Alternative fuels for heavy vehiclesWhat 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.

Increased oil prices will have a variable impact on specific industries with transport, mining and agriculture being most vulnerable.

Source: Australian Bureau of Statistics, UBS, AMP Capital Investors

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Separating facts from folkloreAdvocates 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(cents per litre)

Ethanol(cents per litre)

LPG(cents per litre)

LNG(cents per litre)

CNG(cents per m3)

Removal of ECGS(By July 2010)

11.106

12.485

7.155

4.878

7.570

Addition of fuel excise(2011 to 2015)

19.1

12.5

12.5

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15.2

Total increase above

(above July 07 prices)

+ 30.206

+ 24.985

+ 19.655

+ 14.878

+ 22.770

Note: Equivalency factors for LPG (x 1.3), LNG (x 1.7), and CNG (x 1.1)

Alternative fuels for Australian road transportA strategic perspective

Entry level Start-up Market ready Indigenous Abundance Price Economic Environmental(US$ / barrel) costs vehicles fuel stability performance performance

LPG $45-50

NATURAL GAS > $50

BIODIESEL > $80

ETHANOL $45-50

SOLAR ?

HYDROGEN ?

ELECTRIC ?

FUEL CELLS ?

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

2010 to 2040 2000 to 2010 2040 onwardsLikely application

‘Mainstream’

‘Niche’

‘Enthusiast’ Solar

Hydrogen

Compressed Air

Electric

Petrol & Diesel Cleaner Petrol & Diesel (including biofuel blends)

Synthetic Diesel

Hybrids

Natural Gas

LPG

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 Will require technological breakthroughs Likely to be at least a decade away

Unlikely to be developed as a large-scale substitute for conventional fuels 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 performanceand 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+ dedicatednatural 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 performanceand 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

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

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 performancebut only after very substantial commissioning effort

Very positive financial returns(i.e. high annual kilometres)

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 genuinealternative fuel for heavy duty vehicles in Australia…….

Australia has now been ‘playing’ with natural gas for transport for more than15 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

Currently the subject of a major R&D project being undertaken by the Australian Government in partnership with key industry stakeholders (project to be completedby September 2007).

2. Limited engine product range

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).

3. 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