u.s. class 8 ng trends, forecast, analysis & insight q1 ... · natural gas quarterly . u.s....

Natural Gas Quarterly

U.S. Class 8 NG Trends, Forecast, Analysis & Insight

Q1 2016 Published April, 2016

Natural Gas Quarterly is published quarterly by Americas Commercial Transportation Research Company, LLC (ACT), 4400 Ray Boll Blvd., Columbus, IN 47203. Phone: 812-379-2085,

Fax: 812-378-5997, e-mail: [email protected] Copyright 2016 by ACT with all rights reserved. Reproduction, copying, or pub lication of this report in whole or part is not permitted

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FUEL PRICE SPREAD

Diesel prices oscillate in narrow band

Fuel price spread inversion continues

NG payback lengthening

Long-term NG price stability a plus

NG EQUIPMENT

Premiums remain high

NG resale value data is emerging

Investments still being made in NG

Weight & performance improvements ongoing

NG FUELING INFRASTRUCTURE

CNG outpacing LNG

Station build continues

Build plans being adjusted

HD capacity outpacing LD/MD

Municipality builds for public use

NA Class 8 NG RS

February RS up 3% M/M

Down 25% Y/Y

YTD February down 14%

Existing user buys slowing

Visit ACT’s Payback Calculator at http://calc.actresearch.net/

NOTE: Click on the respective key points above for detailed explanations sup-porting the position of each variable in the report. To return to the front cover, click on the footer of any page.

In Q1’16, the scorecard was unchanged from the previous two quarters, reading diesel

10, natural gas –10. At a zero reading, there is no payback advantage to either fuel.

ACT’s independent Fuel Payback Calculator, available no charge at

calc.actresearch.net/, shows diesel as the fuel of choice based upon current economic

considerations.

This score is for a hypothetical fleet purchase that does not place monetary values on

subjective variables as pending emission legislation, shipper directives, carriers’ “go green” initiatives, access to lower cost NG, monetary incentives, etc. If such items are relevant for a specific fleet, they need to be factored into the calculation before a final

score can be determined.

An ROI of 36 months is used in the above example. Fleets can also adjust this assump-

tion to meet their needs.

-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

2012 2013 2014 2015 2016

NG-Diesel Truck Payback ScorecardQ1'12 - Q1'16

Score

Scores based on cost inputs into ACT's Fuel Payback Calculators http://calc.actresearch.net/

Diesel

NG

Neutral

TABLE OF CONTENTS

Page Fuel Prices ........................................................................................................................ 1 Equipment Prices, Products & Technology Developments ...................................... 2-3 Fuel Infrastructure ........................................................................................................ 4-5 New NG Truck Sales Data ............................................................................................... 6 NG Truck Adoption Forecasts ........................................................................................ 7 Additional Considerations NG in the News ................................................................................................... 8-9 From the Green Truck Summit ........................................................................... 10 How It Calculates ................................................................................................ 11 Natural Gas Adoption: Reports from the Field ............................................ 12-13 Glossary of Acronyms ........................................................................................ 14 Other ACT Products & Services ........................................................................ 15

Q1 2016 • Natural Gas Quarterly

FUEL PRICES

Q1 2016 • Natural Gas Quarterly • Page 1

DIESEL FUEL PRICES OSCILLATE IN NARROW BAND: Sources show

CNG averaging $2.35/DGE and LNG at $2.56/DGE in Q1’16. Using the EIA’s

diesel price data for the same period shows diesel at $2.06/gallon. CNG and

LNG prices are both unchanged from last quarter. Diesel fuel prices have de-

clined at a greater rate than NG because the crude oil in a gallon of diesel is a

much greater percentage of the total cost of a gallon relative to the base cost

of natural gas in a DGE of CNG/LNG. On the other hand, since NG prices do

not decline in tandem with diesel, it demonstrates the less volatile swings of

natural gas pump prices.

FUEL PRICE SPREAD INVERSION CONTINUES: Virtually no difference

existed between the price of diesel and LNG at the end of Q4’15, while CNG

continued to trend below both. Q1’16 saw diesel prices move little, but in a

lower range than was recorded previously. Because of this, the mpg-adjusted

price spread inversion noted in Q4’s report remains intact (see graphic on the

right). On that basis, diesel is currently the cheapest fuel for trucking opera-

tions, a negative impact on the payback timing for NG power.

NG TIME-TO-PAYBACK LENGTHENING: Utilizing a set of assumptions

for our model fleet, it took just over 3 years to pay back our higher natural gas

equipment premium in Q4’12. Using the same assumptions but adjusting for

the Q1’16 equipment upcharge and fuel prices, it now takes considerably

longer than three years. Given the inversion of fuel prices when the mpg deg-

radation is included, a switch to natural gas fuel could actually cost our sam-

ple fleet in the neighborhood of $2,000 per year, per truck.

While few operators will consider natural gas fuel with the payback beyond

two to three years, those carriers in niches with longer trade cycles, such as

transit buses, refuse haulers, and private fleets, as well as those who see a

competitive advantage of using NG beyond a simple payback calculation, con-

tinue to transition to natural gas fueled vehicles.

NG LONG-TERM PRICE STABILITY A PLUS: It is important to keep in

mind that the prices and differentials in our payback calculation are based on

current prices rather than long-term forecast prices for each fuel type. When

fleet managers make a decision to purchase equipment, current fuel price is

only part of the formula. Long-term considerations are also made, and that is

where natural gas, with its history of greater price stability, with fewer dramatic

commodity price fluctuations, may have an advantage.

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

2009 2010 2011 2012 2013 2014 2015 2016

U.S. Retail Fuel Prices per DGENG Adjusted Price for Tax & MPG Degradation

Q1 '09 - Q1 '16

LNG Diesel CNG

Source: Alternative Fuel Price Reports (AFDC, US DOE), EIA , www.cngnow.com, ACT Research Co., LLC Copyright 2016Source: Alternative Fuel Price Reports (AFDC, US DOE), EIA , www.cngnow.com, ACT Research Co., LLC Copyright 2016

Taxes –21%

Distribution & Marketing –

22%

Refining –17%

Crude Oil –40%

Natural Gas Cost – 27%

Compression/Drying – 20%

Liquefaction –23%

Taxes – 15% Taxes – 22%

Capital Recovery, Margin &

Balance – 38%

Distribution & Marketing – 33%

Natural Gas Cost – 22%

DIESEL$2.06/gallon

LNG$2.56/DGE

CNG$2.35/DGE

Source: EIA, US DOE AFDC, Blu LNG, www.cngnow.com, ACT Research Co., LLC Copyright 2016

Correlation to Commodity – a Breakdown

$0.43

$0.45

$0.35

$.83

$0.35

$0.89

$0.47

$0.64

$0.56

$0.85

$0.59

$0.56

A TALE OF TWO MARKETS: “It was the best of times; it’s now the worst of

times,” commented a former NG fuel sales representative. Persistent low oil

prices have widened the divide between adopters and those who had believed

but now are making changes. Most agree that diesel prices will rebound from

current low levels. Bus, refuse, private and dedicated fleets continue to stay

the course and buy NG engines, but some fleets have decided to return to

diesel. After interviewing a couple of fleets it is clear the economics can differ

significantly. Many fleets have invested far beyond the trucks. Adding com-

pressors, hoses, and other infrastructure costs changes their decision from

those fleets whose investment is strictly truck only. UPS, for example, has

announced plans to build more private CNG stations and add several hundred

more NG tractors. Many NG equipment and component suppliers have an-

nounced improvements in some CPRWT categories, as they continue to com-

pete against the incumbent fuel (diesel). CPRWT:

Cost: The premium paid on NG trucks and equipment and different

component parts that go on a truck or tractor are followed and updated as

industry OEMs report updated sales prices.

Performance: This category follows the change in performance of

NG trucks/tractors. New engine sizes and new performance improve-

ments, including maintenance costs, are evaluated.

Range: Reporting on the distance trucks can travel between fill -ups

whether by gallons onboard or distance between stations is a common

concern among several fleets considering adoption.

Weight: The added weight of NG tanks and accessories is also a

consideration for some fleets evaluating the investment in NG

Time: Time refers mostly to “ Time to Fill,” but can also include out -

of-route miles and station accessibility.

COST: While the upfront costs of engines, tanks and components hasn’t

changed substantially since Q4, the resale value of this equipment is exposing

extra “costs” associated with operating a NG truck. Some of the first genera-

tion trucks are now starting to find their way into the used truck market. Over

the past 3-4 years, many were forecasting that the premium paid upfront on

the NG truck could be realized on the resale, thereby lowering the total cost of

ownership (TCO). That, however, has not been the case. The Westport HPDI

technology introduced in 2007 as a diesel ignited NG engine touting horse-

power and torque as high as 500 and 1750, respectively, was discontinued in

2013, which undoubtedly had an adverse effect on their resale ability. Just a

few months ago these trucks sold at a discount to a diesel tractor by as much

as $20,000. So, with an original premium of $95,000 and a residual loss of

$20,000 over 5 years, the payback for this particular fleet was, no doubt, im-

paired.

There are also a number of ISX12G trucks now on the market with selling

prices at or near the cost of a diesel equivalent. In talking with some of the

fleets selling their equipment, their statements included things like: “Inefficient

out-of-route miles to refuel”, “MPG degradation exceeds 20%” to “Excessive

downtime with a limited number of shops equipped to service.” Ultimately the

driving factor for the low resale values can be attributed to low oil prices. Bob

Carrick, a sales manager at Freightliner, said it best when asked about NG

resale value in 2012, “Tell us what the price of diesel fuel is going to be in five

years and we can give you a pretty good estimate of what the value of the

trucks will be.”


EQUIPMENT PRICES, PRODUCTS & TECHNOLOGY DEVELOPMENTS

NOTES: These are retail estimates obtained by ACT Research and could vary for specific fleet quotes from different truck OEMs/dealers/upfitters. Dealer margin is implied in the engine price because they are the marketers for trucks and engines.

Component Added Cost to CNG Truck Added Cost to LNG Truck

Engine (ISX12 G) $12,700 $12,700

Tanks (120 DGE) $38,000 $25,000

Installation Costs $2,500 $2,500

Non-value added costs (i.e. transportation)

$1,000 $1,000

Federal Excise Tax (FET) 12% $6,504 $4,944

TOTAL Estimated Upcharge $60,704 $46,144

TIME: With the announcement of Love’s Truck Stops buying Trillium CNG, the

time to fill a commercial vehicle should improve. Love’s was one of the first

major truck stop chains to incorporate CNG in their diesel islands. They an-

nounced their first heavy-duty fuel station in 2012 and have since opened sev-

eral others across the country. By acquiring Trillium CNG, they will expand

their footprint into the private fleet and custom solutions markets. The out-of-

route miles fleets are willing to consider will be improved with a network like

Love’s across all the major interstates.

PERFORMANCE: While the broader NG industry seems to be quieted by

low diesel prices, many have taken it as an opportunity to go “back to the

drawing board.” Private capital and public money are still finding their way into

NG investments. California has always been at the forefront of environmental-

ly-friendly technologies. California’s Air Resource Board (CARB) has been a

driving force for the broader transportation industry’s emissions standards.

California has already announced grant funding for clean energy technologies

in response to the GHG Phase 2. One of the standards of GHGp2 includes

waste heat recovery. California Energy Commission awarded a $1M grant to

develop and demonstrate advanced technology on improving waste heat re-

covery in NG engines.

Other companies continue to find access to private capital. One of these com-

panies, CNG One Source obtained a provisional patent on technology to con-

vert diesel engines to dedicated NG engines. Unlike many dual fuel technolo-

gies, their technology would eliminate the need for any emission after treat-

ment. ACT Research awaits a response from CNG One Source regarding

questions about how their technology regulates horsepower and torque after

conversion. In the heavy-duty arena Cummins Westport remains the only

North American option for of a new dedicated NG engine. Both Daimler and

Volvo have announced NG engine plans for Europe, but it isn’t yet clear if

those engines will initially meet all U.S. emission standards.

RANGE: One challenge for the broader transportation industry to go

with NG has been infrastructure density to accommodate the various freight

lanes. Garbage trucks and bus fleets don’t have that challenge because they

often fuel at their own facility, as they return to base each night. This is one

reason we’ve seen the bus, refuse, and dedicated lane fleets adopt NG first.

The other reason is that their average mpg for either NG or diesel is well be-

low line haul trucks. They also tend to have a much larger investment in NG

where they either put up the capital to construct the station AND invest in the

trucks or they sign long-term agreements through a fuel contract with a 3rd

party station developer. As commented from a refuse company who asked for

his quote to remain anonymous, “I have signed my soul to NG for better or

worse. I still believe in the future of NG, but I wish I had a choice to use diesel

when my delivered load of diesel today would put me under $1.40/gal.”

WEIGHT: The added weight of NG tanks remains a topic for some fleets, but

not all. Several tank packagers continue to engineer solutions that extend the

range while not adding incremental weight. Agility Fuel Systems recently un-

veiled a 160 DGE package weighing in at 2,150 lbs. and claims to be the light-

est package currently announced on the market. It is estimated that this sys-

tem would result in a net increase of 100 lbs. compared to a diesel truck con-

sidering all the weight of emission after treatment now on diesel trucks.

Another way to shave weight would be to modify the technology. As reported

in prior NGQs, adsorbed natural gas (ANG) is still generating attention within

the NG industry. Researchers in Pennsylvania announced a study to further

ANG technology by testing metal-organic frameworks (MOFs). ANG is a pro-

cess where material is put inside a tank to which NG (specifically methane)

bonds efficiently. It would allow for much lower pressures inside a tank at the

same volume of fuel. With lighter material tanks at lower pressures, ANG has

some promise but remains a work in progress. Stay tuned as we keep our eye

on the progress.


EQUIPMENT PRICES, PRODUCTS & TECHNOLOGY DEVELOPMENTS

Image of MOF material


FUELING INFRASTRUCTURE

CNG CONTINUES TO OUTPACE LNG: There are currently 907 public

CNG stations open in the U.S., 75% of which can accommodate a heavy-duty

vehicle. The LNG station count is 75, with all able to serve Class 8 vehicles.

Since December 2015, 33 more HD-accessible CNG stations have opened,

most in the middle third of the U.S. This is nearly three times more HD-

accessible CNG station openings than the previous quarter witnessed. Only

one new LNG station opened in Q1’16, the same number that opened from

September to December 2015. In aggregate, 218 new HD-accessible CNG

stations have opened since 2014, while only 20 new LNG stations were

opened in that same time period. As a sample comparison, there were nearly

19% more HD, public CNG stations in March 2016 than the previous March,

while only 7% more LNG stations were operational on a y/y basis.

As a reminder, there are no active HPDI NG engines being produced that re-

quire LNG as a fuel. Spark-ignited (SI) natural gas engines are the only new

engines available. Although SI natural gas engines can use a dedicated CNG

or LNG fuel supply system, CNG is a lower cost fuel, thereby driving the lion’s

share of investment. LNG requires the same base cost of the CNG plus the

cost for liquefaction and transportation. LNG is a purer form of methane

(better engine performance) and minimizes the risk of CNG contamination due

to potential propane, water ingress and oil carryover, but it costs more per

DGE. Given the current price of diesel, LNG is a virtual non-factor in the on-

highway truck market today. When conversion to natural gas fuel is consid-

ered, the added cost is a major consideration over the life of the vehicle and

ROI needs.

NEW STATIONS PLANS: While 33 new CNG stations opened in the past

three months, the number of planned, public stations has decreased by only

16 since December. This, essentially, means that 17 new stations were or-

dered (planned) in Q1’16. On the other hand, our records indicate that there

are actually fewer new orders being placed for LNG stations; of the 55

planned LNG stations listed in December, one is now open, but orders for two

additional planned stations have been cancelled. Regarding planned, public,

HD-accessible NG stations, orders for new CNG stations dropped by 8% y/y

in March, while LNG station plans fell by 21% y/y. While the LNG station plans

were mostly made before diesel fuel prices plunged, new CNG stations are

being built and planned, even in the currently challenging climate.

U.S. PUBLIC HD NG STATIONS BY REGION: March 2016

CNG Active = 70

CNG Planned = 28

LNG Active = 3

LNG Planned = 4

CNG Active = 79

CNG Planned = 8

LNG Active = 7

LNG Planned = 8

CNG Active = 234

CNG Planned = 24

LNG Active = 9

LNG Planned = 16

CNG Active = 102

CNG Planned = 17

LNG Active = 19

LNG Planned = 12

CNG Active = 62

CNG Planned = 6

LNG Active = 13

LNG Planned = 7

CNG Active = 131

CNG Planned = 7

LNG Active = 24

LNG Planned = 5

GRAND TOTALS

CNG Active = 678 LNG Active = 75

CNG Planned = 90 LNG Planned = 52

Source: US DOE Alternative Fuels Data Center, geology.com, ACT Research Co., LLC Copyright 2016

0

50

100

150

200

250

300

350

400

0

100

200

300

400

500

600

700

800

2015 2016

U.S. Public HD NG Stations

Planned LNG Planned CNG

Active LNG Active CNG

Source: US DOE Alternative Fuels Data Center, ACT Research Co., LLC Copyright 2016


FUELING INFRASTRUCTURE

WHAT’S IN A NUMBER?: After publication

of our last issue, we had a subscriber ask

about our NG fueling infrastructure data. The

data provided on the previous page, and in

past reports, has covered only stations that

are HD accessible and public. The question

arose because not all fleets adopting NG are

using public stations and because the number

of HD stations doesn’t include those stations

built specifically for fleets using MD equip-

ment. ACT heard your concerns and in re-

sponse has created the table above so that

our readers can see not only the HD data, but

also how many existing public and private sta-

tions are available to handle the LD and MD

needs, as well as how many are being

planned for each vehicle size. We opted not to

do this deep dive for the LNG sector since all those stations are reporting HD

accessibility, and LNG is not typically used in LD or MD applications.

ANECDOTES FROM THE FIELD: ACT heard from a NG station builder in

September that station building plans are being adjusted downward “for the

next 5 years or so, as the industry continues to ride the wave of low diesel

prices...and that stations being planned now are trending toward areas of the

country with more alternative fuel incentives and/or favorable legislative cli-

mates.” Recent data reported seems to bear out those assertions.

The areas that seems to be part of the continued growth of NG stations, how-

ever, are the municipal and/or refuse markets. To learn more about these seg-

ments of the industry and their NG strategies, ACT personnel spent time visit-

ing with municipal fleets in Q1. More details on those conversations can be

found on pages 12-13 of this report, but one infrastructure update we wanted

to provide as a sample of the growth mentioned earlier is from Columbus,

Ohio. Their third CNG station is currently in the bidding process and is slated

to break ground in May, with construction to be completed by year’s end.

Since 2012, the city’s other two stations, both with 24/7 public access, have

pumped a combined 1.5 million GGEs, and Columbus’ fleet of dedicated CNG

vehicles has now reached 170.

NEW NG TRUCK SALES DATA

FEBRUARY UP 3% M/M: U.S. and Canadi-

an natural gas Class 8 truck retail sales im-

proved modestly after getting off to a slow

start in 2016. Despite sequential momentum

improvement, year-over-year sales dropped

25%, with year-to-date volumes coming in

14% below 2015’s level.

TOTAL VS. REPORTED SALES DIFFER:

Because there are additional units not rec-

orded, as some lower volume OEMs do not

report sales, this number falls short of the

total number of Cummins Westport (CWI)

natural gas engine shipments, including the

320 horsepower ISL G. CWI shipments to-

taled about 9,950 units in 2015, down nearly

600 units from 2014. (Note: There is a time

lag between shipment of a NG engine to an

OEM, the assembly of the NG fueled truck,

shipment of the truck to the selling truck

dealer, and delivery of the vehicle to the end

customer. In addition, a portion of natural

gas engines are destined for export mar-

kets.)

ANOTHER SATISFIED CUSTOMER: One

of the most difficult challenges in under-

standing demand for natural gas-powered

vehicles is differentiating between new and

existing customer truck sales. Anecdotal

comments suggest the number of vehicles

being sold to repeat customers is high. The

metric is a testament to the quality of the

units and the advantages they offer.


-

100

200

300

400

500

600

700

800

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Un

its

U.S. & Canada Natural Gas On-Highway Class 8 Truck Retail Sales

2014 2015 2016 (Line)

Includes all US and Canada Class 8 units for Freightliner, International, Kenworth, Mack, Peterbilt, and Volvo.

Excludes transit bus and refuse units not manufactured or reported by OEMs above.

12 liter NG introduced in August 2013.

NG TRUCK ADOPTION FORECASTS

CURRENT HD NG FUELED TRUCK MARKET IN NEUTRAL: NG powered Class 8 truck and bus sales remain slow when calculated as a percentage of the total market. For 2015, the NG share of the total market is estimated at 3%, due to higher new truck sales and lower natural gas penetration. Looking at 2016, the total U.S. Class 8 market (including NG buses) is forecast at 207,000 units, a decline of 18% from 2015. With the significant decline in diesel fuel prices and the subsequent narrowing of price spread between CNG and diesel, payback times have lengthened well beyond most truckers’ trade cycles. These facts, along with diesel truck operators’ ongoing uncertainty about NG fueling infrastructure, have slowed both the conversation and conversion to NG. Those considerations are now fully reflected in our forecast for natural gas retail sales displayed here. Though we expect a 400 unit increase in natural gas sales, penetration should increase to 4%, due to softening in the overall Class 8 market.


Additional forecasts and NG transportation fuel details can be found in other ACT publications. For details: http://www.actresearch.net/products-for-natural-gas/

2013e 2014e 2015e 2016 F 2017 F 2018 FFOR HIRE:

TL 1% 2% 1% 2% 3% 3%

LTL 0% 4% 2% 2% 2% 3%

Expedited 1% 4% 1% 2% 2% 2%

Owner Operator 0% 0% 0% 0% 0% 0%

PRIVATE 1% 2% 1% 2% 3% 4%

VOCATIONAL:

Refuse 40% 43% 35% 40% 42% 45%

Municipal 1% 2% 2% 3% 3% 3%

Construction 1% 1% 1% 1% 1% 1%

Other 0% 0% 0% 0% 0% 0%

TRANSIT BUS 30% 30% 30% 31% 32% 33%

NG SHARE OF CLASS 8

TRUCK AND BUS SALES 3% 4% 3% 4% 4% 5%

SALES OF NG TRUCKS

AND BUSES (000s) 6 9 7 8 9 11

Memo: 2009e 2010e 2011e 2012e

Total NG Vehicles 2009-2012 (000s) 3 4 5 6

U.S. Class 8 Natural Gas Adoption Rates--Most Likely/Base Case Scenario

2013e 2014e 2015e2016 F 2017 F 2018 F

TOTAL SALES 187,610 224,030 252,946 207,000 198,000 224,030 FOR HIRE

TL 324 774 710 805 1,198 774 LTL 36 581 246 241 295 581

Expedited 41 387 109 134 128 387 Owner Operator - - - 7 7 -

TOTAL FOR HIRE 401 1,742 1,065 1,188 1,628 1,742

PRIVATE 675 1,774 1,275 1,714 1,996 1,774

VOCATIONAL

Refuse 2,732 3,507 3,223 3,014 3,027 3,507 Municipal 53 125 142 174 166 125

Construction 184 220 248 203 194 220

Other - - 12 10 12 -

TOTAL VOCATIONAL 2,968 3,852 3,624 3,401 3,399 3,852

TOTAL TRUCK 4,045 7,368 5,965 6,303 7,023 7,368

Transit Bus 1,500 1,500 1,500 1,550 1,600 1,500

TOTAL CLASS 8 NG

TRUCK AND BUS SALES 5,545 8,868 7,465 7,853 8,623 8,868

U.S. Class 8 Natural Gas Vehicles - Most Likely/Base Case Scenario (Units)

NG IN THE NEWS


Headlines in Q1 fit nicely into four distinct categories: fleet adoptions, RNG,

stations/infrastructure, and grants/incentives. These four topics, although not

an exhaustive list, are summarized below from various company press releas-

es and news articles.

FLEET ADOPTIONS:

UPS announced plans to invest $100 million, adding 380 CNG trucks to

their fleet, which will be supported by 12 new CNG fueling stations.

Raven Transport is adding 10 new LNG tractors, which will fuel from

Clean Energy’s Fort Worth, TX station.

Blackrock Logistics will use 10 CNG trucks and fuel them at Clean Ener-

gy’s Fontana, CA station.

Matheson Postal Services is now using 25 new CNG and 12 new LNG

trucks in California and Idaho operations.

Moran Transportation Corporation added 10 new NG trucks to their LTL

fleet.

Florida-based Advanced Disposal, with about 60% of its fleet using CNG,

is now servicing Macon-Bibb, GA and 13 CNG trucks are included in that

service plan.

Papillion Sanitation has taken delivery of its first CNG truck, with plans to

add three more by mid-year.

A New Jersey CNG-fueled garbage truck exploded in January. By Febru-

ary 1, investigators reported that a faulty battery caused the fire that ulti-

mately caused the eruption.

The City of Atlanta has started to replace its diesel solid waste collection

vehicles with CNG units. New reports also noted that the city will add oth-

er CNG vehicles to their fleet whenever practical.

Waste Management continues to add CNG trucks to its fleet, as does

Waste Pro USA.

NY City Transit Authority will spend $178 million to purchase 138 New

Flyer Xcelsior CNG buses, and a bid has been placed with the TA for an

additional 139 units.

New Flyer has reported additional contracts for 129 CNG buses for the

City of Long Beach, CA, and 350 CNG units for the Los Angeles Co. Met-

ropolitan Transit Authority.

Moorpark City Transit (CA) has replaced two of their diesel units with new

CNG-powered buses, and to encourage use gave free rides to residents

on January 29th.

With funding from the Federal Transit Administration (FTA) Capital Invest-

ment Grants, Jacksonville Transit Authority will purchase 19 new CNG

buses.

Moves were made in January by their board for the Gunnison Valley Rural

Transportation Authority to transition to CNG buses and partial funding

has been secured.

RENEWABLE NATURAL GAS (RNG):

RNG, in short, is methane gas naturally produced at refuse/landfill and dairy

cattle sites, just to name a few. Through the process of anaerobic digestion,

the methane is converted to natural gas in a form such that the energy can be

used for electrical power generation and as a motor/transportation fuel. To

learn more about RNG, visit the U.S. Department of Energy’s Alternative

Fuels Data Center at www.afdc.energy.gov/fuels/natural_gas_renewable.html.

UPS is moving forward with plans to fuel in Memphis, TN and Jackson,

MS fleets with RNG in a multi-year contract with Memphis Light, Gas &

Water and Atmos Energy Marketing. The package delivery service also

announced plans to use renewable LNG in its Houston and Mesquite, TX

operations.

Clean Energy Fuels reported that Redeem RNG sales in 2015 were twice

that of the previous year.

NG IN THE NEWS


STATIONS AND INFRASTRUCTURE:

Waste Pro USA and Clean Energy are teaming up on two new CNG sta-

tions for the companies sanitation operations in Florida. One station will

be able to fuel 90 CNG vehicles, while the other will be able to accommo-

date 30 NGVs.

Love’s Travel Stops made most, if not all, the industry news outlets in

Q1’16, with their announcement of plans to purchase Trillium CNG and

add 37 public-access stations to their network. That agreement was final-

ized in March.

In related news, ampCNG announced that it is the sole owner of 17 public

-access CNG stations that were originally part of a joint venture between

ampCNG and Trillium.

Also, Trillium, now under the Love’s Travel Stops umbrella, was awarded

a $84.5 million contract with the Pennsylvania Department of Transporta-

tion to design, build, operate and maintain 29 CNG stations in that state.

In other infrastructure related news, the Colorado Energy Office an-

nounced funds available for the construction of public-access CNG sta-

tions in that state. Funds available under the ALT Fuels Colorado grant

program are part of a partnership with the federal Congestion Mitigation

and Air Quality Improvement funds, the Regional Air Quality Council, and

the Colorado Department of Transportation.

Several “first” CNG stations were opened, including one by WAWA, a

chain of convenience stores and refueling stations on the East Coast.

GGAIN Clean Fuels also expanded its network in Q1, including the addi-

tion of a CNG station in Dothan, AL.

GRANTS/INCENTIVE/LEGISLATION:

The Midwest Alternative Fuel Initiative was born this quarter when Ad-

vanced VTech, AGA Systems, Ozinga Energy, and STAG USA formed a

partnership, funded through Fifth Third Bank, to create an alt fuel program

for Chicago and portions of Wisconsin and Indiana to encourage the use

of NG and propane as a transportation fuel.

One million dollars is available to fund alt-fuel projects in the Genesee

Region Clean Communities area of Rochester, NY. A word of caution is

necessary here to reminder readers that alt-fuel doesn’t just mean natural

gas, nor does it mean heavy-duty commercial vehicles. This particular

opportunity is available for CNG, propane autogas, hydrogen fuel cell,

battery electric, bi-fuel, dual-fuel and hybrid drive train vehicles that ad-

here to the Federal Highway Administration’s Buy American provisions,

and any size vehicle can qualify.

New Mexico passed two pro-natural gas vehicle bills, one providing for a

study to determine vehicle and station incentive needs for 2017 and the

other increasing the weight limit on HD NGVs operating in New Mexico.

An alternative fuel grant program is being offered by the Pennsylvania

Department of Environmental Protection to fund a variety of alternative

fuel efforts, including vehicle purchase and retrofit, refueling infrastructure,

biofuel use, innovative technology (to support research, training and de-

velopment).

Colorado has $4 million worth of grants available for alt-fuel support.

Eight U.S. cities (Atlanta, Charlotte, Indianapolis, Orland, Rochester, Sac-

ramento, San Diego, and West Palm Beach) have banded together to

form the Energy Secure Cities Coalition for the purpose of transitioning

their municipal fleets to alternative-fueled vehicles, including electricity

and natural gas.

Nebraska has also joined the effort, creating a program to provide state

rebates for the conversion and/or purchase of alt-fuel vehicles.

CALSTART announced in January the opening of the San Joaquin Valley

Clean Transportation Center, funded by the California Energy Commis-

sion, to provide technical assistance, project development expertise, and

support in acquiring funds for vehicle fleet owners in their district.

Not all the news was good news, however. It was announced by the US

Department of Energy that its proposed 2017 budget includes a 32% re-

duction for the Clean Cities program, and a 30% cut for vehicle technolo-

gies deployment. Since this is a proposed budget, it is likely that this isn’t

the final word on the matter.

FROM THE GREEN TRUCK SUMMIT


Several ACT Research representatives attended the Green Truck Summit,

presented by the National Truck and Equipment Association (NTEA) in Indian-

apolis, IN, at the beginning of March. Key takeaways from presentations and

conversations during the event are summarized below.

KEYNOTE ADDRESS: Reuben Sarkar, Deputy Asst Secy for Transporta-

tion, DOE

The U.S. is a distant second in terms of investment in clean energy at

$50B or about 55% of what China spends.

Proposed greenhouse gas phase two legislation calls for 17% reduction,

but further dramatic reductions (80+%) are likely and expected by 2050.

Further optimizing the fuel-engine combination holds great opportunities

for better fuel economy and reduced emissions. Improvements of 50%

may be possible by 2030.

These observations suggest we are in early innings for alternative fuel

efforts, but the game is definitely still on.

GENERAL SESSION:

Alternative fuel vehicle sales in the deep freeze, even as pickups and

SUVs are selling like hotcakes, is indicative of consumer mentality regard-

ing fuel prices and the speed at which they are able to adapt. (John Davis,

MotorWeek Host)

Change (in oil/fuel prices) is inevitable. Control your fuel price. Control

your destiny. (Bob Carrick, Nat’l Gas Sales Mgr, Freightliner Trucks)

Those who are adopting natural gas now are doing it for other than eco-

nomic reasons, which is understandable, given the narrowed margin be-

tween diesel and natural gas fuel prices.

Environmental awareness, energy independence , and incentivization are

the focus/catalysts for those currently adopting natural gas.

Propane is making inroads as an alternative fuel in the commercial vehicle

market.

Telematics offers numerous opportunities to reduce fuel consumption and

by extension, tail pipe emissions.

CONCURRENT SESSIONS:

Rob Neitzke, President Cummins Westport

2/3 CWI engine sales are the 8.9L ISLG, while 1/3 engines sold are

the 11.9L ISX12G, with new growth expected from the 6.7L.

Near Zero (NZ) products coming soon: ISLG NZ to be available in

2016 and ISX12 G NZ on target for 2018 production. By 2018, ISLG

and ISX12G will no longer be available.

Brad Douville, VP Business Development Westport

Innovations in NGV technologies include next generation powertrains

and fuel storage, including a conformable CNG tank.

Chuck Diehl, Smith Foods Trucking

CNG fuel sites need maintenance: Because mechanical things break,

it is important to look for areas of potential failure.

Maintenance records needs to be written, rather than relying on any-

one’s memory.

Keep needed extra CNG hardware on hand, and don’t underestimate

the importance of technicians/mechanics; they are key.

HOW IT CALCULATES


NATURAL GAS ADOPTION: IT DEPENDS

EDITOR’S NOTE: As we’ve watched NG adoption in the CV industry accelerate, deceler-ate, and stabilize, taking two steps forward and one step backward, we realized that much of the current adoption is in the municipal fleet seg-ment, refuse trucks and buses; fleets that typi-cally keep vehicles in excess of 10 years. We also wondered why some fleets are still choos-ing natural gas with the price differential inverted when others aren’t. To understand the municipal market better, ACT sent members of its NG team on the road in early 2016 to talk to some government fleets and get their first-hand per-spectives. With the promise of anonymity, we took our list of questions and grilled these fleet decision makers for about an hour each, hoping that by agreeing not to quote them openly we’d get very candid insight—and we did. The compi-

lation of those conversations follow.

WHY ARE SOME MUNICIPAL FLEETS NOT ADOPTING NG WHILE OTHERS

ARE, EVEN IN A PERIOD OF INVERTED FUEL PRICE DIFFERENTIALS?

Just as no two cities are exactly the same in the way they are organized and man-

aged, each municipality fleet/fuel/maintenance manager we interviewed had a

different set of responsibilities, a different set of leaders to whom they were re-

sponsible, and a different view about alternative fuels.

One of the fleet meetings took us to the city garage, where they house and main-

tain a fleet of public buses, a variety of other equipment used in the city, including

sanitation and street trucks, and where they fuel smaller city vehicles like those

used by fire and police personnel. The city’s fleet management is relatively auton-

omous; once the annual budget is approved almost all decisions about vehicles

and fuels/fuel consumption are left to those assigned the responsibility. This par-

ticular fleet is open to the potential of NG, but because there are no NG fueling

stations operational in their area presently, it isn’t seen as a viable option at the

moment. The city does have gas pipelines and a station build was being consid-

ered by a regional vendor, but after the price of diesel took a nosedive...and has

stayed in that low territory...the vendor put the new NG station plans on hold. The

fleet and maintenance managers in this particular city expressed that they would

be willing to serve as a test case if the fueling infrastructure and vehicle were

made available to them, but in the meantime, they are taking the opportunity to

watch others, to learn from their successes and failures, and to gain information

about NG adoption and what it would mean for all aspects of their fleet manage-

ment practices. We asked all the fleet managers their predictions for municipal

fleets five years from now, and the two leaders in this particular community said

they expect sanitation equipment to improve with more electronics on the engines

and more efficiencies in the way they operate.

At another city garage we visited, we found a municipal fleet where some hybrids

and electric vehicles are being used, but no NG vehicles. As in the previously

mentioned situation, the fleet manager has autonomous control of the city’s vehi-

cles, within the budget and guidelines set by the administration. That said, he was

questioned by city leaders about natural gas, but having done thorough research

on the matter, was able to tell the city leaders that it wasn’t for their community

and why, including a general lack of NG availability, insufficient budget to build a

fueling station, and the need to address the current maintenance facility before

any move to NG could be considered a viable option. The fleet manager did think

that in the next five years they might begin to dabble in natural gas vehicles, but

added that this would likely be for specialty equipment such as street sweepers.

Before changing fuels, they would need to see more adoption by others. For

them, one of the bottom lines was that it was taxpayer money and, given that,

return on investment was critical and must be proven; each piece of equipment

needed to justify itself. This particularly decision maker also noted that alternative

fuels take miles and not all municipally owned/operated vehicles are running the

miles needed on a consistent basis for an appropriate payback.

ACT’s NG team also spoke to a municipal sanitation manager who, with the help

and support of his sanitation commissioners, made the decision to go all-in, re-

placing all the department’s trucks with NGVs that are fueled across from their

maintenance facility at their own municipal-owned, open to the public CNG sta-

tion. After doing extensive research several years ago and with the support of

board members who wanted the community to be seen as leaders rather than

followers, the decision maker set in motion the steps necessary for a full-fleet

transition. We were told that once the decision was made, it became a group ef-

fort involving cooperation from the leasing company, the city leaders, and the em-

ployees. The partnership also involved training and education for the local building

inspector and fire department personnel. It turned into a true community effort. So,

since this community’s sanitation department is already all-in, the view of city in

the next five years includes conversion of snow plows and police cars to natural

gas, particularly since they fully expect diesel prices to rise again. Before the inter-

view was finished, we were told that even the drivers are happy about the NGVs

and about being leaders, asking him, “What’s next?”


NATURAL GAS ADOPTION: MORE FROM THE FRONT LINES

ACE Disposal, located in Salt Lake City, is one of the largest independent refuse

haulers in the western U.S. Family owned and operated for over 35 years, ACE

was an early adopter of NG. Matt Stalsberg, owner and GM, explains ACE’s

adoption of NG. “When diesel particulate filters (DPFs) were introduced in 2007,

they were a disaster for operations with a lot of stop-and-go like a garbage truck,

there was no time for regen.” ACE began introducing NG engines in 2008. While

NG eliminated the problems found with DPFs they didn’t come free of their own

challenges. The ISL 8.9 liter engine was slightly under powered and struggled to

climb the hills while running all the hydraulic functions of a garbage truck. ACE

worked with their truck body OEM and local dealer and began ordering NG exclu-

sively, while simultaneously investing in a slow-fill infrastructure at their facility.

Other problems with NG wouldn’t manifest themselves for a few years.

ACE has grown the NG fleet to over 70 trucks. The new 11.9L ISXG has been a

welcome technology for ACE because the 8.9L engine had some failure rates that

began to be problematic. “Holes in the pistons,” Matt said was the issue with the

first generation ISLGs. He didn’t have the pistons in his office but said the problem

was well known and was being addressed. According to Matt, the 11.9L pistons

have been designed to better handle their operations. “Ultimately,” Matt said, “the

Fuel Tax Credit is the largest contributing factor to our decision.”

A certified technician familiar with the problems ACE experienced explained some

of the fixes implemented. The engines have become increasingly electronically-

controlled. The first engines would come with parameters in the ECM for a specif-

ic horsepower. When the application didn't fit the designed programming, Cum-

mins would see problems including piston failures. "There was some redesign of

the [piston] crown," he explained, "but much of the fix was related to programming

through the ECM." Both agreed the piston problem was fixed, but minor glitches

with electronics still persist from de-rating the engine until they can be diagnosed.

Another aspect is from those fleets actively marketing for resale their NG trucks.

Many fleets that made headlines in 2012 and 2013 have placed their tractors for

sale. Given the challenged market environment, it is exposing the total cost of

ownership (TCO) challenges of NG. These trucks had a significant premium when

purchased and now are selling at, or below, their diesel equivalent tractors. So,

the cost of owning those NG tractors was even more when considering the accel-

erated devaluation of the premium. The responses for their reasons range from

“Inefficient out-of-route miles to refuel” to “MPG degradation exceeds 20%” to

“Excessive downtime with few shops equipped to service.”

THE OEM SUBURB: While the end users of natural gas equipment seem to

fall into one of the two camps described above, the OEMs continue to build in the

suburbs surrounding the cities still favorable to the alternative fuel. However,

some OEMs weren’t able to endure prolonged downturn. It was recently reported

that tank packager Quantum filed for bankruptcy protection. After making some

interesting headlines over the past few months, the slowing market adoption ulti-

mately took its toll on their solvency.

Alkane Truck Company, a new equipment assembler, presented at ACT Seminar

#54. Based in South Carolina, Alkane sources various truck components from

different countries and has them shipped to their facility where they assemble the

components under their name plate – Alkane.

They are alternative fuel

neutral, but are seeing

more adoption of pro-

pane than either CNG or

LNG. Their equipment is

predominately a cab-

over Class 7 design.

Their trucks come with

an 8.8L PSI engine

which can run on various

gases including NG and

propane.


GLOSSARY OF ACRONYMS


A

AFDC Alternative Fuels Data Center

(U.S. Dept. of Energy)

B

BTU British Thermal Unit

C

CNG Compressed natural gas

COE Cab over engine

CPRWT Cost, Performance, Range,

Weight, Time

CWI Cummins Westport Inc.

D

DEF Diesel exhaust fluid

DGE Diesel gallon equivalent

DING Direct injection natural gas

DME Dimethyl Ether

DPF Diesel particulate filter

E

ECM Electronic control module

EGR Exhaust gas recirculation

EIA Energy Information Administration

G

GGE Gasoline gallon equivalent

GHG Greenhouse gases

H

HD Heavy duty

HOV lanes High occupancy vehicle lanes

HPDI High pressure direct injection

L

LNG Liquefied natural gas

LTL Less than truckload carrier

M

MMBtu Millions BTUs

Mcf 1,000 cubic feet

O

OEM Original Equipment Manufacturer

P

PING Pilot injection natural gas

PPM Parts per million

R

RNG Renewable natural gas

ROI Return on investment

RS Retail sales

S

SCR Selective catalyst reduction

SING Spark-ignited natural gas

T

TCO Total Cost of Ownership

TL Truckload carrier

TRR Technically recoverable shale gas

reserves

U

UOM Unit of measure

W

WTI West Texas Intermediate

Y

YTD Year-to-date

OTHER ACT PRODUCTS & SERVICES


FULL RANGE OF REPORTS ANALYZING & FORECASTING THE NORTH AMERICAN COMMERCIAL VEHICLE INDUSTRY

OTHER SERVICES INCLUDE: SPECIAL CV WHITE PAPERS REPORTS ON NG AS A CV FUEL CONSULTING SPEAKERS BUREAU REPORTS ON CHINA’S CV MARKET FREE NG PAYBACK CALCULATOR

Contact us at [email protected] for more information on any of these services

Seminar #55 — September 28-30, 2016

NATURAL GAS QUARTERLY

ACT Research Company, LLC 4400 Ray Boll Blvd. Columbus, IN 47203

Phone: (812) 379-2085

Fax: (812) 378-5997 Email: [email protected]

www.actresearch.net

ACT Research Co., LLC Copyright 2016

http://www.actresearch.net/

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