Transforming the Heavy-Duty Transportation Market

Year: 
2017

Transportation in British Columbia

B.C.’s transportation market is dominated by petroleum fuels, with the long distance heavy-duty transportation sector accounting for much of the diesel use. However, compared to natural gas, diesel is expensive, and produces more greenhouse gases (GHG) and other pollution than natural gas in the same use. Given the recent surge in natural gas reserves created by the shale gas boom, future supplies for natural gas are less likely to be supply constrained than diesel and so less vulnerable to cost inflation. Natural gas can be provided to the transportation market in the form of liquefied natural gas (LNG) or compressed natural gas (CNG). This transformation is farther under way in the U.S. and Europe.

Further, B.C. has an abundance of natural gas, most of which is exported. Due to similar abundance in the United States’, prices are depressed.[1] In addition to seeking other export markets, encouraging substitution of natural gas for diesel in the transportation sector makes economic sense by reducing the cost of transportation, which is so crucial to our geographically diverse economy. To encourage the cost-effective utilization of expanding natural gas resources, and reduce GHG and other air pollutant emissions, the provincial government should look for opportunities to help accelerate this market transformation.

Current Policy

Currently, B.C.’s transportation fuel demand is split between fuel for marine (13.47%), air (17.8%), rail (1.93%), heavy-duty truck (14.38%), and other vehicle transportation (52.42%).[2] The total transportation demand for fuel is approximately 360 PJ/year. 

To encourage the use of natural gas as a transportation fuel in the pursuit of lower GHG emissions, the Clean Energy Act (CEA) permits public utilities to offer incentives.[3] FortisBC’s incentive program aims to meet 3-4 PJ/yr of transportation demand with natural gas for the next five years[4] (“base case”). However, FortisBC has also developed reference cases to increase natural gas market share to 27 PJ/yr by 2033, and even envisions a very high scenario of 70 PJ/yr by 2033. This higher case would represent a third of the future market for heavy transportation fuels in B.C.[5] Reaching these upper ranges faster could be highly valuable to the economy.

Effects of the Shift

One projected consequence of the shift from diesel to natural gas transportation fuels is reduced pollution.  Transport-related GHG emissions would drop 0.4%/yr in over the next five years in the base case.[6] Replacing 25 PJ/yr of diesel with natural gas would reduce annual provincial GHG emissions from transportation by about 2.9%.[7] The associated reductions in other diesel-related air pollution has significant potential to improve public health. PM2.5 particulates that are a part of diesel emissions are particularly dangerous, and are linked to respiratory system problems and carcinogenic effects.[8] A shift from petroleum to natural gas would result in clear health benefits, as well as mitigating the largest single source of GHG emissions in the province.[9]

A second compelling reason is a substantial price advantage. Over the last few years greatly increased availability has lowered the cost. Supply expansion has led to North America having the greatest cost differential. The price per diesel litre equivalent of natural gas is half the price of oil-based fuels.[10] Major forecasts of future fossil fuel prices predict a continual widening of this gap between petroleum and natural gas, which strongly suggests that the natural gas price swings of the past are far less likely in the future, while diesel costs will remain under pressure.

In November 2013, the B.C. government changed the GHG reduction regulations and directions to the BC Utilities Commission (BCUC). The new direction included setting the LNG dispensing rate at $4.35/gigajoules, an increase in capital allowed for building natural gas fueling stations, increases in incentive funding for training and upgrades to natural gas vehicle training, and an exemption from a certificate of public convenience on the $400 million Tilbury LNG facility expansion and necessity review by the BCUC.[11] These were laudable steps.

But more support for a shift to natural gas transportation fuel could increase its usage greatly,[12] increasing the benefit to B.C. The Conference Board of Canada estimates that the greater the displacement of diesel in heavy duty transportation by natural gas, the greater the proportionate effect on overall natural gas consumption, resulting in progressively lower costs.[13]

Indirect benefits include supporting B.C.’s small, but dynamic, clean technology sector, which has experienced rapid growth and creates skilled and well-paying jobs. A key B.C. company in the natural gas transportation business is Westport Innovations. Their natural gas engines represent nearly 50% of new purchases in the United States for vocational/refuse trucks, and nearly 40% of Southern California’s transit bus.

In its analysis of fuelling related employment, a U.S. study used a new natural gas fuelling station as the starting point.[14] Based on this analysis, if six natural gas fuelling stations were opened in the Lower Mainland/Southwest region of B.C. there would be an implied employment gain of 600 jobs in the industry. In the course of implementing such productivity gains, there will be complimentary job losses in the petroleum sector.

FortisBC has partnered with other stakeholders to provide up to $104 million in incentives over five years to support the market transformation to natural gas fuel.[15] The program provides direct incentives for the heavy duty transportation industry to convert to natural gas.  It creates a substantial net economic benefit through the incremental demand increase on the natural gas distribution system, and the associated reductions in system costs. But at the current base case forecast of an 11% conversion to natural gas fuel in 20 years (about 0.5% a year), it will take a long time to achieve market transformation. The potential economic, environmental, and health benefits can be achieved more rapidly through a more proactive public policy.

To clarify, the net benefit to the economy would come from the reduced cost of natural gas fuel as compared to diesel. This reduced transportation cost will in turn lower the cost of goods and services for businesses, providing broad economic benefits to the province. Transforming the entire target market could be worth as much as $4.5 billion/year to the B.C. economy,[16] or an increase in provincial GDP by over 2%. These savings are net of the losses in the petroleum sector of the economy. It would also result in a 6% reduction in heavy-duty transport GHG emissions,[17] which would contribute significantly to the reduction targets in the Greenhouse Gas Reduction Targets Act.[18] The Conference Board of Canada’s summary of cost and emissions benefits predicted a NPV savings of $158,043 over ten years per heavy-duty truck using natural gas over diesel.[19]

While the benefits of this fuel transition are clear, some critical barriers to widespread adoption may be overcome with constructive policy changes. One substantial barrier is the lack of natural gas re-fuelling stations and infrastructure. To support development, private and public entities alike are working together to keep pace with rising demand. In 2010, Natural Resources Canada developed a ‘Roadmap’ for the deployment of natural gas in transportation, with the help of the natural gas vehicle industry.[20] A key recommendation was that “coordinated investments are needed to ensure that the development of key corridor infrastructure is consistent with projected demand, strategically located to support end-users, and installed in a timely manner across jurisdictions.” Put simply, a string of properly spaced fuel stations is essential to natural gas adoption in long distance trucking.  Stakeholders and the federal government are currently working to develop a cross-country re-fuelling corridor, but greater participation by the B.C. government will help ensure that maximum benefit is gained from the placement of these stations.

Another key issue is the fact that the industry is still rather new and technological innovations are occurring rapidly. This is especially true for on-board fuel storage, as new tank and pump systems are required to achieve the travel range of diesel-fuelled trucks. Similarly, advances are occurring in the re-fuelling of compressed natural gas tanks that will allow for a quicker re-fuelling process. While technological innovation is a positive thing, permitting and regulating new technologies can take time. The provincial government can encourage the development of natural gas for transportation by adding resources to accelerate and by streamlining their regulatory process. The B.C. government can also carefully assess regulations and tax policies that cover the transportation sector to ensure that natural gas is on a level playing field compared to other fossil fuels.

THE CHAMBER RECOMMENDS

That the Provincial Government continue to develop natural gas transportation policy with the objective of more rapidly transforming the heavy-duty trucking, marine and rail transport markets, delivering economic development and increasing productivity in B.C.

Footnotes

[1] U.S. Energy Information Administration. (2013). Chapter 3: Natural gas. In EIA, International Energy Outlook (pp. 41-66). U.S. Department of Energy.

[2] Consolidated Management Consultants. (2013). Transformation of Transportation Markets from Diesel & Gasoline to Natural Gas Policy for BC. Vancouver.

[3] Lekstrom, B. (2010). Section 2 (h). In Bill 17 - Clean Energy Act. Victoria: Queen's Printer.

[4] FortisBC. (2013). FortisBC Resource Planning Advisory Group (RPAG) Workshop.

[5] FortisBC. (2013). FortisBC Resource Planning Advisory Group (RPAG) Workshop.

[6] Projected reduction 100kt co2e: (100/24,587kt (total transport emissions)) * 100kt = 0.4% reduction | Projected reductions from:

[7] (25PJ/3.5PJ (from 3-4PJ reduction for 100kt GHG reduction)) * 100kt = 714.29kt reduction; (100/24,587kt) * 714.29kt = 2.9% reduction

[8] Janssen, N. A., Fischer, P., Marra, M., Ameling, C., & Cassee, F. R. (2013). Short-term effects of PM2.5, PM10, and PM2.5-10 on daily mortality in the Netherlands. Science of The Total Environment, 20-26.

[9] Ministry of Environment. (2012). 3. B.C. GHG Emissions - 2010. In British Columbia Greenhouse Gas Inventory Report 2010 (pp. 11-19). Victoria.

[10] Azzarello, S. (2014, February 11). Energy Price Spread: Natural Gas Vs. Crude Oil In The U.S. Retrieved from Seeking Alpha: http://seekingalpha.com/article/2012281-energy-price-spread-natural-gas-...

[11] Province of British Columbia. (2013). Direction No. 5 to the British Columbia Utilities Commission. Victoria: Queen's Printer.

[12] Ministry of Energy and Mines. (2012). Developing Current and New Markets. In British Columbia's Natural Gas Strategy (pp. 4-6).

[13] The Conference Board of Canada. (2012). Cheap Enough? Making the Switch From Diesel Fuel to Natural Gas.

[14] TIAX. (2013). U.S. and Canadian Natural Gas Vehicle Market Analysis: Natural Gas Vehicle Industry Overview.

[15] Province of British Columbia. (2012). Order in Council No. 295.

[16] Consolidated Management Consultants. (2013). Transformation of Transportation Markets from Diesel & Gasoline to Natural Gas Policy for BC. Vancouver.

[17] (52.1PJ/3.5PJ (see 6)) * 100kt = 1488.57kt reduction; (100/24,587kt) * 1488.57kt = 6% reduction

[18] Penner, B. (2007). Bill 44 - 2007: Greenhouse Gas Reduction Targets Act. Victoria: Queen's Printer.

[19] The Conference Board of Canada. (2012). Cheap Enough? Making the Switch From Diesel Fuel to Natural Gas.

[20] Natural Gas Use in Transportation Roundtable. (2010). Natural Gas Use in the Canadian Transportation Sector.

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