LONDON Nov 6 Natural gas will struggle beyond niche applications in U.S. transport despite a widening discount to rival fuels, given a shortfall in distribution compared with gasoline, biofuels and electric vehicles.
Shale gas production has up-ended power generation, under-cutting the economics of older coal plants and new nuclear.
Compressed natural gas (CNG) has long been one of the cheapest U.S. road fuels including gasoline, diesel, ethanol, biodiesel and propane.
That edge has widened significantly since natural gas prices dropped in the wake of the shale gas boom.
The trouble is that its low energy density implies a shorter range, weight penalty and requires compression or liquefaction which adds significant upfront costs in bulky, pressurised fuel tanks.
Add a lack of refuelling infrastructure and the attraction of lower running costs fades.
Developing CNG and electric vehicle refuelling infrastructure would involve simultaneously running distribution for gasoline/diesel, CNG, liquefied natural gas (LNG), electric vehicles and higher biofuel blends.
Assuming a need to narrow choices, electric vehicles make more sense as a long-term, fuel-agnostic gasoline replacement, where natural gas can still impact as an electricity source, and in niche urban and heavy duty vehicle applications.
At present, natural gas vehicles account for about 0.4 percent of the U.S. heavy duty vehicle fleet of nearly 9 million vehicles, and about 0.03 percent of a light vehicle fleet of around 240 million units.
CHART 1 - goo.gl/UtkFP
CHART 2 - goo.gl/I4zCT
Chart 1 shows that CNG retail pump prices have risen by a quarter to $2.05 per gallon of gasoline equivalent since the start of 2009, but that still trails an 89 percent jump in gasoline, in Department of Energy data.
The CNG discount has ballooned more than six-fold to $1.47 per gallon, show DoE data in the July issue of its quarterly "Clean Cities Alternative Fuel Price Report."
The U.S. Energy Information Administration (EIA) reports that present CNG pump prices are still significantly higher than costs, reflecting a lack of competition among providers and implying the potential for a wider discount.
Electric vehicles (EVs) have even lower running costs.
As with EVs, however, there are significant incremental costs compared with conventional vehicles because of the need for pressurisation and insulation of CNG or LNG fuel tanks.
This difference can be made up over the life of the vehicle in fuel cost savings but payback periods may be prohibitively long, according to the EIA.
The payback is greater than 5 years for Class 7 and 8 vehicles (small trucks) unless they are driven at least 60,000 to 80,000 miles per year, the EIA says, which is bordering on maximum annual mileage, according to Department of Transportation data.
"Shorter payback periods, 3 years or less, may reflect typical owner expectations more accurately, but they require much more intensive use: ... more than 100,000 miles annually for Class 7 and 8 vehicles," the EIA reports.
Natural gas vehicles (NGVs) face the additional, critical problem of developing a refuelling infrastructure in a Catch 22 dilemma requiring sufficient converted vehicles before rolling out a capital-intensive refuelling network.
Chart 2 shows that as of March there were 987 CNG fuelling stations and 47 LNG stations in the United States, trailing some 3,113 electric vehicle stations excluding residential units, and nearly 160,000 gasoline stations.
Any significant expansion of LNG refuelling capacity will require additional liquefaction capacity.
At LNG stations, insulated LNG storage tanks and special refuelling pumps are also needed, and gas transported by specialised tanker trucks and specialised dispensing staff.
CNG filling stations typically have connections to the gas pipeline distribution network but still require compression equipment and special refuelling pumps.
For these reasons, near-term adoption makes most sense among "return to base" fleet operators which refuel consistently at a specific central location or along dedicated routes, and include buses, trash haulers, taxis, delivery, and airport shuttle and port vehicles.
Argentina provides the extreme example of higher, medium-term penetration, where natural gas is used not only in commercial vehicles but some personal light duty vehicles and has a 24 percent market share overall, according to the International Energy Agency's Energy Technology Perspectives report this year.
But Argentina is a gas-rich economy where natural gas has accounted for a half or more of primary energy consumption every year since 2003, BP data show, compared with 27 percent last year in the United States (its highest relative contribution since 1981).
And Argentina began a rollout of natural gas refuelling infrastructure in 1980 and has kept gas prices low as a public policy, according to the U.S. Department of Energy report "Natural Gas Vehicles: Status, Barriers, and Opportunities."
Such a programme is out of reach of the United States, where in the longer term natural gas may still significantly penetrate the transport fuel mix but rather as a source of power generation than fuel directly. (Editing by James Jukwey)