Oil & Gas
Can Canada’s natural gas vehicle sector evolve into a thriving industry?
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- Category: Oil & Gas
- Written by R.P. Stastny
Raise the topic of natural gas vehicles (NGVs) and the average person will likely think you mean propane-powered vehicles. Those who understand the difference might likely jump in with the chicken and egg analogy.
"Without the infrastructure, you won't get people to buy natural gas vehicles, and without enough vehicles, how are you going to build the infrastructure?" they say. "It's the chicken and egg thing."
But that may be changing.
After decades of fits and starts, natural gas as a transportation fuel in Canada has found a vigorous champion in energy giant Encana. Its efforts, alongside industry partners such as Canadian Natural Gas Vehicle Alliance and a broad range of natural gas and NGV manufacturing interests, have led to a new milestone in the release of the federal government's Natural Gas Use in the Canadian Transportation Sector Deployment Roadmap last January.
Still, this is a second kick at the cat for Canada in embracing NGVs. And the first kick wasn't all that successful. So what is different now? How has the business case for NGVs changed? And how do the players closest to the action—the natural gas conversion kit sellers, the gas distributors, the NGV technology manufacturers, the fleet operators—see things unfolding?
Game changer
The single biggest difference today is the shale gas revolution, which has led to massive amounts of natural gas becoming accessible thanks to new technologies. And the environmental benefits of natural gas as a lower carbon and lower pollution fuel are now well understood.
Another key difference today is that important lessons have been learned from the past.
"What was tried before was very niche-focused, gas industry-driven, let's build the infrastructure and hope they come—sort of the Kevin Costner Field of Dreams type thing," says Jonathan Burke, vice-president of global market development for Westport Innovations, a Vancouver-based global leader in natural gas engines.
"Today, it's a much more methodical approach based on experience in other jurisdictions around the world—Australia, China, the United States," Burke says. "We're now very much focused on capturing captive fleets that consume significant amounts of fuel, that have an economic driver as their principle M.O. and, secondly, are looking for the environmental and the other benefits of using natural gas."
In contrast to past efforts that focused on passenger NGV marketing, which is dependent on public refuelling infrastructure, the federal road map identifies medium and heavy truck fleets that begin and end their day from a home base as the most viable initial market. A natural gas refuelling station at each fleet home base makes the chicken and egg scenario a non-issue.
The natural gas advantage
Natural gas producers like Chesapeake Energy, Apache, Devon Energy and Noble Energy have long understood the economic advantages of using the resource as a transportation fuel. And now Encana joins their ranks as it plans to eventually run its entire 1,500-unit fleet, which is scattered between northeastern British Columbia and Louisiana, on natural gas.
The key drivers are reducing operating costs, walking the talk in its promotion of natural gas as a transportation fuel, and reducing emissions.
Encana is also helping to build a public natural gas filling infrastructure. It recently opened a card lock in Louisiana that supports both its own fleet of NGVs and public vehicles. The same model is planned for its new Alberta stations slated for Strathmore, Alta., and Fort Nelson, B.C.
"The Louisiana station can serve 250-450 vehicles," says Wayne Geis, Encana's vice-president of natural gas economy. "The low-end number is what we'll be putting through with our own vehicles. The upper is available to whoever wants to buy natural gas from us."
Encana has its business units buy the trucks. The internal rate of return on the vehicles is between 20 and 30 per cent. The internal rates of return on the filling stations is somewhat lower, but the blended full-cycle business proposition has a 15 per cent rate of return, Geis says.
Working through the numbers, Geis says a 50-100 vehicle filling station can cost anywhere from $900,000-$1.4 million. As for compressed natural gas (CNG) costs, at natural gas supply costs of $5 per thousand cubic feet, the gasoline equivalent is about 17 cents a litre. Add in operating costs, electricity for compression and capital recovery (a function of throughput versus the capital cost of the station), and the price per litre comes to 20-40 per cent less than gasoline.
Nuts and bolts
"NGV technology has much improved since 20 years ago," says Mike Tremayne, manager of natural gas vehicle business development with Enbridge Gas Distribution in Ontario. "The vehicles are now fuel injected and [the conversion equipment is] tied into the vehicle computer, so it's really a seamless integration with the gasoline operations of the vehicle and you don't notice the switching between natural gas and gasoline or vice versa."
All converted vehicles are actually bi-fuel. When the natural gas runs out, the gasoline kicks in. They also start and warm up on gasoline before switching to natural gas. The fact that they retain the gasoline tank means space is needed for the CNG tanks, which leads to a couple of issues.
Trevor Duffield of Calgary-based Proquip Sales, a seller of alternate fuel equipment for natural gas and propane conversions, says some potential NGV buyers balk at the loss of payload, especially in pickups, which typically carry their CNG tanks in the box.
The bigger issue is range. Two CNG tanks on a 6.5-litre engine provide the vehicle a range of about 250 kilometres, according to Duffield. But that can be much less. Encana, for example, which has converted a Ford Escape and a few other vehicles so far in Canada, reports a typical range of between 140 and 170 kilometres (a typical gasoline vehicle travels about 500 kilometres per tank).
"These are small tanks," Geis concedes. "And conversion isn't the best way to go, but that's all we have here in Canada."
Apart from the heavy-duty vehicle offerings—buses, garbage trucks and heavy-hauling trucks—which have Westport natural gas engines fitted at their factories, there currently are no original equipment manufacturer light-duty NGVs on the Canadian market.
The most immediate solution to CNG's range limitations is liquefied natural gas (LNG), which possesses a higher energy density.
Westport's Burke says that LNG technology is now well developed. And the filling infrastructure doesn't need cost much more than CNG facilities.
But currently, there is no LNG available in Canada specifically for transportation.
Still, Geis expects that even greenfield LNG filling stations could provide fuel at about the same 20-30 per cent discount to diesel given today's commodity prices.
NGVs for the masses
As NGVs get a foothold in captive fleets, as more manufacturers bring more of the vehicles to market, as the price premium for NGVs narrows compared to gasoline and diesel vehicles, adoption rates are expected to increase.
The next step, according to the federal road map, is a filling station infrastructure along the nation's busiest traffic corridors. These are the Sarnia to Toronto to Quebec City freeway route, followed by the Vancouver to Calgary to Edmonton route.
More convenient refuelling may spur the passenger NGV market, but that will take time. As Geis puts it, "It's a multi-decade project to build out infrastructure to satisfy whatever market share these vehicles are going to get."
All this could also be accelerated with some well-aimed government support similar to that which launched Canada's NGV manufacturing base in the 1980s. The road map recommends some kind of incentives at the outset of this vehicle fuel transition to close the price gap between NGVs and gasoline or diesel vehicles. It also recommends suspending any additional excise tax on natural gas fuel (though it will eventually need to be taxed but, by then, the economies of scale could absorb much of the price increase). The government also needs to establish codes and standards to ensure a safe, reliable and uniform industry.
Currently, Canada's governments aren't biting. "It's pretty clear from the governments at the roundtable discussion leading to this report that they didn't want to commit to X, Y or Z," says Alicia Milner, president of the Canadian Natural Gas Vehicle Alliance.
Yet a government role may actually be essential if the experience of other jurisdictions has any merit.
"Where this technology is actively taken up in the marketplace is where there is both a regulatory environment supporting reduced emissions and a commitment on the part of the governments to support the infrastructure," explains Douglas Pigot, chairman of the board at Dynetek Industries, a Calgary-based manufacturer of natural gas and hydrogen storage tanks sold globally.
This is the case in the United States, at both the federal and the state levels, in Europe and in Asia—all areas that are seeing strong NGV growth rates.
While the Government of Alberta says it is interested and supportive of the NGV concept, it adds in an email to Energize Alberta, "to be successful, there are a number of private sector stakeholders who will need to move this ahead, starting with those operating fleets, and those supplying the vehicles and the natural gas. As pointed out in the report, there may be roles for government in implementation, and our government will need to consider the potential value and the most effective means of moving this plan ahead."
But there are some wild cards. The introduction of a low-cost refuelling device could be one way to make a difference. The NGV market took a hit during the recession when a Canadian-based home fuelling manufacturer, FuelMaker Corporation, went out of business after Honda retracted its support for the company. It has since been bought by an Italian company. There are also Chinese manufacturers of compression equipment.
"I know there's a lot of refuelling products coming onto the market that will be cheap," says Proquip's Duffield. "Some products are coming out of China for about $2,500. If somebody could get an approval for that, it would fly. You could pay your vehicle back in a year and a half or two years. Even a private vehicle could make that work."
Three key points to ponder
1. Compressed natural gas across Canada costs 20-30 per cent less than gasoline or diesel. The discount is even higher at private filling stations.
2. The transport sector accounts for about 30 per cent of Canada's greenhouse gas emissions. One-third of transportation emissions are produced by less than four per cent of on-road vehicles—essentially commercial trucking. Converting this segment to NGVs could have a substantial impact on air quality.
3. The shift to NGV usage could stimulate the economy and firm prices for natural gas.
4. CNG storage takes up space in the vehicle and typically provides shorter range than gasoline or diesel engines. LNG provides a greater range for long-haul applications, but is not currently made specifically for transportation in Canada.
Players on the stage
1. Canadian Natural Gas Vehicle Alliance
2. Encana
Going broader, deeper
