August 30, 2013

Fuel savings? It's a gas!

Evidence begins to dribble in about real-world savings in converting fleets to natural gas.

By Mark B. Solomon

For building products manufacturer Owens Corning Corp., whose annual transportation fuel bill hits about $100 million, $1.1 million in savings over the last year or so may seem like a drop in the bucket. Unless, that is, the bucket is filled with found money.

Owens Corning gained these savings by doing nothing more than going about its business. One of its truckers, Chicago-based Dillon Transport Inc., converted from diesel fuel to lower-cost, cleaner-burning liquefied natural gas (LNG) on two lanes that it operates for the Toledo, Ohio-based company. The routes from Owens Corning's suppliers to its factories in Texas and Ohio have stayed the same, as have the rates. Owens Corning's savings come from lower energy surcharges imposed by Dillon.

Phil Crofts, Dillon's marketing director, reckons its natural gas surcharges are, on average, 30 percent below those on traditional diesel fuel. Unlike with diesel, there is no industrywide template for determining natural gas surcharges. However, natural gas prices are today about 90 cents to $1 a gallon cheaper than diesel prices. In addition, natural gas' price fluctuations are less extreme. The combination of low prices and low volatility has become a boon to truckers, which can pass on some of that bounty to their shippers.

The two companies have benefited from the steady and predictable velocity of goods flow on the two lanes—raw materials moving from Owens Corning's suppliers to its factories. The transit is so predictable that Dillon buys natural gas from one of its fueling partners, Seal Beach, Calif.-based Clean Energy Partners, on a guaranteed basis knowing it has the loads to support the fuel consumption. The only change is that Owens Corning now commits to a three-to-five year relationship with Dillon rather than a year-to-year agreement.

Dillon Transport and Owens Corning are not the only companies seeing savings from converting to natural gas. In Arizona, Golden Eagle Distributors Inc., a Tucson-based beverage distributor whose largest customer is the beer titan Anheuser-Busch InBev, put its first compressed natural gas (CNG) power unit on the road about 20 months ago. Today, Golden Eagle's CNG units, which are leased from Ryder System Inc., comprise nearly half of its total rig count. Golden Eagle consumes 90,000 "gas gallon equivalents" (GGE) of CNG a year and saves an estimated $142,020 annually over the cost of diesel. Those savings more than offset the additional $81,600 annual costs of leasing the more expensive CNG trucks, according to Bill Osteen, senior vice president of business operations.

Keeping those costs down is crucial because Golden Eagle does not pass on higher fuel charges to its end users—supermarkets, convenience stores, restaurants, and bars. So it must stay on top of its fuel spending or pay the price. The switch to CNG has been "vital to us in containing our fuel costs," Osteen said.

Golden Eagle also estimates it saves $12,500 in lower vehicle maintenance on CNG trucks, Osteen said. What's more, Golden Eagle generates royalties by allowing public fill-ups at its CNG refueling facilities in Tucson and nearby Casa Grande. Under an arrangement with Chicago-based Trillium CNG, a provider of CNG fueling services, Golden Eagle supplies the raw land to Trillium, which then designs, builds, operates, and maintains the facilities, according to Osteen.

These stories illustrate the possible monetary benefits of using natural gas, either in compressed or liquefied forms. But there are still obstacles to overcome before either form enters the mainstream.

CNG VS. LNG
Much of the uptake for CNG so far has come from delivery fleets such as garbage trucks, mass transit, and school buses whose vehicles travel less than 250 miles per day and return to their bases after their shifts. CNG is a dense, heavy substance. What's more, the nine-liter engines that are still the standard for natural gas transport lack the horsepower and torque to haul heavy loads. As a result, it is virtually impossible to use CNG to transport 80,000 pounds of gross vehicle weight—the maximum tonnage allowed by law—over any appreciable distance.

In addition, there aren't many CNG fueling stations that can accommodate a heavy-duty tractor-trailer; even if a site could be accessed it would take as long as 30 minutes to top off a rig's tank because most compressor outputs are undersized for that function, according to Clean Energy.

LNG is dispensed and stored as a "cryogenic" fuel at temperatures of -260 degrees. Unlike CNG engines, which can lose up to one-fourth of their tank storage capabilities during fill-ups because of heat and temperature gain, LNG engines do not generate heat, and their design allows all of the fuel to be used. This leads to fueling speeds comparable to that of diesel engines and no loss of range. An LNG-powered truck can travel up to 750 miles on one tank, making them more suitable for regional or longer-haul truck runs.

One big advantage of CNG is that it doesn't bear the liquefaction and delivery expenses of LNG, and is thus significantly less costly to produce. It is also taxed at a lower rate than LNG.

LNG adoption on the nation's truck network is already a reality. Late last year, Clean Energy, along with truck stop giant Pilot Flying J, completed the first phase of the so-called America's Natural Gas Highway, which offers coast-to-coast fill-ups on LNG. The network is comprised of 70 stations located between 200 and 250 miles apart. An additional 30 to 50 stations will be added by year's end, according to Patric Rayburn, a Clean Energy spokesman.

FUTURE ADOPTION LEVELS
Industry experts expect adoption levels to rise significantly over the next several years. Natural gas will power about 17 percent of the nation's heavy-duty truck fleet by 2017, up from 4 percent today, according to estimates from Siemens, the German industrial giant, which supplies LNG. Annual purchases for LNG-powered trucks, currently at less than 500, will increase to about 4,000 by 2020, according to Dave Hurst, analyst for Boulder, Colo.-based Navigant Research, a consultancy. LNG, however, will remain a niche market for heavy-duty trucks through the end of the decade, Hurst says.

The catalyst for increased use of CNG-powered vehicles will be the adoption by fleets of the more powerful 12-liter engines. Scott Keeley, director of the Compressed Natural Gas Initiative for Siemens Infrastructure and Cities, said the move to the 12-liter engines will enable CNG-powered rigs to haul thousands of pounds of cargo on 300-mile treks, the typical truck length-of-haul. Given that the interstate highway system stretches about 45,000 miles, Keeley said it would only require about 165 or so CNG-refueling stations to cover the country's highway backbone.

The move to the 12-liter engine for LNG has already begun. In late April, Pittsburgh-based Modern Transportation became the first trucker to operate LNG-powered vehicles with a 12-liter engine when it launched service for Owens Corning on a dedicated route linking Sanford, N.C., and Owens Corning's roofing plant in Savannah, Ga. The engines are built by Cummins Westport Inc., a joint venture between manufacturer Cummins Inc. and Westport Innovations Inc., which designs technologies allowing engines to operate on natural gas and other alternate energy solutions.

OBSTACLES AHEAD
Like any major conversion, the jump from diesel to natural gas will not fully take hold until several obstacles are surmounted. Today, a 9-liter LNG truck costs about $30,000, while a similar CNG-powered truck costs about $60,000, according to Clean Energy Fuels estimates. What's more, a 12-liter truck would cost between $55,000 and $80,000 than a comparable diesel truck, according to Siemens. That is currently too cost-prohibitive for large-scale natural gas fleet utilization. Keeley said technological advancements and process improvements should drive down the differential to $35,000 in two years.

There is also the cost of building out a refueling infrastructure. The number of CNG and LNG refueling stations will approximately double by 2020, with the vast majority being for CNG fill-ups, according to Navigant estimates. LNG station growth will increase from slightly more than 200 this year to 343 by 2015, and then slow after that, according to Navigant.

David Uncapher, transportation sourcing and logistics leader for Owens Corning, said the country's refueling infrastructure is currently "inadequate everywhere for ease of growth." He added, though, that the two fueling stations used by Dillon to support Owens Corning's business are fine for its needs.

Uncapher also worries about the availability of replacement vehicles in the event of equipment problems. "What happens if a truck goes down," he asked. "Can [providers] still get capacity?"

Yet for the growing supporters of natural gas for transportation, these issues amount to little more than growing pains. Keeley is convinced that the train (or truck) has left the yard, and that the public will catch on natural gas' enormous potential once refueling stations start to become as visible as gas stations on the nation's roads.

"It's not often you can use this term without it being an overstatement, but this is truly a game changer," he said.

More articles by Mark B. Solomon

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