By John Eichberger
The U.S. Energy Information Administration (EIA) projects that liquid fuels will dominate the market at least through 2035, representing more than 96% of transportation BTUs in the United States by that time. The remaining 4% of energy will be provided by a mixture of non-liquid alternative fuels, including electricity, natural gas and hydrogen.
So if these alternative fuels are going to contribute so little to the transportation energy market, why should we pay any attention?
As we all know, projections are always subject to change. There is no exact way to measure what the future market conditions will make viable and what consumers will want to purchase. So, although EIA thinks the market share of these non-liquid alternatives may be meager, weâ€™ll never really know.
Second, non-liquid fuels are getting a lot of attention from automobile manufacturers, consumers, market observers and the federal government. Obviously, the forces that could influence the outcome of future market projections are hard at work; itâ€™s likely that 2035 will be different from what EIA currently expects.
Finally, there could be profit involved. Retailers who are able to evaluate market trends and lead the way with new products and services could find themselves in the advantageous position of market leader. Understanding whatâ€™s coming and how consumers may react can help you take advantage of new opportunities.
All of this is why it is valuable to look at EIAâ€™s projections and consider the various forces working to influence the future market. Yes, right now EIA does not think electric and natural gas vehicles will be a strong contributor to the consumer transportation sector â€" but think about how much money and marketing the automobile companies are investing in electric-drive and electric-drive assist vehicles. Think about how much money and marketing the energy companies are investing in natural gas vehicles and infrastructure.
Part 4 of our Future of Fuels report is a necessary first step toward better understanding how our nation may approach alternatives. Soon, NACS will be publishing additional reports evaluating the market potential of specific fuels so we can provide you with greater insight into opportunities that may exist in the years ahead.
Much of the recent political attention on energy policy has focused on alternative fuels and engine technologies. Debates concerning the future of natural gas-powered vehicles, electric vehicles and the much anticipated hydrogen fuel cell, have dominated the discussion. However, EIAâ€™s projections indicate that these technologies â€" even as a cohesive group â€" will likely represent no more than a small niche of the transportation sector.
If liquid fuels are projected in 2035 to represent 96.63% and 96.05% of total transportation BTUs in the Reference and CAFE3 cases respectively, then the combined contribution of all other fuel types will be less than 4%.
That said, projections are uncertain; policies or technology breakthroughs can have a significant influence on the overall market potential of these alternative technologies. For example, implementation of a low carbon fuel standard (LCFS) in California, and consideration of similar policies in the northeast and other regions, would create very strong regulatory and, by consequence, economic pressures to bring new technologies to market. The primary incentive is to reduce the use of petroleum-based products, but the standards being applied in California disadvantage fuels such as corn-derived ethanol and strongly incentivize the use of electric vehicles.
Meanwhile, a national public relations campaign has teamed up with legislation in Congress to help the nation tap into its vast natural gas resources to develop a transportation sector market for this clean burning fuel.
Such activities are occurring at the same time researchers are spending billions of dollars to develop better performing, higher capacity batteries for electric vehicles and mobile hydrogen fuel cells. Technology breakthroughs are possible and, if commercially viable, could dramatically change the future of transportation energy. In addition, market dynamics affecting vehicle and traditional fuel prices could provide a catalyst for rapid and significant alteration of the projections.
To that extent, it is valuable for fuel retailers to understand the options being discussed and the current market potential of each. Some may hold greater promise than others and each retailer must decide independently whether any are worthy of investment. However, projections in 2011 were not promising.
Natural gas can be used as a transportation fuel in both a liquid form (LNG) or in its compressed form (CNG). The transition away from crude-based motor fuels to LNG and CNG is under serious consideration by Americaâ€™s leaders, primarily because the continental United States sits on top of a vast supply of natural gas. Although the extraction of natural gas is very expensive and the method of natural gas extraction, known as fracking, is controversial because of its potential effect on the environment, a modern day "gold rush" is occurring to bring this new fuel to market.
EIA estimates that the United States in 2009 had 272.5 trillion cubic feet of natural gas reserves. This represents approximately 4.3% of the world supply. However, EIAâ€™s Annual Energy Outlook estimates that unproven shale gas reserves could total 827 trillion cubic feet, which would propel the United States to a leading position in world natural gas supplies.
CNG contains an average of 900 BTUs per cubic foot, meaning that it will take 126.65 cubic feet to equal one gasoline gallon. LNG, on the other hand, is measured in gallons and contains on average 75,000 BTUs and equals gasoline at 1.52 gallons LNG. Because CNG has a lower energy density, it is not practical for long-distance, heavy-duty truck applications. Typically, CNG is used in fleets of cars, trucks or buses, which return to a "home base" every day. LNG may present a viable alternative of fueling for long-haul trucking. However, because there is very limited refueling infrastructure currently in place across the country, a long-haul trucking route might need to be carefully planned to reach designated fueling stations.
In 2010, the United States consumed 32,850 million cubic feet of natural gas as an alternative motor fuel, representing 30.08 trillion BTUs, which was only 0.018% of total transportation BTUs. Of this, 64.5% was LNG and 35.5% was CNG. LNG was heavily slanted toward freight truck usage, which represented 84.5% of its use. CNG, on the other hand, was more evenly distributed between freight trucks (38.3%) and light-duty vehicles (61.7%). Looking out the next 20-plus years, however, EIA projects that CNG will have a stronger market presence than LNG.
In the Reference Case, EIA projects that through 2035 the use of CNG will increase by 398% and annual LNG use will increase by 11.5%. In CAFE3, annual CNG use will increase by 377% and annual LNG use will increase by 9.8%.
In both cases, LNG remains dominated by freight truck use while CNG transitions more heavily into this market.
In 2035, the Reference Case projects a freight to light-duty vehicle ratio for CNG of 86.8% to 13.2% and in CAFE3 a ratio of 89.4% to 10.6%. Even with this projected growth, combined CNG and LNG use in both cases represents less than 1% of the entire transportation energy market.
An element not captured by EIAâ€™s projections involves slow refilling of CNG canisters. This type of refueling occurs at the residence of the vehicle owner or at the parking facility for return- at-night trucking operations. The process takes several hours but does not require installation of expensive compression units. In addition, because these facilities are simply using existing natural gas supply lines, EIA cannot measure how much is being used to supply CNG vehicles.
While this may create a degree of uncertainty regarding the current or future demand for natural gas-powered vehicles, when evaluated along with projected natural gas vehicle sales the uncertainty does not seem to be too concerning. Annual sales of CNG and LNG light-duty vehicles are projected to double by 2035 in the Reference Case, but increase by only 63.6% in the CAFE3 model. Despite this growth, by 2035 these vehicles are projected to represent less than seven one-hundredths of a percent of all light-duty vehicle sales. The general lack of vehicles on the market will have a more significant effect on overall natural gas demand than the occurrence of at-home slow fill refueling.
In past years, automotive manufacturers have offered cars and light trucks that could operate on CNG. However, the majority of automakers, except Honda, have left the CNG market at this point. Honda offers the Civic GX, which delivers a 31-mile combined EPA mileage estimate with an MSRP of $26,155 on the entry-level model. (By contrast, a basic Civic starts at $15,805 and a Civic Hybrid starts at $25,050.)
After seeing the majority of auto manufacturers pull out of the market, natural gas advocates are now pushing the general population toward conversion kits, which range in price from about $1,000 to $4,000 depending on the vehicle.1
As far as retail availability and conversion to sell CNG or LNG, as of January 2012 there were 975 CNG refueling stations and 46 LNG refueling stations in America.2 In April 2010, EIA released data showing that currently 113,973 vehicles run on CNG, with 79,681 of those vehicles operated by private and municipal government and close to half of those in California.3
Official estimates associated with offering CNG to consumers through a two-nozzle dispenser place the cost at approximately $150,000. This estimate is magnitudes lower than anecdotal reports from retailers who have either invested in the equipment or investigated the cost themselves. However, this estimate is based on the assumption that 75 vehicles will be fueled a day and the facility would require the following equipment:
- 3 Phase Power - 480v/3ph60Hz
- 20â€™ X 30â€™ pad to install the compression unit (this can be enclosed)
- Three high pressure lines that will run underground
- Dog-bone island for the dispenser
Some retailers have reported estimates ranging from $300,000 to $1 million per location to install CNG systems. To offer LNG, it is estimated an initial investment would range between $450,000 and $600,000.
The future of vehicles propelled by natural gas is uncertain because current government subsidies and loan programs most likely will not be extended. It is broadly anticipated that cities and municipalities might continue to use CNG and that this may represent the bulk of continued or new demand. Fleet operations relying on CNG or LNG could continue, especially for the return at home fleet. Such a market would not require investment in retail facilities.
Government policies are driving the development and marketing of traditional hybrids, plug-in extended range electric vehicles and pure electric vehicles. In addition to CAFE standards, policies that seek to reduce greenhouse gas emissions and implement low carbon fuel standards (LCFS) are designed largely to reduce the use of liquid fuel and promote the conversion to electric.
The first implementation is beginning in California while another effort to enact an LCFS in New England seems to be losing momentum. That said, automobile manufacturers continue to make new electric-drive vehicles so they will be a part of the future transportation market.
In the absence of more aggressive policies, according to EIAâ€™s projections, it is unlikely that electricity will provide a significant amount of transportation energy. In the Reference Case projections, the amount of BTUs provided by electricity are expected to represent only 0.17% of all transportation BTUs in 2035. In the CAFE3 projection, the share increases to only 0.31%.
That said, the market will start to see more electric-drive cars, and retailers should consider offering services to these customers. Doing so may provide a slight competitive advantage, as well as boost the image of the store.
The most popular and experienced of the electric vehicle market is the traditional hybrid vehicle (such as the Toyota Prius, the Honda Insight or the Ford Escape), which utilizes a gasoline-powered internal combustion engine and either a nickel-metal-hydride or a lithiumion battery.
Hybrid vehicles reduce fuel consumption by delivering power to assist the engine when accelerating, passing or climbing hills, thus enabling a vehicle to utilize a smaller, more fuel-efficient engine. In some models the power assist will power the vehicle 100% at very slow speeds. In addition, the technology enables vehicleâ€™s engine to shutdown when the vehicle is not in motion, eliminating engine idling. The battery is recharged through regenerative braking â€" when the vehicle is coasting or slowing, the rotation of the wheels turns a generator motor that recharges the battery.
According to DOE, the first hybrid sold in the United States was the Honda Insight in 1999 (17 total units sold), with the Toyota Prius following in 2000. In 2000, a total of 9,350 Prius and Insights were sold. In 2010, 274,210 hybrid vehicles were sold in the United States, and in the 11 years since their introduction, 1.888 million hybrid vehicles have been sold in the country.
J.D. Power once projected that sales would grow significantly in the coming years, anticipating 1.4 million units to be sold annually by 2015 â€" seven times more hybrids sold than in 2010. Then, in November 2010, J.D. Power amended its prediction to say that stable fuel prices, high technology costs, and uneven regulatory programs could hamper global acceptance of the vehicles.
Other projections estimate that 108 hybrid models will be offered for sale in 2015 and that 30% of vehicles sold in 2015 will be hybrid. However, EIA disagrees. In 2009, hybrid vehicles represented 2.6% of new light-duty vehicle sales. The Reference Case projects a 292% increase in sales by 2035 for a total market share of new vehicle sales of 5.2%. CAFE3 projects a 1,277% increase in sales for a 19.7% market share of new sales.
Hybrid vehicles do offer a significant boost in fuel economy. NACS used DOE-reported fuel economy data to profile 21 model year 2011 vehicles available in hybrid or traditional gasoline engine versions.
The data indicated that these hybrid vehicles improve fuel economy in city driving by an average of 59.23%, highway driving by 18.50% and combined 37.36% (DOE calculated a combined MPG based upon 55% city driving and 45% highway driving).
Hybrids do come with added upfront costs (typically several thousand dollars depending on the model), and this can dissuade some consumers from transitioning from traditional gasoline-powered vehicles to electric-assist models. For example, when a consumer considers a Ford Escape and a Honda Civic in gasoline and hybrid models, does the purchase make financial sense? (See table.)
Federal tax credits, which once helped offset the cost of a hybrid vehicle by up to $4,000, for the most part have expired, leaving the consumer to foot the entire price of the purchase. As J.D. Power and Associates reported last year, in a market with stable energy prices the incentive to purchase a more expensive fuel-efficient vehicle can rapidly decline. Consequently, the projections for consumer demand for hybrid vehicles, in the absence of a reduction in purchase price, may not be a driving factor in their market penetration. However, given the requirement of automakers to increase their fuel efficiency to comply with aggressive CAFE standards, consumers may not have much of a choice.
From a retail perspective, while the increase in hybrid vehicles may result in fewer customer fuel transactions at retail, hybrids do not present any infrastructure challenges. The primary energy source for the vehicles remains gasoline and retailers do not have to invest any resources to upgrade their facilities to service these custom model: the fuel capacity of the vehicle gasoline tank. To shed weight and enhance fuel economy, some manufacturers may install smaller than usual fuel tanks in their vehicles to maintain a consistent range capacity for each vehicle, which would preserve a consistent customer visit rate at retail locations.
The next generation of electricity-powered vehicles that followed traditional hybrids were plug in hybrid vehicles (PHEVs), also known as extended- range electric vehicles. These vehicles (such as the Chevy Volt and Toyota Prius Plug In) utilize a lithiumion battery pack (which contains twice the energy density and three times the power density of a nickel-metal-hydride battery) to power a vehicle for a certain duration, estimated and reported in miles (most commonly 10 or 40 miles and noted in literature as PHEV-10 or PHEV-40). Once the battery reaches a minimum state of charge, an internal combustion-powered generator engages to charge the battery. PHEVs differ from traditional hybrid vehicles in that they are primarily charged from the electrical grid (plug-in) and can operate for periods of time without the internal combustion engine.
EIA projects that total annual sales of PHEVs will increase 19.2% by 2035 in the Reference Case, but by 57.1% in CAFE3. Even so, the overall sales figures will represent only 2.4% of all light-duty vehicle sales in the Reference Case and 7.4% in CAFE3.
One of the major detractors in consumer acceptance will be vehicle cost. The National Academy of Sciences estimates that incremental costs to manufacture a PHEV will decline over time.4 However, in the organizationâ€™s "Probable" case, in 2015 a PHEV-40 (40-mile range) will cost an additional $14,200 to manufacture. This additional cost will decline to $11,000 by 2030. These estimates do not include R&D, design or other factors in the markup to the consumer.
Another limiting factor is the durability of the battery. It is estimated that the battery packs in PHEVs will degrade in power 20% over the warranty period. While this may not be a deal killer for some customers, improvements in battery life will be critical if this technology is to increase its foothold beyond the EIA projection.
A final factor that may limit overall acceptance is the availability of plug-in charging facilities. PHEVs have a significant advantage over pure electric vehicles because they include a gasoline-powered generator that powers the electric system once the initial charge is depleted.
This eliminates the immediate need for a recharging infrastructure in the market because these vehicles will not be stranded in the event of charge depletion. But initial charge access could be challenging for many customers.
For example, the consumer who resides in an apartment complex, or in a home that does not have a garage, may not have access to an acceptable recharging system. This would render the benefits of a PHEV relatively moot since the vehicle would in essence be a gasoline-powered vehicle. For those consumers who do have facilities to accommodate a charging station, additional costs are associated with these facilities.
Recharging at home can be accomplished by plugging the vehicle into a 110V-AC 30A receptacle. This is referred to as Level 1 Recharging and takes 10 to 12 hours for a full charge. Home application Level 2 charging requires access to a 240V-AC 30A system and requires professional installation of a recharging unit.
These systems can recharge the vehicle in 4 to 8 hours and cost $600 to $1,500. For retailers, the introduction of PHEVs does not necessitate a change in business services. Some retailers may desire to install a recharging station at their locations, thus providing their consumers with the option to "top-off" their battery mid-day. For example, a consumer driving a PHEV-40 may commute 30 miles one way. To avoid relying upon the gasoline generator, this driver might desire to recharge before heading home. If his business does not provide charging infrastructure, he might seek to recharge while visiting a local convenience store or restaurant.
Home recharging options are clearly not ideal for commercial applications. Most retailers should consider at the very least a commercial grade Level 2 charger. These systems would not provide a full charge in the time a consumer would be willing to wait, but they could provide a "top-off" recharge. These systems cost $2,500 to $4,000 to install.
For full-service commercial recharging, however, retailers might consider Level 3 rechargers. These systems can fully recharge a battery in two hours or provide enough charge to "get home" in 30 minutes. (Battery developments could reduce this time frame to 10 minutes.) Level 3 systems require an electrical upgrade at the facility, a 480VDC 80A circuit and a commercial unit that costs $25,000 to $50,000.
There are limitations and uncertainties, however, surrounding the effect of fast-recharging on vehicles. As of
January 2012, only a couple of vehicle manufacturers were equipping their vehicles with Level 3 charging units.
Other manufacturers were enabling only Level 2 charging due to their concerns about the effects of high-speed charging on the durability of the battery. Even Nissan, which has equipped the all-electric Leaf with both Level 2 and Level 3 receptacles, advises consumers to not use a Level 3 charger for more than 15 minutes per day.
All-electric vehicles (such as the Nissan Leaf) utilize similar technology as PHEVs, but they do not include an internal combustion generator for supplemental charging. These vehicles rely 100% on plug-in recharging and boast of a longer duration on a single charge. (Nissan estimates the Leaf has a range of 100 miles.)
The recharging limitations that affect a PHEV will also affect the operability of an electric vehicle, although with more significant consequences. A driver of an electric vehicle has no alternatives to plugging in to a recharging station. Unlike a PHEV, if an electric vehicle runs out of power, itâ€™s stranded â€" one major reason why consumer acceptability of these vehicles will be significantly slower.
In fact, EIA projects in the Reference Case only 175,000 all-electric vehicles will be sold in 2035, representing 0.9% of all light-duty vehicle sales. In the CAFE3 model, fewer units are projected to be sold (153,400) and would represent 0.8% of overall sales.
Retailers who wish to service this niche market face the same installation and cost factors that affect those who wish to service the PHEV recharging fleet.
In his 2003 State of the Union Address, President George W. Bush announced his intent to bring hydrogen fuel cell powered vehicles to the market. He proposed $1.7 billion over five years to support the initiative and a flurry of activity began.
Today, the future remains murky for this technology. Aside from a few concept cars on display each year and a few hydrogen-refueling stations scattered throughout the country (56 as of September 30, 2011), little progress has been made in developing a commercially viable market for this technology.
In fact, EIAâ€™s Annual Energy Outlook pays very little attention to this option for transportation energy. In the Reference Case, EIA projects 2,900 hydrogen-powered vehicles sold in 2015 and a total of 8,900 units in 2035. CAFE3 presents an even less-promising picture, increasing sales from 2,900 in 2015 to 8,100 in 2035. In either case, hydrogen is projected to contribute less than 0.03% of the total BTUs used in transportation.
Barring a significant technological breakthrough, convenience retailers are unlikely to experience any level of consumer demand for hydrogen refueling except as part of a demonstration projection in conjunction with the government or a vehicle manufacturer.
- U.S. Department of Energy
- "Transitions to Alternative Transportation Technologies â€" Plug-in Hybrid Electronic Vehicles," Committee on Assessment of Resource Needs for Fuel Cell and Hydrogen Technologies, the National Academies
Ideally, the proper role of government in the motor fuels arena should be to do as little harm as possible and stay out of the way of innovation. Unfortunately, this is not necessarily a view shared by many of our elected officials and government bureaucrats.
Consequently, we are dealing with myriad regulatory and legal requirements that increase the cost of production and stymie the development and availability of new fuels consumers may wish to purchase. What is worse, many of these requirements contradict one another.
NACS has called upon Congress to conduct a comprehensive review of existing and pending regulations that affect both the motor fuels industry and the vehicle industry. Such a review should evaluate the effect of each requirement on the market and consumers and identify ones that conflict with one another. Once complete, Congress needs to embark upon a path to develop a comprehensive fuels policy for the nation.
This new fuels policy would be a departure from past efforts. Rather than compromising the best interests of the consumer â€" in an effort to address the interests of specific constituencies â€" Congress needs to put the consumer first. It is time for the nation to establish a long-term objective that balances environmental concerns with national energy security and delivers to the consumer the most affordable energy products possible â€" and then let the market take over. Command and control from Washington will not create a sustainable, pro-consumer motor fuels market.
The U.S. economy has been bolstered by a long history of affordable energy and it is time to put that interest first. NACS is advocating for a balanced approach to transportation fuels, encouraging policies that remove barriers and open opportunities, and opposing those that would saddle consumers and the market with unnecessary costs. In doing so, we are reaching out to other stakeholders (energy producers, auto manufacturers, consumer groups and environmental organizations) to develop a broader understanding of the issues affecting the market and construct a balanced approach to long-term fuels policy.