American Oil and Gas Reporter - October 2015 - 61

SpecialReport: LNG & Market Update

Over-The-Road Trucking
Natural gas demand for heavy-duty
truck fleets is forecast to reach 2.8 Tcf
by 2030, split between LNG and CNG
(Figure 4). However, the reliability of
the entire system-from engine, to maintenance to fuel supply-is vital to overall
adoption in trucking. China is the world
leader in LNG truck adoption, with annual
sales orders-of-magnitude higher than in
any other market. It also far and away
has the lowest new truck costs. In the
United States, where CNG is expected to
thrive (Figure 5), NGVAmerica reports
that the heavy-duty truck segment grew
by 30 percent year-over-year in 2014,
with 8,700 heavy-duty natural gas units
on the road.
As in the marine industry, environmental regulations are a significant driver
for trucking companies. As emission standards become progressively more strin-

gent, diesel after-treatment grows more
costly and complicated. Some trucking
companies see value in adopting a forward-looking strategy to invest in natural
gas engine technology now to ensure that
their fleets will meet, and even exceed,
stricter emissions standards in the years
ahead.
It also is difficult for fleet managers
to deal with fuel cost volatility. Natural
gas commodity prices represent 20-25
percent of the CNG cost the consumer
pays at the pump. Oil prices, on the other
hand, are 60-70 percent of the total cost
of diesel at the pump. That means that if
both crude oil and natural gas prices were
to double, the cost of a gallon of diesel
could be expected to increase 60-70 percent while CNG cost per gallon of diesel
equivalent would go up only 20-25 percent.
It is far easier to manage a 20 percent
change in fuel budgeting than a 60 percent
change. While both scenarios are possible,
IHS believes it is more likely that global

oil prices will double rather than domestic
natural gas prices, which are influenced
less by global events
Taking a wider view, an undeniable
part of the appeal of CNG and LNG is
"going green." Many U.S. markets tend
to reward companies that achieve green
credibility in the eyes of their customer
bases. In the case of the trucking industry,
companies are in some cases being told
by customers that they will receive preferential treatment if they lower emissions,
effectively turning an environmental driver
into an economic motivation for converting
fleets. Consequently, large retailers and
manufacturers are indirectly driving fleet
operators' decisions to switch to natural
gas in order to receive that preferential
treatment.
The vast majority of trucking companies own fleets of fewer than 20 trucks.
For them, converting two trucks to natural
gas (10 percent of the fleet) presents
more risk than an operator with a fleet

FIGURE 4
Global CNG and LNG Heavy-Duty Truck Transport
35%

30%

25%
NGV Fleet Penetration

from bunker oil to more expensive marine
diesel, install a scrubber system (continuing
to burn bunker oil), or convert to LNG.
Several of the newest generations of
large ships are being designed "LNGready," with much of the basic plumbing
already in place to make converting to
LNG cheaper and faster. But there is no
doubt that the decline in oil prices has
temporarily slowed LNG's momentum
in shipping. A year ago, changing from
bunker oil to marine diesel was a very
expensive option that cost on the order
of $800-$1,000 a ton of fuel. At present,
it is less than $500/ton.
In railroads, LNG is expected to see
the greatest adoption as a diesel alternative
in Russia, India, the United States, and
to a lesser extent, Europe (Figure 3). The
North American market is defined by
the seven primarily long-haul Class I
railroads (BNSF Railway, Canadian National, Canadian Pacific, CSX Transportation, Kansas City Southern, Norfolk
Southern and Union Pacific), which account for nearly 70 percent of all U.S.
freight rail mileage.
LNG is expected to achieve significant
penetration in the U.S. rail market. By
2025, we expect 10 percent of all domestic
rail shipping to utilize LNG, growing to
40-50 percent by 2040. Adoption could
occur even more rapidly if Class I railroads
decide to switch aggressively to LNG,
but those decisions likely will come down
to the economics and how quickly oil
prices recover, since environmental regulations are not as codified for railroads
as marine vessels.

20%

15%

10%

0%
2010

2015

2020

China
United States
Latin America
Africa
North America (excl USA)

2025

2030

2035

2040

Europe
CIS
Non-OECD Asia (excl China)
Middle East
OECD Asia
OCTOBER 2015 61

American Oil and Gas Reporter - October 2015

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