Automakers ready for NGV takeoff; is the oil and gas industry ready?

Without compressor stations available for refueling, car buyers are unlikely to choose NGVs. In the U.K., British Gas plc is establishing a chain of refueling stations on fleet operators' premises, which it says will be increasingly made available to other users. Photo courtesy of British Gas.

NGV sales have mostly been targeted at fleet operators to date, with vehicles on offer being conversions of normal production line gasoline engine models.

Car makers have developed NGV models mainly because they have been pushed by governments to offer low-emission vehicles through legislation aimed at reducing air pollution in major cities.

For example, Honda this year will begin production of a natural gas powered Civic GX car, which it claims will be the cleanest vehicle ever made with an internal combustion engine.

Since the 1950s the number of all vehicles on roads worldwide has increased tenfold. Now, about 650 million road vehicles are registered worldwide, and this is expected to double in the next 10-20 years.

Loek Mobers, president of the International Association for Natural Gas Vehicles (Iangv), told the recent Gastech 96 conference in Vienna that an increase in NGV use would be needed in order to meet the demand for fuel from all these anticipated new vehicles.

That kind of potential notwithstanding, the oil and gas industry has largely stayed on the sidelines as the NGV trend has evolved. Apart from some selective experimentation, most oil and gas companies are looking to broader acceptance of NGVs by consumers or a greater grassroots commitment from automakers. The consensus is that neither will happen absent a move by governments on the regulatory or tax fronts. Environmental concerns would be the likeliest catalyst for such a move.

Whether a surge in demand for NGVs-or any other type of alternate-fueled vehicle-materializes, it remains to be seen whether the oil and gas industry is ready for that eventuality.

Despite the huge implications that such a development would entail for oil and gas demand, the petroleum industry likely will continue to bide its time until clearer market signals emerge.

New NGVs

Mobers said the most important happening in NGVs the last few years has been the involvement of original equipment manufacturers (OEMs), particularly automakers.

Chrysler launched the first factory-built NGV, a version of the Dodge Ram van, to meet California's clean air requirements. However, Chrysler was said to have lost faith a little because of sluggish demand.

Since then, Ford in the U.S., BMW in Germany, Volvo in Sweden, and a number of Japanese car manufacturers have made NGVs available, and Mercedes-Benz is expected to launch an NGV car in 1997.

Mobers said the current NGV population represents less than 0.1% of the global road vehicle population, and that several barriers need to be removed before NGV use will really take off.

"Governments are not committed to NGVs yet," said Mobers. "NGVs are faced with inconsistent taxation, a skeptical oil and gas industry, a lack of refueling infrastructure, and a lack of profit for car owners. In the U.S., for example, gasoline is still far too cheap."

Before unveiling its NGV model, Honda said it would begin making a gasoline powered Accord model meeting California's Ultra Low Emission Vehicle (ULEV) standard, which requires 80% less emissions than other current standards worldwide.

Ben Knight, vice-president of Honda Research & Development, said at the launch of the Civic NGV, "Having already achieved ULEV levels in a gasoline engine, our engineers wanted to build on that foundation and push the limits for a natural gas-powered vehicle.

"The result is the cleanest vehicle ever made with an internal combustion engine. It has total emissions of just one tenth the ULEV standard, a level so low it is nearly unmeasurable. Almost zero."

Like all NGVs so far, the Civic NGV will be targeted at fleet customers. Honda has its sights set on fleet operators required to purchase alternative energy fuel vehicles under the U.S. Energy Policy Act. It will cost $4,500 more than a comparable gasoline-engine Civic.

Knight said that while the Civic NGV is not a purpose-built vehicle-as is its electric vehicle-neither is it a conversion: "It has a real world range of about 225 miles, the highest of any car operating on natural gas, and easily enough to accommodate the daily driving routes of many fleet customers on one tank of fuel."

Volvo has begun manufacturing a variant of its 850 model passenger car that can run on compressed natural gas or gasoline. These will cost about $4,500 more than a conventional gasoline engine model.

Volvo said: "The 850's exhaust emissions register just one tenth of the limit on harmful substances set by Swedish legislation. Equally significant is the fact that the dual-fuel technology comes well within the limits of California's stringent ULEV standards."

The company said that, while there are about 1 million natural gas powered vehicles worldwide on the road today, by 2000 the U.S. alone is expected to have this many NGVs in use.

Engine manufacturer Cummins forecast that there will be 10-20 million NGVs in use worldwide by 2020, with most replacing vehicles at the diesel engine, heavy-duty end of the market.

Western Hemisphere NGVs

Mobers said more than 1 million NGVs are in use worldwide and noted that Argentina is the leading NGV user, with 400,000 cars running on natural gas and a network of more than 500 refueling stations.

"In Argentina, all NGVs are conversions," said Mobers. "This has helped the NGV industry there to gain experience and improve reliability, but now users want NGVs that are factory-built."

South America has seen rapid growth in NGV usage, mainly because of widespread government legislation but also arising from growing indigenous gas supplies.

Argentina's 400,000 NGV population was built up in 10 years, noted Fred Parker, executive director of U.K.'s Natural Gas Vehicles Association (NGVA), while Venezuela now has around 50,000 NGVs, and Brazil is beginning to open up as an NGV market.

"In the U.S., we see delivery vehicle makers are now looking into dedicated gas engines as opposed to bi-fuel engines," said Parker. "This is the best option to improve emissions, performance, and economics of gas engines."

Parker said North America is a substantial NGV market, driven by government mandates that require operators of fleets of more than 20 vehicles to include a certain percentage running on alternatives to gasoline and diesel.

The U.S. now has 60,000-70,000 NGVs in operation, said Parker, while Canada has 30,000-35,000 NGVs: "There are some predictions that by 2002, there will be 4 million NGVs operational in the U.S. alone."

European initiatives

Parker said the main issue for NGV proponents is vehicle manufacturers, which claim the added capital cost of building NGVs is a burden.

NGVA is campaigning to get the U.K. natural gas fuel duty set to the European Union's (EU's) recommended minimum price of 8 pence/kg (12¢/kg) from the current level of 21.3 pence/kg (31¢/kg).

Parker said this would require a big change in U.K. fiscal policy, but that other EU countries have made progress recently towards low natural gas fuel duty rates.

"Germany, France, and Sweden have all made dramatic changes in fuel duty in the last 12 months," said Parker, "and they are all now close to the EU minimum.

"They have recognized that government must initially compensate for added costs of NGVs, which come mainly through the lack of economies of scale. But U.K.'s commitment to raise gasoline and diesel fuel duty by 5% a year over the next 3-4 years will help to make NGVs increasingly attractive."

Parker said additional fiscal incentives would encourage car makers to go further in gearing up to full-scale NGV production. For car makers, Europe is not such an important target market as the U.S., where mandates are increasing pressure on automakers to produce alternate-fueled vehicles as well as conventional cars.

In Europe, Italy is the strongest market so far for NGVs, mainly because there are no fuel duties on natural gas. There are about 300,000 NGVs operating there, mainly in northern Italy, where there are about 300 refueling stations near the gas grid.

Parker said some retail sites along motorways in northern Italy and along the Adriatic coast have also recently begun selling compressed natural gas (CNG).

Germany's recent fiscal policy encouraged the construction of 55 refueling stations in major cities and supported growth from a total of 90 NGVs in use only 12 months ago to around 2,500 today.

Parker said passenger car owners were beginning to choose CNG fuel in Germany as a result of the lowered duty, but the great majority of new NGVs are buses and commercial vehicles.

In France, the NGV population has grown from zero 18 months ago to an anticipated 600 vehicles this year, said Parker, again driven by fiscal changes.

And in the U.K., there are now about 400 NGVs; the total is expected to reach 1,000 this year through a variety of NGV fleet programs promoted by British Gas plc.

NGV demand elsewhere in Europe is a bit spottier, Parker noted, adding that there are "a few" in Netherlands and Belgium. In Sweden, there are municipal bus and truck fleets in Gothenburg and similar fleets expected in Malmo once gas distribution pipelines are installed.

Asian NGV growth

In the Far East, particularly Malaysia, NGV use is expected to grow as a result of installation of natural gas distribution pipeline grids.

NGVA foresees 200,000 NGVs in use on the Malay peninsula by 2000 and another 200,000 in Japan. Malaysian car maker Proton disclosed plans to build NGV passenger cars, delivery vans, and taxis.

Thailand and Indonesia are working to develop bus and truck NGV markets, while India is opening up to NGVs as a result of increasing gas production in the Bay of Bengal.

Ashish Jain, project engineer at India's Oil & Natural Gas Corp. Ltd., told the Gastech conference that ONGC is conducting a trial in which more than 1,600 taxis, fueled by CNG provided at 13 outlets, are being used in New Delhi, Bombay, and Vadodara.

Jain said NGV use has proven successful to date, noting that the World Bank has estimated natural gas can be used to back out 25% of gasoline and diesel use in India, where liquid fuels are expected to be in short supply.

The Indian government is offering subsidies to help in setting up compressor stations in other cities, where taxi drivers are apparently keen to convert to CNG fuel but are restrained by lack of refueling points.

A gas compressor unit for refueling NGVs overnight at home has been developed in the U.S. and certified as a domestic appliance. But large-scale adoption of NGVs is expected to require widespread availability of rapid refueling facilities. Photo courtesy of British Gas.

Stalling point

New Zealand has been one of the major success stories for NGVs, with the NGV fleet of 50,000 vehicles representing almost 10% of the 600,000 vehicle population there.

"For many years, there was tremendous NGV growth in New Zealand," said Parker, "then government changed its fiscal policies and interest died away. But the NGV policy has been re-energized this year, showing how quickly fiscal policy can affect NGV usage."

Ueli Oester, assistant vice-president of Sulzer-Burckhardt Engineering Works Ltd., Basel, Switzerland, told the Gastech conference that New Zealand has not installed one new CNG refueling point in the last 10 years.

"New Zealand has been a mature market for NGVs for some time now," said Oester. "Some stations have even been decommissioned there, to be rebuilt in Bolivia, India, and Pakistan."

Christopher Flavin, vice-president for research at the Worldwatch Institute, Washington, said there is a general perception that in the U.S. the momentum of NGV purchasing has slowed.

"The biggest problem NGVs have faced is the auto industry," said Flavin, "where companies have not been enthusiastic. The only NGVs produced so far have been knock-offs of standard cars.

"Once a car is designed for using gasoline, the problem is where to store gas if it is to be used as an NGV. If the car was designed for gas from the ground up, there would not be a problem in this way.

"There has been nothing serious in passenger NGVs in a pre-commercial sense, but the area where there has been lots of momentum is buses. It is significant that half the buses under construction in the U.S. are natural gas-fueled."

It is simple to convert a bus design for natural gas fuel, said Flavin, because there is ample space in the vehicle, with roof tanks being the most practicable. Fueling is not an issue, either, because buses return to a central depot.

Taxes crucial

Tom Gorman, general manager of NGVs at British Gas and chairman of U.K.'s NGVA, said fiscal help from government, rather than further legislation, is crucial for getting NGVs established.

In its annual budget in late November 1996, the U.K. government reduced tax on CNG used as a road transport fuel (OGJ, Dec. 9, 1996, p. 32).

This was welcomed by British Gas, which is developing NGV technology and infrastructure, as a turning point for NGV use in Britain.

Announcing the tax reduction in parliament, Chancellor of the Exchequer Kenneth Clarke said, "I want to encourage high mileage vehicles in our towns and cities to switch to cleaner gas power.

"Last year's budget changes broadly equalized the pump prices of compressed natural gas and gasoline. From tonight, I am reducing the duty on road fuel gases by a further 25%."

Roy Gardner, executive director of British Gas, said, "These changes could prove as important as the tax measures that popularized lead-free gasoline. This movement to encourage NGVs has to be good news for the environment."

Gorman said, "The welcome financial incentives provided by the chancellor, amounting to approximately 20 pence/l. (30¢/l.) differential for natural gas over gasoline and diesel, should kick-start the industry."

Measures of this sort will help fleet operators eat into the extra cost of NGV purchase, said Gorman, until car makers can bring to NGV production the economies of scale applicable to gasoline vehicles.

Passenger car NGVs now cost roughly the equivalent of $4,500 more than gasoline engine cars, said Gorman, while gas-powered buses and trucks typically cost the equivalent of $30,000 more than diesel vehicles.

"This is why the NGV concept is for now being aimed at high mileage, depot-based fleet operators," said Gorman. "Over time, NGVs will increasingly appeal to ordinary car owners."

NGV is slowly broadening out, with an increasing number of operators running only three or four NGVs.

Hurdles

There are still obstacles in the way of NGV use growing on a grand scale.

For instance, Gorman said gas storage remains an issue for NGV makers, and CNG tanks are still intrusive in smaller vehicles, although this is not a problem for trucks and buses.

There are solutions to the space problem, said Gorman. For one thing, as the CNG fueling infrastructure grows, the need to carry gasoline will disappear, so only one fuel tank will be needed.

Gorman said work is also under way by a group of partners including British Gas to develop adsorbed natural gas (ANG) technology, in which gas is stored in a honeycomb of material.

While current NGVs incorporate a large, heavy steel cylinder to store the CNG fuel at pressures of as much as 250 bar, ANG employs a flat, lightweight aluminum extrusion containing a microporous carbon matrix.

This matrix stores gas as a liquid at 41 bar. Gorman said work on ANG has reached a point where "this technology needs an OEM to pick it up and develop it."

Lack of CNG refueling infrastructure is also a barrier, although Gorman said the individual components of CNG refueling technology are already well developed.

"There is no wish, and no finance, within oil and gas industry to replicate the gasoline station networks," said Gorman.

To begin building up CNG refueling infrastructure in U.K., British Gas has installed 14 CNG stations to date on the premises of NGV fleet operators.

British Gas owns and operates the stations, the fleet operator's refueling needs are met, and the stations can be opened for use by other NGV users in the vicinity, said Gorman.

"The NGVA view," said Gorman, "is that with the right fiscal support, we could see 200,000 NGVs operating in the U.K. within 5 years."

Another hurdle to establishment of NGVs is seen as lack of action by the oil and gas industry. Gorman said: "The oil and gas companies are doing a great deal of observing from the sidelines. They think: 'Why interfere at the moment?', but there is some evidence of companies beginning to get active, for instance in the liquefied petroleum gas sector."

Parker said the oil and gas industry is sitting on the fence regarding NGVs, and majors in particular are not sure which way to jump. Gas companies want to sell gas for NGVs but not get involved in industry support.

"The NGV industry needs turnkey operations to get refueling infrastructure in place," said Parker. "This is an area where groups of companies are just beginning to come together."

Industry perspectives

Flavin said, "The biggest issue facing NGVs is not the refueling infrastructure. The biggest problems are lack of investment and a less than enthusiastic auto industry.

"The gas industry has shown itself willing to devote effort to NGVs, but the payoff is too far in the future. NGV adoption is going on, but NGVs have not taken off the way people hoped a few years ago."

Flavin said the oil industry has mixed opinions about NGVs, because of all the refineries and gasoline stations it has built to support gasoline use.

But once oil companies get interested in NGVs, he said, there would be relatively little investment required for NGV refueling infrastructure.

"Another problem for NGVs," said Flavin, "is that there are so many options among alternative fuels and technologies. Nobody knows which one to choose, so companies don't want to invest.

"There is most interest in electric vehicles among alternatives to gasoline engines: the technology has sex appeal because it can achieve zero emissions. Electric vehicles are taking some of the energy away from NGVs."

Oester said that, while the emissions reduction potential of NGVs is an established fact, initial government support is needed for the establishment of NGV use in any country.

"Why are there so few NGVs in use today?" asked Oester rhetorically. "Because this is a classic chicken-and-egg situation. As long as there are not enough refueling stations, people won't buy CNG cars; as long as there are not enough customers, fuel suppliers won't build CNG stations."

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