Truck operators down on diesel, up on natural gas

Low-emission movement in Metro municipalities accelerating shift in truck fuel source

Commercial truck fuelling at a FortisBC compressed natural gas station | Submitted

The high cost of diesel in B.C. has sparked a spike in interest in natural gas as an alternative fuel for local truck operators.

According to FortisBC, there has been a strong uptake over the past year in liquefied natural gas (LNG) and compressed natural gas (CNG) trucks throughout the province, as industry-wide awareness of possible government scrutiny on emissions pushes more companies to choose a diesel alternative.

“The whole trend towards switching to cleaner fuels has just generated a heightened awareness for alternative fuels, and when people look into it, they realize that natural gas technology is available,” said Arvind Ramakrishnan, FortisBC’s senior manager of natural gas business growth and regional LNG. “The infrastructure is there.”

Among the latest adopters are companies on Vancouver’s Produce Row, including Yen Bros Food Service, and other Metro Vancouver players such as City Wide Produce. Both Yen Bros and City Wide will pick up two natural-gas trucks each in the upcoming months, and Rama
krishnan added other major chains have made commitments to make similar purchases.

The natural gas uptake isn’t confined to land transport.

Seaspan Ferries announced in May plans to add two LNG-
battery hybrid vessels to its fleet in 2021. They will be in addition to two LNG vessels that “have operated with emission reductions of over 50% compared to traditional vessels,” said
Seaspan Marine Transportation CEO Frank Butzelaar in a statement.

BC Ferries has also ordered an LNG vessel and is making the business case for adding more to its fleet.

Policy directives, officials say, are driving the overall awareness in the industry, from municipal governments and other jurisdictions. Operators say they are concerned about potentially being restricted or shut out of markets entirely as cities shift to lower-emission trucking.

Among B.C. organizations committing to limit or switch from higher-emission trucks is the Vancouver Fraser Port Authority, which has proposed an initiative to look at container trucks using alternative fuels.

At the same time, the City of Vancouver passed a motion in June looking into what’s being done to reduce emissions from heavy trucks using the Clark-Knight corridor, which is one of Greater Vancouver’s busiest cargo-transport routes.

But the push to reduce freight transportation emissions goes well beyond Metro Vancouver and the rest of B.C.

The stock price for Vancouver-based Westport Fuel Systems Inc. (Nasdaq:WPRT) – a manufacturer of natural gas and alternative fuel engine technology – has more than doubled since February to US$2.99 as company officials tout improving market conditions around the globe.

During its 2019 Q1 earnings call in May, Westport CEO David Johnson said regulations in Europe requiring heavy-duty vehicles to cut carbon dioxide emissions 15% by 2025 have focused the trucking industry on converting to natural gas, including considering the company’s high-pressure direct-injection product (HPDI 2.0).

“We have already seen the impact of these regulations via increased demand for HPDI,” Johnson said.

“First, fleet customers are buying HPDI-equipped trucks from our OEM [original equipment manufacturer] lead customer in Europe. Second, we see demand for development activities to support customers who will add HPDI to their product portfolio.”

During the company’s August 8 Q2 earnings conference call, Johnson noted that revenue rose another 12.6% over Q1.

“Our financial results align well with market trends that we expect will not only persist, but accelerate,” he said. “We are seeing a real-time market response to new regulations.”

In North America, Class 8 natural-gas truck sales have jumped 43% so far this year, according to ACT Research’s quarterly report, although observers noted at least some of the purchases would have been to replace natural-gas trucks in the fleet.

But while the overall industry trend is encouraging, FortisBC’s Ramakrishnan added that the key driver for conversions has been – and will continue to be – the cost of diesel versus converting to LNG or CNG.

According to Statistics Canada, the average per-litre diesel price in Vancouver as of June was $1.36 and has been rising since early 2016, when prices dipped below $1. But the retail price has also shown signs of softening this year, with the index dipping to $1.27 in January.

FortisBC continues to offer government-backed incentives for truck operators to switch to natural gas, and officials anticipate the funding for such incentives will not run out in the next five years.  Still, Ramakrishnan concedes that a significant drop in diesel prices would stall natural gas momentum in the trucking market.

“As long as operators don’t see an economic benefit over a shorter payback time frame – say, from 18 months to two years – you cannot build a sustainable market here for the trucking community,” he said. “With the passenger-car market, some people want to drive fancy EV cars; they want the power and the gadgets. In trucking, it’s pure economics.”

Another sign of the price-sensitive nature of natural gas’ push for more trucking market share is the performance of companies like Westport. Analysts of the company’s stock noted that challenges remain despite overall market trends – including Westport’s legal wrangling with U.S. securities investigators and the fact that company cash flow continues to be negative, which hurts its liquidity.

With current incentives, Ramakrishnan said, many truck operators can recover costs of conversion within a year. But he added that there is also a lack of natural-gas fuelling infrastructure outside of B.C., even though FortisBC has added 20 stations in the last seven years.

Additionally, since Westport and competitor Cummins Inc. (NYSE:CMI) pulled out of making heavy-duty 15-litre natural-gas engines in 2013 and 2014, there is no longer a commercial natural-gas engine that can power 80,000-pound trucking loads up steep grades such as the Coquihalla Highway connecting Vancouver to Kamloops. That limits conversion to smaller-haul operators in more local areas.

“This is not something that will completely take away diesel in the years to come,” Ramakrishnan said. “But as we develop the LNG and CNG sectors and moving operators there, I think we will see some adoption as new technologies develop.”

He added that FortisBC will continue to add to the infrastructure within the province so that, when the incentives do run out, the cost of conversion to natural gas would be low enough to be competitive with diesel.

The company is also considering teaming up with providers of electric-vehicle charging and other alternative fuels such as hydrogen to create hubs that can withstand market fluctuations better than a single alternative fuel.

“Natural gas is there today, but who knows? Tomorrow, there could be EV or hydrogen fuelling at those hubs,” Ramakrishnan said. “We are doing our part. We can’t change the whole world; that’s not what we are out to do. We are doing what we can within our capacity in a very risk-averse manner because we are a public utility; but if the industry takes off, that’s great.”