The economic and environmental advantages of Natural Gas Vehicles (NGV) are increasingly compelling. Natural gas in heavy road transport has the potential to save 400 million tons of carbon emissions annually in America and Europe while reducing fuel costs by $120 billion annually once the transition from Diesel to natural gas is complete. This transition will have huge implications for the energy industry and disrupt the transport industry.
By 2030 most heavy trucks and off-road vehicles are expected to run predominantly on natural gas, both renewable and fossil, with the proportion of renewable natural gas (RNG) increasing rapidly as costs decrease and mass availability pervades.
Diesel will be confined to a declining number of niche applications and locations where the availability and economics of natural gas are more challenging. Electric freight transport will dominate in densely populated areas prone to stop and go traffic while natural gas will prevail in our highways well beyond 2040.
Unlike electric and hydrogen technologies, that are still experimental and still heavily reliant in fossil fuels, Renewable Natural Gas (RNG) is already commercially available in the US and Europe. RNG can be obtained from municipal solid waste, wastewater treatment plants, livestock farms, food production facilities and organic waste operations. RNG can also be produced synthetically using renewable electricity and atmospheric carbon dioxide. The latter process is still expensive but, unlike hydrogen, the methane produced can be distributed through the natural gas infrastructure already in place and is much cheaper and safer to store and transport than hydrogen.
As RNG becomes widely available in larger volumes, increasing proportions of RNG will be blended seamlessly with fossil natural gas, allowing for a smooth transition from fossil to zero-emission renewable energy without changes in infrastructure or vehicle technology.
Plug-in hybrid vehicles (PHV), powered by a combination of grid electricity, renewable natural gas, and fossil natural gas, will provide even more flexibility to gradually decarbonize transport fleets. PHV fleets can reduce emissions by either increasing the proportion of clean electricity or decreasing the proportion of fossil methane, whichever makes better economic sense at any given time or location.
Media often depicts hydrogen as the silver bullet that will fix all climate change woes. This perspective is noble intentioned yet naïve. It usually plays down the massive economic and technical challenges crippling the development of clean hydrogen, in any kind of meaningful volume, for years if not decades to come.
Unfortunately, Hydrogen that is clean and safe is also prohibitively expensive with today’s technology. We should never abandon hope that a technological breakthrough may help us overcome these massive challenges, but technological breakthroughs don’t hatch overnight, and even if they did, implementing them in large commercial scale can take years if not decades.
It would be naive to seed the illusion that hydrogen is around the corner. Hydrogen vehicles will not make a dent on emissions during this decade or the next, and even if significant adoption were feasible by 2040, it would be too late by then. Diversion of public funding towards technologies that will not be ready for decades is a great way to perpetuate the status quo, along with the massive emissions that come with it.
Noble intentioned advocacy for hydrogen can, therefore, risk becoming a wolf in sheep’s clothing.
Electric freight transport is closer to reality than hydrogen. A few established manufacturers like Daimler and Tesla have promising prototypes being tested in the real world through small-scale pilots. However, there are still significant challenges preventing adoption in heavy-duty applications. First, batteries are prohibitively expensive and incredibly heavy. This limits truck range and payload making battery trucks economically unattractive in the absence of subsidies. Second, charging infrastructure is scarce and capital intensive, especially if the source of electricity is to be carbon neutral. Third, the hours-long charging time for those gargantuan batteries limits the technology to applications where central overnight charging is feasible.
There is no question that light electric trucks and vans will thrive in our cities. However, the heavy long-haul freighters and off-road vehicles that constitute the bulk of the transport industry, and contribute the lion’s share of its emissions, are unlikely to be powered by batteries for years to come.
With more than 27 million natural gas vehicles (NGV) on the road worldwide, along with more than 32,000 fueling stations, natural gas for transport is a well established and proven technology. It has been broadly used and tested for decades. China is by far the global leader with more than 6 million vehicles followed by Iran, India and Argentina.
In the US and Europe, natural gas trucks are commercially offered by established manufacturers like Volvo, Volkswagen, Daimler, Paccar and Navistar. Adoption and fuel supply is accelerating led by large fleet companies like UPS, attracted by the low fuel cost and environmental benefits. In contrast, hydrogen and electric options are not available commercially beyond experimental prototypes and small-scale pilots.
The pace of NGV growth is accelerating as the industry tackles the two main frictions for adoption: namely financing for small fleets, as they dominate a fragmented transport industry, and the vehicle cost premium resulting from niche pricing strategies by major manufacturers.
Traditional vertically integrated majors and NOCs have much to gain in the transition to Natural Gas transport. Oil’s higher profitability relative to natural gas is bound to dilute quickly as more stringent environmental regulations prevail.
Oil companies without a strong gas business will, therefore, see investment slip away, cost of capital increase and talent migrate. Blackrock’s 2020 letter to CEOs is a good testament to how investor sentiment has soured towards carbon-intensive industries.
Policymakers, regulators and the general public will regard energy companies willing to lead the transition towards clean fuels as part of the solution rather than the problem. By leading the transition to natural gas, energy companies can become an attractive alternative for capital and talent fleeing from oil.
Natural gas, therefore, provides a soft transition path for oil companies as they can lean on a strong natural gas business to support their survival while they transition to a carbon-free world.
Despite popular belief, America still imports about half of its total oil consumption.
Domestic oil is not suitable for making large volumes of Diesel as required by today’s heavy transport industry. The substitution of three million barrels per day of Diesel with domestic natural gas, therefore, eliminates the need to import large quantities of foreign oil with high Diesel content. American and European consumers will decrease their dependence on oil imports while benefitting from overall lower energy prices.
Disclaimer: This article is furnished on an “as is” basis. The Authors do not warrant the accuracy or correctness of the information contained therein and delivered in writing, verbally or through any other communication means. The Author makes no warranty, express or implied, as to the use of any information contained in this presentation in connection with the trading of commodities, equities, futures, options or any other use. The author makes no express or implied warranties and expressly disclaims all warranties of merchantability or fitness for a particular purpose.
In no event shall the author be liable for any direct, indirect, special, incidental, or consequential damages (including lost profit) arising out of or related to the accuracy or correctness of the information contained therein, whether based on warranty, contract, tort or any other legal theory.
The energy industry has the opportunity to be at the epicentre of the 4th industrial age, harnessing new technologies such as artificial intelligence, opportunities created by the ‘Internet of Things’, and increasing adoption of automation innovation.
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