending repercussions from power plants to truck stops. The use of natural gas is increasing not just in power generation but also in industrial manufacturing, residential and commercial heating, and as an alternative fuel for trucks and, potentially, locomotives and even, in more distant plans, container ships.
In 2011, the use of natural gas, in either compressed or liquid form, as a vehicle fuel increased 7.1 percent year-over-year and 38 percent from 2006, EIA data show. It more than doubled over the past decade to 38.85 million cubic feet in 2011.
That’s the equivalent of 245.7 million gallons of liquid fuel. That may sound like a lot, but it’s still a small drop in a very big bucket. Trucks consumed 37.2 billion gallons of diesel fuel in 2011, according to the American Trucking Associations.
But that small drop could swell into a larger stream of CNG and LNG fuel powering a rising number of trucks over the next few years. In the long term, that could have significant implications for transportation pricing, especially truck rates.
Conversion to natural gas fuels could be spurred if early adopters are able to gain a cost and pricing advantage over their diesel-run competitors — especially if volatile oil prices spike and fuel surcharges tied to the pump price of diesel escalate.
Many observers believe trucking is on the verge of a new natural gas era, and the shale gas production boom is leading The Wall Street Journal to ask, “Will Truckers Ditch Diesel?” (WSJ, May 24, 2012). The short answer, of course, is no. Even if natural gas suppliers could produce enough CNG or LNG to power all the commercial vehicles in the country, they simply couldn’t deliver it with their existing infrastructure.
However, with a concerted effort under way to expand natural gas fueling infrastructure nationwide, and new engine technology in field tests, natural gas is becoming the alternative fuel of choice for trucking operations ranging from drayage to less-than-truckload and regional truckload.
Natural gas vehicles appear to be in a position not unlike that of the “motor truck” in the early 1900s, when advocates of the combustion engine saw the truck as a green, high-tech alternative to the horse and wagon. It took more than two decades for the truck to put the horse out to pasture, largely because new infrastructure — starting with paved roads — and technology were needed first.
In addition to a nationwide fueling network, proponents of natural gas-fueled trucking need engines better suited to longer-haul truckload applications. Medium-bore engines being field tested today could provide the power truckers need to haul 80,000-pound gross vehicle weights from mountains to prairies to city streets.
It may take years or decades for natural gas to gain the kind of foothold in transportation it already has in power generation, but the race is on.
“There’s a race (to develop) all these alternative fuels, and the one that has advanced the furthest in this 100-yard dash is natural gas,” said Glen Kedzie, vice president and energy and environmental counsel for the ATA. “We use biodiesel because it’s the law. We’re migrating toward natural gas because we want to.”
Why would a trucking operator want to “migrate” toward national gas? Not primarily because of the environmental benefits, laudable as they may be.
It’s the money. “This is going to be driven by economics,” said James N. Harger, chief marketing officer for Clean Energy Fuels, a major supplier of CNG and LNG fuel. “Our economics are pretty strong when oil costs $80 to $100 a barrel.”
On July 3, the Henry Hub spot market price for natural gas was $2.78 per million British thermal units, or about $2.85 per million cubic feet. That’s a 36 percent drop from a year earlier, though an increase from earlier this year. The raw diesel per gallon equivalent price, using a formula supplied by Harger that equates an MCF of natural gas with 7.2 gallons of diesel fuel, would be about 39 cents a gallon.
“Even after you tack on $1.50 in additional costs and taxes, you’re still less than $2.25 a gallon,” Harger said. Those additional costs will vary by location or state, but natural gas fuel often has at least a $1- to $1.50-per-gallon advantage over diesel, which was selling for $3.68 per gallon on average in the week ending July 9.
“That’s a game-changer,” Kedzie said. “It’s gotten fleets’ attention.”
For the game to truly change, however, the natural gas industry needs to build out its fuel-station infrastructure and produce new engines that will help move LNG and CNG beyond the drayage, vocational, parcel and regional freight markets where they already have a foothold and into longer interstate trucking lanes. The first step is a fuel network that can deliver natural gas throughout the nation.
“You have to immediately think about the infrastructure and the availability of the fuel” when considering whether to use natural gas, said Scott Perry, vice president of supply management at truck leasing giant Ryder System, which operates about 250 natural gas-powered trucks in its dedicated operations.
Truckers need to look at the total cost of operating a CNG or LNG fleet, not just the difference in commodity prices, Perry said. “You need to look at this holistically,” much as a logistics manager looks at total landed transportation costs, he said, taking equipment and maintenance costs, training and facility upgrades into account. “Infrastructure is the first thing we talk about,” he said. Low-sulfur diesel is available at tens of thousands of U.S. filling stations, while CNG is available only at about 1,000 locations, and not all of those are public. LNG is available at fewer than 100 outlets.
Companies such as Clean Energy Fuels and Shell are trying to expand the LNG delivery network rapidly along major interstate corridors to facilitate the fuel’s use by interstate truckers. Clean Energy plans to build 70 LNG stations at Flying J and Pilot truck stops this year and already has completed 20, Harger said. Next year it will add another 80 locations to “America’s Natural Gas Highway.” Shell will build an LNG fueling network through a partnership with TravelCenters of America at 100 truck stops, starting in 2013.
Those competing networks could form the backbone of a broader distribution system. “You need to have a fueling infrastructure that’s mature and efficient,” Perry said. “Vehicles still have to leave those major roadways and deliver into the outlying markets, and that’s where the secondary infrastructure needs to exist.”
Technology is another key factor, particularly the development of heavy-duty engines that will extend CNG and LNG to more regional trucking operators.
Cummins Westport, a joint venture between natural gas engine technology developer Westport Innovations and engine manufacturer Cummins, will introduce a 12-liter natural gas engine in early 2013 designed for the regional and vocational trucking markets. Westport has a partnership with Volvo Trucks to launch a 13-liter natural gas engine for the North American heavy-truck market in 2014.
Those engines will fill an important gap between today’s 8.9-liter and 15-liter natural gas engines, Perry said. “They’ll serve a much wider range of applications,” he said, increasing the range of vehicles and allowing them to haul heavier loads over more mountainous terrain. “They will definitely open the door to a much broader marketplace. We need to make sure they are delivered at a price that contributes positively to the return on investment model.”
Equipment costs can be a significant obstacle, though financing deals and incentives often can help carriers absorb the blow of a price tag that could be $30,000 or more than that of a diesel truck. “These are some of the things we’re working through,” Perry said. “This is truly in its infancy. But it’s moving in the right direction.”