The U.S. Energy Information Administration (EIA) Annual Energy Outlook (AEO) 2012 baseline “reference” forecast (released June 25) to 2035 sees only modest growth for compressed natural gas (CNG) and liquefied natural gas (LNG) in U.S. heavy-duty or medium-duty trucking.

The modest “reference” EIA forecast for CNG/LNG comes in spite of assuming a continuation of today’s historically large price spread between natural gas and crude oil (the latter a surrogate for diesel fuel prices) for the next two decades – a price factor that some claim would trigger a large increase in CNG/LNG trucks and refueling stations, at the expense of diesel.

According to the EIA baseline forecast (using constant 2010 U.S. dollars), U.S. retail diesel fuel will cost around $4.20/gallon by 2035, while LNG will retail at just over $3/gallon and CNG at around $2.50/gallon (see chart).

However, the EIA chart also shows that just over two years ago, retail diesel fuel in the U.S. was cheaper than LNG fuel for trucking – a reminder of the wild volatility of U.S. natural gas prices in recent years, and an implied caution about predictions of “cheap gas forever.”

Diesel, LNG, CNG Price Forecast/Source: U.S. EIA AEO 2012

CNG/LNG Obstacles

“Key market uncertainties with regard to natural gas as a fuel for HDVs [heavy duty vehicles] include fuel and infrastructure issues – such as the build-out process for refueling stations and whether there will be sufficient demand for refueling to cover the required capital outlays, and retail pricing and taxes for LNG and CNG fuels,” according to EIA.

Other big problems include “vehicle issues, including incremental costs for HDVs fueled by natural gas, availability of fueling infrastructure, cost-effectiveness in view of average vehicle usage, vehicle residual value, vehicle weight and vehicle refueling time,” according to the EIA AEO 2012.

As a result of such obstacles, EIA’s baseline “reference” forecast for sales of new U.S. heavy-duty natural gas vehicles (NGVs) sees an increase from only 860 NGVs in 2010 (0.2% of total U.S. new HDV sales) to 26,000 NGVs in 2035, or just 3% of total new HDV sales in 2035.

EIA noted that many U.S. trucking fleets have relatively short payback period expectations on new-truck purchases – three years or less. Many of these fleets also operate Class 3 (medium) trucks that run about 60,000 to 80,000 miles annually and more than 100,000 miles annually for their larger, Class 7 and 8 vehicles, according to EIA.

The problem, according to EIA: The U.S. Department of Transportation’s last “Vehicle Inventory and Use Survey” shows that “a large segment of the [U.S.] HDV market simply does not drive enough to justify the purchase of an NGV [natural gas vehicle].”

Another problem for fleets trying to calculate the value of switching to LNG or CNG: Even if the costs of producing U.S. natural gas are “fully known, retail prices for CNG and LNG transportation fuels remain uncertain, given questions about whether [retail] dispensers would charge higher prices in order to recover costs more rapidly if the [LNG/CNG] facility were underutilized or would set prices to be competitive with the price of diesel,” according to EIA.

High Up-Front Purchase Costs

According to EIA, total incremental costs for heavy-duty NGVs relative to diesel HDVs range from about $9,750 to $36,000 for Class 3 trucks (gross vehicle weight rating 10,001 to 14,000 pounds), $34,150 to $69,250 for Class 4 to 6 trucks (GVWR 14,001 to 26,000 pounds), and $49,000 to $86,125 for Class 7 and 8 trucks (GVWR greater than 26,001 pounds).

“The incremental costs of heavy-duty NGVs depend in large part on the volume of the vehicle’s CNG or LNG storage tank, which can be sized to match its typical daily driving range,” according to EIA.

“Non-storage-tank incremental [NGV] costs average about $2,000 for Class 3 vehicles, $20,000 for Class 4 to 6 vehicles, and $30,000 for Class 7 to 8 vehicles.

“Fuel storage costs are about $350 per gallon diesel equivalent for CNG, with the incremental cost for Class 3 CNG vehicle storage tanks ranging between about $8,000 and $30,000; and about $475 per gallon diesel equivalent for LNG, with the incremental cost for Class 4 to 8 LNG vehicle storage tanks ranging between about $14,000 and $52,000.”

Financing, Resale Value Problems

According to EIA, “even if the payback period for an investment in natural gas vehicles seemed acceptable, financing constraints or returns available on competing investment options could preclude the purchase.

“Additionally, the residual value of natural gas HDVs could, in theory, affect market uptake. With little natural gas refueling infrastructure in existence, the potential resale market is constrained to owners of centrally operated fleets,” according to EIA.

Feeble U.S. LNG Liquefaction Capacity

Meanwhile, “any significant expansion of LNG refueling capacity also will require expanded liquefaction capacity, which currently is not sufficiently dispersed throughout the country to support a nationwide LNG refueling infrastructure,” EIA pointed out

Why that’s a big problem: “A diesel tractor with 200 gallons of tank capacity and a fuel economy of six miles per gallon can drive 1,200 miles on a single refueling,” EIA found.

“The same tractor would need up to 110 diesel-gallons-equivalent of LNG tank capacity, at a considerable weight penalty and an incremental cost of more than $80,000, to allow for a range of about 650 miles on a single refueling,” EIA pointed out.

Diesel Car Share Seen Growing

On a parallel front, while EIA’s baseline AEO 2012 forecast sees rather feeble CNG/LNG growth in trucking, diesel fuel demand for U.S. light-duty vehicles is likely to grow.

U.S. diesel fuel consumption “increases from 3.3 million barrels per day in 2010 to 4.1 million barrels per day in 2035,” according to EIA’s baseline forecast.

“The growth in diesel fuel use results primarily from increased sales of light-duty diesel vehicles needed to meet more stringent CAFE standards, with a corresponding increase in [U.S.] domestic production of diesel fuel.

“Biodiesel and a number of next-generation biofuels account for a large share of the increase in [U.S.] petroleum and other liquids consumption (excluding ethanol) for transportation from 2010 to 2035 (about 0.7 million barrels per day).

“The growth in biofuels consumption (including ethanol) is attributable to the 2007 RFS [renewable fuel standard] mandates, as well as high crude oil prices,” according to EIA.

Optimistic ‘Potential’ Case

The AEO 2012 forecast also includes a much more optimistic “Potential” case that foresees far more CNG/LNG trucks sold in 2035 than in EIA’s baseline “reference” case.

However, the “Potential” case only sees a large increase in LNG/CNG trucks sold “under an assumption that the [CNG/LNG] refueling infrastructure exists to support such an expansion,” a situation that is far from reality today.

“The natural gas refueling infrastructure is expanded in the heavy-duty NGV ‘Potential’ case simply by assumption; it is not clear how (or whether) specific barriers to natural gas refueling infrastructure investment can be overcome,” EIA explained.