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Issue #584 | Breakbulk Quarterly

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Ride to lower costs for LNG-run trucks rockier than expected

By: | at 02:55 PM | Channel(s): Intermodal  

Just over a year ago, Canadian trucking firm Bison Transport took a bet on a potentially game changing technology, buying 15 big rigs powered by liquefied natural gas.

The privately-held company was attracted by the promise of a cheap and abundant fuel source and lower greenhouse gas emissions. If all went well, it would be the first step toward converting more of its 1,250-strong fleet to a type of fuel that costs about $1.50 less per equivalent gallon than diesel.

After 14 months on the road, though, the Winnipeg-based company has found that the reality - at least initially - is less rosy. The savings on fuel have been offset by other costs that are much higher than expected.

Bison is not alone. There are already signs that broader adoption is falling short of initial expectations, particularly in off-road sectors like locomotives and mining vehicles.

While the lack of fueling infrastructure remains the largest hurdle, other operational teething pains are now tempering some of the growth in LNG use that was expected to further reduce oil demand in North America, as well as carbon emissions, according to interviews with industry experts and officials from five transport companies.

Bison had anticipated that LNG, which generates fewer miles per unit than diesel, to be 10 percent less efficient; instead, the drop was closer to 18 percent. Maintenance costs were about double that of a diesel tractor, more than budgeted.

While Bison is not considering abandoning its investment, it now expects to take at least four years to break-even on the rigs - which cost roughly $75,000 more than standard engines - rather than the two-year pay-off it had hoped for.

“We just wanted to be clear that when you first look at LNG, it can look like there’s a potential windfall for carriers, and the reality is not that,” said Lionel Johnston, corporate marketing manager with Bison, a top Canadian carrier known for its large, modern trucks that haul two trailers.

The longer pay-off “doesn’t mean it’s a bad investment, but it was definitely not as good as we were hoping,” he said.

To be sure, it takes time for both technicians and drivers to adjust to new equipment, impacting early costs, and technical glitches are not uncommon with new technologies.

Still, Royal Dutch Shell last month surprised the LNG industry when it scrapped a small-scale liquefaction unit it was building at its Jumping Pound complex near Calgary.

“This additional demand has not developed in line with market expectations,” said Shell spokeswoman Destin Singleton. The company also paused work on two other plants, in Ontario and in Louisiana, but Singleton said those projects may resume due to better opportunities for LNG-powered marine vessels.

A Bridge to Renewable

Operators of commercial trucking fleets have been eyeing natural gas as a potential fuel since the shale boom sent prices plunging. Gas burns cleaner than diesel and is produced domestically, thus insulating supplies from global political events that can drive up petroleum prices.

Thus far it’s been compressed natural gas (CNG), rather than its frozen cousin, LNG, that has captured more of the market.

With cheaper fuel and a more established infrastructure, CNG vehicles now make up a large portion of smaller truck fleets for companies like garbage collector Waste Management and United Parcel Service’s (UPS) local delivery. They are ideal in urban or short-haul operations.

North America’s CNG infrastructure is also more developed, with 681 public stations across the United States, according to the U.S. Department of Energy. By comparison, there are 52 public LNG stations, with another 37 planned, the data shows.

And CNG is cheaper than LNG at about $2 less per equivalent gallon than diesel, providing hefty savings in vehicles that use 40,000 gallons of fuel or more each year.

But LNG is ideal for large highway tractors that haul heavy loads. Its energy density is greater than CNG, which means its fuel tank is smaller and lighter, leaving more room for cargo.

Support is still building despite some setbacks. For example, UPS has started deploying its new fleet of 1,100 heavy-haul LNG trucks, which have a 600 mile range.

However long-haul applications raise other problems, say industry insiders. Drivers can only be on the road for so many hours, and the trucks are restricted to routes where there are existing fueling stations.

Heavy-duty fleet operators are “recognizing it’s not going to be a universal fit and in some cases there might be parts of the operation where natural gas just isn’t going to work,” said Erik Neandross, chief executive of Gladstein, Neandross & Associates, a clean transportation consulting firm.

Indeed, the viability of natural gas as a diesel alternative depends on many factors, in particular whether a fleet burns enough fuel to justify the additional cost of buying LNG rigs.

Learning Curve

Bison’s rough first year experience was familiar to other early adopters in the trucking sector, they said. Early costs are often higher-than-expected, as truck service and maintenance shops need to be retrofitted for the natural gas technology and technicians need time to get comfortable with the new equipment.

In Bison’s case it did not convert its shop for the trial, so maintenance was done externally, leading to higher labor charges. Many of the trucks also had fickle fuel sensors, gauges and software, which had to be addressed by suppliers.

Other companies Reuters spoke with also ran into technical issues. One, Quebec-based Robert Transport, was forced to install solar panels on truck roofs to power energy-intensive methane detectors. Raven Transport, a beverage hauler based in Florida, said its first rigs stalled on the road and had to be towed after the LNG tanks were filled at the wrong pressure.

Westport Innovations, a leading natural gas engine designer behind many models now on the road, says that it can take time to work out the bugs for first-generation technology.

“There have been challenges with reliability or just with performance not as expected,” said Karen Hamberg, vice president of strategy at Westport. “So those things are being addressed and as we see new products being launched, there will be higher levels of reliability with those new products.”

The Vancouver-based company is working on its second-generation heavy-haul offering, the HPDI 2.0, which it says will deliver breakthrough performance and fuel economy, making it competitive with current high performance diesel-fueled engines.

Back on the road, industry experts say once equipment and use practices are modified, maintenance costs should be close to in-line with diesel, no more than 1 to 2 cents more per mile - or up to $2,000 for a 100,000-mile per year vehicle.

“When you’re saving in the order of magnitude of $25,000 on fuel and paying $1,500 more in maintenance, that’s obviously a fair trade off,” said Neandross.

UPS was the only company that Reuters spoke with that said its LNG maintenance costs were currently even with diesel, though trucking companies that have made the switch say that as they gain experience, reliability goes up and costs come down.

Preaching the Gospel

Fueling infrastructure remains a critical issue.

“It’s like the chicken and egg, if you don’t have fuel stations, then people won’t buy trucks, and if people don’t buy trucks, then you don’t get infrastructure,” said Yves Maurais, engineering manager for Robert Transport, which runs its 125 LNG trucks between Quebec City and Windsor, Ontario.

Despite the hurdles, many early-adopters remain strong supporters of natural gas for transport.

“Natural gas is good for the environment, and it’s good for this country to reduce its dependence on foreign oil from our enemies,” said Phil Crofts, director of marketing for Dillon Transport, an Illinois-based firm with 25 LNG and 150 CNG tractors. “So we are disciples and we are spreading the gospel.” (Reuters)