Transcript Rare’s Business Strategy Services

Alternative fuels for heavy vehicles
What is the bottom line?
Freight Week 2007
Alternative Fuels Workshop
Friday 21 September 2007
Australia’s decreasing level of oil-self-sufficiency means that our
national economy is becoming increasingly vulnerable.

Our national demand for oil is forecast to increase by 50% between 2000 and
2020 while national production is forecast to decline sharply.

Australia’s oil self-sufficiency is forecast to decline from 85% to 40% by 2020
(CSIRO 2002).

This reduction in self-sufficiency will have a negative balance of trade impact of
$7-$8 billion per annum by 2020 (ABARE 2002).

This cost is considered to be conservative as it was developed at a time when
global oil prices where forecast to be between $20 and $30 per barrel.

The forecast balance of trade impact will potentially have flow-on implications in
terms of Australia’s competitive position in the global economy.
Oil requirement coefficient, 1= average
0.0
Education
Finance
Health
Cultural & rec
Govt
Repairs
Clothing
Retail trade
Prop & bus services
Paper & pub
Communications
Misc manu
Mach & equip
Beverages
Textiles
Construction
Accom & cafes
Wholesale
Fab metals
Utilities
Meat & diary
Agriculture
Chemicals
3.5
Mining
Basic metals
Transport
Increased oil prices will have a variable impact on specific industries
with transport, mining and agriculture being most vulnerable.
4.0
Most vulnerable
3.0
2.5
2.0
1.5
Least vulnerable
1.0
0.5
Source: Australian Bureau of Statistics, UBS, AMP Capital Investors
Separating facts from folklore
Advocates of specific fuels are often their own worst enemies

The key challenge for policy makers and fuel users alike.

The task is made more difficult by the claims and counter-claims of the advocates of
individual alternatives.

But the real competition is actually coming from the conventional fuels.

A new fuel can only be considered as a substitute for a conventional fuel when it:
–
can be brought to market relatively easily
–
is both indigenous and abundant
–
delivers good economics of operation (whole-of-life operation, not just fuel savings)
–
delivers operating performance that is at least equivalent to that of conventional fuels
–
delivers environmental performance that is at least equivalent to that of conventional fuels
–
is price stable
To be suitable, an alternative fuel will also need be economically
competitive with traditional fuels under the new fuel tax regime
Fuel type
Biodiesel
Removal of ECGS
Addition of fuel excise
(By July 2010)
(2011 to 2015)
Total increase above
(above July 07 prices)
11.106
19.1
+ 30.206
12.485
12.5
+ 24.985
7.155
12.5
+ 19.655
4.878
10.0
+ 14.878
7.570
15.2
+ 22.770
(cents per litre)
Ethanol
(cents per litre)
LPG
(cents per litre)
LNG
(cents per litre)
CNG
(cents per
m3)
Note: Equivalency factors for LPG (x 1.3), LNG (x 1.7), and CNG (x 1.1)
Alternative fuels for Australian road transport
A strategic perspective
Entry level
(US$ / barrel)
LPG
$45-50
NATURAL GAS
> $50
BIODIESEL
> $80
ETHANOL
$45-50
SOLAR
?
HYDROGEN
?
ELECTRIC
?
FUEL CELLS
?
Start-up
costs
Market ready
vehicles
Indigenous
fuel
Abundance
Price
stability
Economic
performance
Environmental
performance
Natural gas is likely to find a niche market in the heavy transport
sector, while biofuels are likely to be an extender of traditional fuels
Likely application
2000 to 2010
Petrol & Diesel
‘Mainstream’
2010 to 2040
2040 onwards
Synthetic Diesel
Cleaner Petrol & Diesel
(including biofuel blends)
Hybrids
Hydrogen
Natural Gas
‘Niche’
LPG
‘Enthusiast’
Electric
Solar
Compressed Air
Six key challenges will limit future growth in the use of biodiesel for
heavy vehicles in Australia and around the world (OECD 2007).

Variation in fuel quality

‘Food versus Fuel’ challenge issue for 1st generation fuels

Total greenhouse performance is likely to be worse than conventional fuels
(1st generation fuels)

Large scale commercialisation challenges for 2nd generation fuels



Unlikely to be developed as a large-scale substitute for conventional fuels


Will require technological breakthroughs
Likely to be at least a decade away
Less than 13% of total fuel demand (1st and 2nd generation combined)
Likely to be non-economic following introduction of fuel tax excise
The AFCP Demonstration Projects (2002 - 2007)

A series of partnerships formed with Australian heavy vehicle operators.

Designed to determine the conditions under which natural gas heavy duty engines
deliver significant greenhouse benefits and real-world economic savings, relative
to diesel operation.

Projects united the various segments of the ‘industry’ under a single umbrella to
ensure coordination of effort and maintain a focus on core program objectives.

Projects were managed via external facilitation (i.e. Rare Consulting), under the
auspices of the AFCP.

The majority of projects involved the evaluation of existing technologies
(one of the projects involved the development of a new dual-fuel engine for the
Caterpillar C-15 diesel engine).
Case study 1: Gosford City Council (CNG)
FLEET CHARACTERISTICS

Approximately 90 vehicles

Municipal application (17,000 km/year)

Turnover of 10-12 years (for new gas trucks)
PARTNERSHIP DETAILS

Partnership commenced in May 2004

Vehicles commissioned in February 2005
VEHICLE DETAILS

5 ISUZU NPR 400 gas vehicles

Spark ignited, dedicated natural gas vehicle engine

OEM supply and support

On-site CNG refuelling facility
PROJECT ASSESSMENT

Marginal greenhouse outcomes
(around 18% reduction)

22% fuel savings (vs diesel)

Excellent operational performance
and low commissioning effort

Marginally positive financial returns
(i.e. low annual kilometres)
Case study 2: SITA Environmental Solutions (LNG)
FLEET CHARACTERISTICS

Approximately 650 vehicles

Commercial waste collection
(approximately 75,000 km/year)

Turnover at 10-12 years
PARTNERSHIP DETAILS

Partnership commenced in December 2003

Vehicles commissioned in January 2004
VEHICLE DETAILS

5 Cummins 8.3G+ dedicated
natural gas engines (280 hp)

Spark ignited, dedicated natural gas combustion

Tanker to truck refuelling (LNG)

OEM (regional) installation and support
PROJECT ASSESSMENT

15% greenhouse saving (life cycle)

40% fuel savings (vs diesel)

Good operational performance
and low commissioning effort

Marginally positive financial returns
(i.e. high conversion costs)
Case Study 3: Murray Goulburn (LNG)
FLEET CHARACTERISTICS

Approximately 160 articulated vehicles

Regional haul application (220,000 km/year)
PARTNERSHIP DETAILS

Partnerships commenced in December 2003
(C-12) and March 2005 (C-15)

Vehicles commissioned progressively since
September 2004
PROJECT ASSESSMENT

Negative greenhouse outcomes (for C-12)
and 8% saving (for C-15)

Good financial returns
(up to 60% fuel savings vs diesel)

Good operational performance
but only after very substantial commissioning effort

Very positive financial returns
(i.e. high annual kilometres)
VEHICLE DETAILS

22 x C-12 dual-fuel engines (400 hp)

11 x C-15 dual-fuel engines (520 hp)

Diesel ignition, natural gas combustion at load

On-site LNG refuelling

Specialist installation and OEM support
Economic performance of natural gas HDV engines in Australia
to date

Economic returns are highly variable, ranging from slightly negative to highly positive.

Annual fuel savings have varied between 22% and 60%.

Operator payback periods varied between 4 months and 6 years.

Variability in economic benefits to operators is due to a variety of factors, including:
–
additional capital cost of gas engines
–
annual distance travelled per vehicle
–
magnitude of fuel price differential
–
nature of initial commissioning effort
–
magnitude of transitional costs
–
indirect operational costs (payload penalties and additional refuelling time)
–
reliability of gas components
–
driver culture issues (resulting in increased refuelling frequency).
Economic outcomes will vary with annual kilometres traveled,
capital cost of gas operation, and fuel price differential
Analysis of 2015 tax impacts suggests that natural gas will continue to deliver good
commercial returns for medium and high kilometre operations (i.e. > 200,000 kms p.a.)
Operational performance of natural gas HDV engines in
Australia to date

A large source of the variation in economic returns to transport operators was due
to variations in operational performance.

Significant difficulties were experienced with the durability of some components,
particularly natural gas regulators and on-board LNG tanks.

A number of operators have also experienced problems with engine failures
(i.e. ‘piston grab’ failures)

Significant difficulties were experienced with LNG refuelling operations.

Substantial difficulties were experienced owing to the apparent inability of the
existing natural gas technologies to cope with significant variations in LNG
composition, particularly the variation in heavy hydrocarbons (e.g. ethane).
Environmental performance of natural gas HDV engine in
Australia to date
Greenhouse

Theoretical projections suggested that greenhouse emissions (tailpipe) would
likely be 25% lower than equivalent diesel engines.

Program results indicated that actual greenhouse benefits vary markedly. Analysis
of results varied from being slightly higher than diesel, to being significantly lower
(up to 18% lower).

The key source of variability appears to be due to variations in the tailpipe
emissions of methane (x 21 global warming potential of CO2).
Air quality

Program results showed a strong correlation between theoretical reductions and
actual reductions relative to diesel operation (low sulphur diesel).
Natural gas is fast emerging as a genuine
alternative fuel for heavy duty vehicles in Australia…….

Australia has now been ‘playing’ with natural gas for transport for more than
15 years and has overcome the majority of early problems.

Significant numbers of CNG powered buses are now operating in government bus
fleets in Sydney, Brisbane, Perth and Canberra.

There are now just over 100 trucks operating on natural gas in Australia – largely
in Victoria and Western Australia.

While small in number, there are signs that the demand for gas trucks in Australia
is growing dramatically (the number of gas trucks sold in 2005/2006 was higher
than the total sold in the previous five years).
…..but three key challenges will need to be addressed first
1.
Mixed performance of existing dual-fuel engine technologies

2.
Limited engine product range

3.
Currently the subject of a major R&D project being undertaken by the Australian
Government in partnership with key industry stakeholders (project to be completed
by September 2007).
The Australian government is currently working with Westport Innovations and three
Australian fleet operators to trial the Cummins Westport HPDI Technology (trial results
are expected to be available in early 2008).
Severe restrictions on LNG availability

This issue will only be resolved by significant investment in LNG production facilities
and refuelling infrastructure.
Some concluding thoughts

Biodiesel is likely to be useful as an extender of conventional fuels only.
Economics will be questionable following the introduction of fuel excise from 2011

Post-2015), natural gas is one of the few (if not the only) alternative fuels that is
likely to remain economically viable under the fuel excise regime.

A number of Australian fleet operators have proven that natural gas can deliver
substantial economic savings and environmental benefits.

While natural gas heavy duty engine technology has improved substantially in
recent years, there is still some work to do in this area.

For the natural gas HDV market to grow beyond its current infancy, there is an
urgent need for significant investment to:
–
increase the range of gas engine products
–
improve availability of LNG on the east coast of Australia