The New Economics of Natural Gas

By Sean Kilcarr, Contributing Writer

Natural gas might not be the perfect replacement fuel for all types of commercial vehicles, but its economics are becoming extremely favorable in several key segments – and the waste industry in particular.  

And that, say experts, should spark wider adoption of natural gas-powered trucks in the near future.

“We’re finding that natural gas has a certain place when it comes to heavy truck operations,” explains Ryan Carmichael, a transportation analyst with the Toronto-based global consulting firm Frost & Sullivan. “We’re finding it’s a particularly good fit for regional fleets, port freight facilities, and especially refuse operations. And the price advantage of natural gas versus diesel in these specific segments is what will be the story line here.”

Frost & Sullivan’s research, encapsulated in a report entitled, “Strategic Analysis of the North American Class 6-8 Natural Gas Truck Market,” predicts the number of medium- and heavy-duty natural gas-powered trucks will grow from 1,950 units today to more than 29,483 units in 2017, which is roughly 8 percent of total Class 6-8 production six years from now.

Carmichael says the critical drivers for natural gas truck growth will be substantially lower fuel costs when compared to diesel along with less expensive truck natural gas engine technology, which is now coming to the market.

For example, spark-ignited compressed natural gas (CNG) and liquefied natural gas (LNG) technology add about $29,750 and $27,750, respectively, to the sticker price of a Class 6 thru 8 truck compared to its diesel-only brethren, while the pricier “compression ignition” system used for the heaviest over-the-road Class 8 models costs an additional $72,450 more on average compared with a diesel-only powered unit.

That sticker price differential can be even steeper in the waste market. For example, according to a survey conducted several years ago by Inform Inc., a New York City-based environmental research and consulting firm, the median price tag of a conventional diesel-powered refuse truck is around $170,000, while a similar CNG or LNG powered truck costs between $210,000 and $225,000. That means refuse fleets will need to expend a lot more capital up front to add natural-gas-powered trucks.

Take Houston-based Waste Management, for example: the company spent $29 million to buy 106 CNG-powered solid waste collection trucks and another $7.5 million to build a CNG refueling station just for its operations in Seattle. Also, within five years, Waste Management said all 180 collection trucks in its Seattle-based fleet will be fueled by CNG.

Waste Management already operates about 1,000 CNG and LNG vehicles across North America and currently operates natural gas fueling stations at 17 of its fleet terminals. Altogether, Waste Management expects 80 percent of its new collection vehicle purchases this year to be natural gas powered trucks.

Those CNG refuse trucks carry approximately 50 gallons of CNG, which allows them to run 10 to 12 hours and complete a typical day’s waste or recycling collection route, the company noted.  

Yet that sizable investment on the part of refuse operators could potentially yield an equally big payoff as the gap between natural gas and diesel fuel prices continues to grow.

“The real ‘push’ is going to come from the lower cost of natural gas itself,” Frost & Sullivan’s Carmichael explains, noting that data was adjusted to account for the reduced range of natural gas vehicles. “Most fleets we’ve studied conservatively pay $1.65 to $1.80 for natural gas per equivalent diesel gallon. That’s significantly lower than the nearly $4 per gallon most fleets are paying now for diesel, and that savings accrues rapidly over time.”

Landfill'er Up

Refuse fleets that use converted landfill gas (LFG) to power their trucks see an even bigger fuel cost differential, Carmichael stresses. For example, one Utah-based waste hauler studied by Frost & Sullivan is paying 86 cents for its natural gas fuel per equivalent gallon because it’s making its own fuel from methane gas captured from its own landfills.

Waste Management also is proving that refuse operators can potentially “brew” their own natural gas fuel to cut fleet operation costs even further.

Working in partnership with Linde North America, part of the Murray Hill, N.J.-based engineering firm Linde Group, Waste Management opened a LFG collection and refining plant at its Altamont Landfill near Livermore, Calif., two years ago strictly to fuel its waste trucks. The plant, which Linde built and operates, purifies and liquefies LFG that Waste Management collects from the natural decomposition of organic waste in the landfill. It is designed to produce up to 13,000 gallons of LNG a day – enough to fuel 300 of Waste Management’s 485 LNG-powered waste and recycling collection vehicles currently serving 20 communities in Southern California.

Since the commissioning process began in September 2010, the Altamont plant – currently the world’s largest LFG to LNG facility – has produced 200,000 gallons of LNG, says Duane Woods, senior vice president at Waste Management’s western group division.

“The Altamont LFG-to-LNG facility enables us to recover and utilize a valuable source of clean energy in another practical way, reducing our dependence on fossil fuels,” he adds. “We’ve been working for eight years to achieve this. By closing the loop on waste, we are reducing our demand for foreign fossil fuel and generating a clean, domestic fuel source for our collection fleet.”

Woods adds that using natural gas – both self-produced and market-bought – is one of the alternative fuel strategies Waste Management is deploying in an effort to reduce its fleet’s emissions by 15 percent while increasing fuel efficiency 15 percent by 2020.

Yet it’s the reduction in operating expenses – driven by the lower cost of natural gas fuel – that appeals the most to fleet managers says Sandeep Kar, global program manager-commercial vehicle research for Frost & Sullivan.

He points to data gleaned from a quarterly “tracking study” Frost & Sullivan puts together based on interviews with 100 managers at the largest fleets across the United States and Canada. “The common theme among the fleet managers we interviewed, regardless of their type of trucking operation, is that they’ll invest in anything that reduces their operating expenses – even if it means paying higher upfront costs to get it,” Kar says.

“We also found that fleets use their own metrics to calculate payback, be it from lubricants, natural gas-powered vehicles, telematics [the long distance transmission of computerized data], etc.,” he adds. “It’s not just about ROI [return on investment] figures; fleet managers look at reliability and life cycle cost as well.”

Frost & Sullivan’s Carmichael adds that efforts like Waste Management’s to gain access to lower cost natural gas sources, especially for regional truck operations such as refuse collection, will also help reduce the ROI cycle for these kinds of fleets.

“Right now, at the current differential between natural gas and diesel prices, we’re looking at a two to three year payback period for the spark-ignited style of natural gas propulsion technology,” he explains. “As most refuse operators keep their vehicles anywhere from eight to 10 years, that payback period creates a strong strategic benefit for them.”

Sean Kilcarr is a senior editor for Fleet Owner, a sister publication of Waste Age.

SIDEBAR: Fueling growth in refueling infrastructure

The big price gap between natural gas and diesel is encouraging new investments in natural gas refueling infrastructure projects – infrastructure critical for supporting fleet operations, especially those that can’t afford to install their own refilling stations.

For example, Canadian-based natural gas engine maker Westport Innovations recently entered into an agreement with Shell to launch a co-marketing program in North America aimed at providing customers a better economic case when purchasing and operating liquefied natural gas (LNG) powered vehicles by consolidating key value chain components such as fuel supply, customer support and comprehensive maintenance into a single, user-friendly package.

Under the terms of the agreement, both companies will leverage their industry-leading positions – in LNG production and distribution for Shell and LNG systems and technology for Westport – to deliver an integrated commercial solution to participating customers, initially in North America.

Shell also plans to make LNG available for heavy-duty fleet customers beginning in 2012 at select Shell Flying J truck stops in Alberta, Canada. The company said it is pursuing engineering and regulatory permits to produce LNG by 2013 at its Jumping Pound gas processing facility in the foothills of Alberta. Until then, LNG will be supplied to the Shell Flying J truck stops from third-party supply agreements.

“We believe that natural gas, because of its abundance and strong environmental profile, is a destination solution in the transportation fuels space,” says José-Alberto Lima, Shell’s vice president-LNG and gas monetization. These projects “will allow us to bring these benefits to market in a way that I believe can potentially transform fuel consumption in the heavy-duty vehicle segment for years to come,” he adds.

“The lack of a natural gas refueling infrastructure in North America is the real barrier to wide use of it as a transportation fuel,” points out Tom Yu, Shell’s business development manager for LNG. “Natural gas itself is widely abundant in North America, is a very clean fuel in terms of emissions and is very affordable. But it will only really ‘take off’ depending on when an adequate refueling infrastructure gets put in place.” —Sean Kilcarr

SIDEBAR: Tweaks needed for trucks operating on alternative fuels

As more and more fleets, especially waste operators, think about powering their trucks with a variety of alternative fuels – from natural gas to blended concoctions such as biodiesel – they’ll need to make maintenance and operation adjustments as well, according to executives from Houston-based Shell.

“Using alternative fuels can make a difference in terms of what type of engine oil you use or, more likely, the drain interval you need to follow,” says Chris Guerrero, global brand manager for Shell’s Rotella engine oil products line.

For example, Dan Arcy, Shell Lubricant’s original equipment manufacturing (OEM) technical manager, notes that trucks equipped with spark-ignited natural gas engines need to use a low-ash engine oil formulation – one that produces ash amounts even lower that the CJ-4 blends designed for 2007 and 2010 emission-compliant diesel engines.

“Take Cummins’ ISL-G truck spark-ignited truck engine that typically is powered by compressed natural gas (CNG),” he says. “Cummins wants a much lower ash engine oil formulation for that engine of around 0.6 percent, compared to the 1 percent ash level of CJ-4.”

That’s one reason why Shell developed its T3 NG 15W-40 motor oil, which it introduced in February last year.

However, for high pressure direct injection (HPDI) truck engines that use diesel fuel to “pilot ignite” the natural gas in the combustion chamber, CJ-4 engine oil should be used with a drain interval of 25,000 miles, Arcy adds.

Biofuels, however, create a different set of issues. “In the case of biodiesel, the ‘organic’ material in the fuel can leave deposits affecting engine oil viscosity,” he points out.

For engines using B20 or lower biodiesel blends – where biodiesel makes up 20 percent or less of the overall fuel mixture – the standard 25,000-mile CJ-4 oil drain interval applies. However, for B50 blends and above, where biodiesel represents 50 percent or more of the fuel mixture, much shorter drain intervals are recommended, Arcy stresses.

He added, too, that the “source material” for biodiesel could affect drain interviews as well. For example, soybeans are predominantly used in the U.S. to make biodiesel, whereas in Europe rapeseed is the predominant material, changing yet again to palm oil in South America.

“This is also where oil analysis becomes a big player,” Guerrero emphasizes. “Regardless of how much biodiesel is used in the fuel mixture, a fleet needs an oil analysis program to verify that the motor oil’s viscosity is holding up as expected.” —Sean Kilcarr