By Julie Gedeon
Liquid natural gas (LNG) offers a huge opportunity to reduce fuel consumption and greenhouse gas (GHG) emissions along Canada’s key trucking corridors, but the potential is stalled by high upfront costs.
“We’re asking the government to offset some of that initial expense through an accelerated capital cost allowance or other measures that would help fleets to make the transition to LNG technology,” says Alicia Milner, President of the Canadian Natural Gas Vehicle Alliance (CNGVA).
Heavy vehicles – trucks and buses – are currently among the most rapidly expanding sources of GHG. “They account for one-quarter of vehicles, but produce one-third of the carbon,” Milner notes. “Their GHG emissions have increased by approximately 90 per cent since 1990.”
LNG has one-third of the smog-related nitrogen oxide (NOx) emitted by diesel fuel and it does not present any carcinogenic issues, Milner adds. “Encouraging the use of this lower-emission commercial technology would really compliment what the government is aiming to do with its regulatory agenda.” In addition to its environmental and health-related benefits, increased use of LNG for transportation application confers significant economic benefits. LNG is significantly less expensive than diesel, and Canada has huge resources of natural gas that can be liquefied into LNG.
However, without government offsets, the vast majority of carriers will not make the necessary investments. “You’re looking at about $200,000 for a new LNG vehicle compared to $110,000 or $120,000 for a diesel-run tractor-trailer,” says Stephen Laskowski, the Canadian Trucking Alliance’s Vice-President of Economic Affairs. “So, unless the federal government or provinces are willing to take Quebec’s lead in allowing an 85-per-cent write-off after the first year, truckers face making a huge initial investment.”
Niche opportunity
CNGVA has pegged a five per cent share of fleet renewal as a reasonable goal for new LNG trucks. “LNG is a niche opportunity,” Milner explains. “To get the necessary payback, you need to have scale that makes the infrastructure costs worthwhile.”
Carriers logging at least 800 kilometres daily between urban areas could definitely benefit. “We’re especially looking at busy corridors, such as Windsor to Quebec City, and Vancouver to Edmonton,” Milner says. “We also perceive the advantage in some regional areas, such as the vicinity of Winnipeg where there’s a lot of trucking.”
LNG has attracted greater interest since Canada has signalled its intention to align itself with the United States, which is set to regulate fuel and carbon emissions from heavy vehicles starting in 2016. “The intended regulations are good, but the reality is that it will take a 20-year cycle in Canada to turn over vehicles if the government doesn’t provide some help,” Milner says.
CNGVA is advocating a five-year government assistance program, after which prices should decrease as a result of increased sales in Canada and especially the United States. Several American states – most notably California and Texas – already have long-standing regulations, policies and infrastructure that favour LNG use.
U.S. advantage
A nationwide network is well on its way to being established South of the border. Clean Energy Fuels Corp. is installing 150 LNG fuelling stations at truck stops across the U.S. by the end of 2013. Shell is establishing a minimum of 100 at TravelCenters of America with the first ones starting operation sometime next year.
“Private-sector dollars are targeting the busiest traffic corridors in the U.S., along with the necessary links to make local or regional opportunities into a network that’s really cross-country,” Milner says.
Without government assistance, trucking companies in Canada might soon find themselves at a competitive disadvantage within a continental industry. “The Canadian market is falling behind, which is not good for our trucking industry, the movement of goods, or the environment,” Milner warns.
Shell has announced it will establish three fuelling stations at truck stops in Alberta that will begin operating before the end of this year, but that is it for private-sector commitments in Canada so far. For carriers to consider establishing their own fuelling infrastructure, they must have at least 20 high-mileage LNG vehicles.
Another challenge in Canada is the lack of facilities to liquefy the gas within reasonable distances so that it can be transported by truck or train to fuelling stations. “The only facilities so far are owned by utility companies and there’s just one in Montreal, one in Northern Ontario, and two in British Columbia,” Milner says.
Shell is building a processing facility at Jumping Pound, Alberta, about 30 kilometres West of Calgary. The facility is the company’s first large-scale LNG project in North America as part of its Canadian Green Corridor plans. The facility is set to begin operating in the fall of 2013.
Buy/build dilemma
Milner says the main issue in constructing LNG fuelling facilities is having enough LNG trucks on the road to merit the creation of the necessary fuelling infrastructure. LNG-powered trucks will not become widely adopted until fuelling infrastructure is in place, and construction of fuelling infrastructure will not accelerate until there are more potential customers on the road. “The fleet conversion really has to happen about the same time as the installation of fuelling stations,” she says.
A big selling point to date has been LNG’s lower cost, but some of those savings are the result of the fuel remaining untaxed. There’s currently no federal excise tax on LNG (compared to four cents per litre on diesel) and most provinces have so far exempted it from road or motor-fuel taxes which range from nine cents a litre on diesel in Alberta to 16 cents in Quebec. “We’re smart enough to know that as soon as there’s more LNG use, governments will tax it,” Laskowski says.
Current tax exemptions account for only half or less of the fuel-cost savings, Milner emphasizes. “LNG has the capacity to carry tax when the time comes,” she says. “For now there’s a tax relief which we hope governments will maintain until LNG has a chance to become established at scale.”
Even with taxes, LNG is expected to remain cheaper because of its local abundance. “Yes, the price will fluctuate, but with more than 100 years of North American supply, it offers a shelter from the broader global risks associated with crude oil, “ Milner says.
Laskowski suggests that having suppliers agree to long-term contracts at the current low prices would go a long way in persuading carriers to invest in LNG trucks. “Talk is cheap,” he says. “Fixed contracts speak.”
Incentives do work
Another possibility is to have LNG suppliers help with initial costs, as Terasen Gas did for Veder Transport in British Columbia. Veder purchased 50 LNG vehicles for use within Southern B.C. after Terasen offered to offset Veder’s incremental cost of using LNG-powered vehicles rather than diesel-fueled trucks.
The biggest fleet renewal to date has been in Quebec where Groupe Robert purchased 180 LNG-powered tractor units for operation between Quebec City, Montreal and Toronto. Robert announced its fleet renewal shortly after Quebec increased the depreciation rate for any new truck bought after March 31, 2010 from 40 to 60 per cent, with an 85-per-cent amortization rate applicable after the first year if the vehicle operates on LNG.
In a project co-funded by the federal project, CNGVA is providing information to carriers interested in exploring the LNG option. “We’re helping with everything from how to get project approval, to how to train personnel, to how to ensure garages are safe for working on vehicles,” Milner says.
The alliance has also launched www.gowithnaturalgas.ca to help the owners of medium and heavy fleets by having all of the existing information at their fingertips. They can peruse available vehicles, calculate the potential economic and environmental advantages based on their mileage, find out the steps required to implement a project, and so forth.
Milner expects the website to help educate the public, too. “We’ve been using natural gas in Canada for more than a century to heat homes, but we’re now applying it to a newer use in transportation,” she notes. “LNG has its risks, as any fuel does, but it’s well known how to handle it safely.”
The increased acceptance and availability of LNG will benefit the marine sector, Milner adds, when regulations that require significant reductions in NOx and sulphur oxides from ships come into effect in 2015 and 2016.
Note: a comprehensive article entitled “New, more efficient technologies make LNG-powered trucks more competitive with diesel” was published in Canadian Sailings of September 19, 2011. The article is easily accessible at www.canadiansailings.ca. Locate the article through the Search button, or access it by searching for it under “Past issues”.