Commercializing an alternate vehicle fuel: lessons learned from natural gas for vehicles
Introduction
In 1983, a unique set of conditions in Canada created a strong push for the use of natural gas as a vehicle fuel (NGV). A powerful corporate sponsor (Nova, a major Canadian gas transmission company) bought a 50% interest in an equipment supplier, CNG Fuel Systems (CNG-FS), and committed to itself significant product development. By 1984 (when the author became the president of CNG-FS), technically acceptable products were available for vehicle conversion and fuel dispensing. Oil price relative to natural gas price and favorable public policy programs created an economic incentive for high mileage vehicles to adopt NGV. There was interest (although a less favorable public policy and hence a less favorable economic incentive) in the United States.
The growth rate of NGV was steep: conversion sales more than doubled in 1985 compared to 1984. However, sales growth ultimately was not large enough to achieve a critical and sustainable mass. Since equipment suppliers in the market needed a further quadrupling of sales to reach breakeven, the limited growth ultimately caused those suppliers to exit the market when startup funds were exhausted. This paper addresses these issues, since the lessons learned from attempts to build NGV usage to commercially sustainable levels are of relevance to future alternate transportation fuels, including hydrogen (which is increasingly cited as a fuel capable of reducing urban air pollution).
In 1987, a dramatic drop in the price of oil changed the inherent economics of NGV, and sales of equipment in North America dropped sharply. Several major suppliers, including CNG-FS, exited the business. Hence, this paper will focus on barriers to growth in NGV during the period 1984–1986.
Note that all costs in this work are cited in 1986 Canadian dollars. US costs were converted to Canadian currency at the then conversion rate of 1.33 Cdn$ per US$. One 1986 US$, adjusted for inflation, is equivalent to $1.43 2001 US $.
Section snippets
Background: NGV in 1984
In 1983 and 1984, several factors contributed to a favorable climate for the adoption of NGV:
- •
Natural gas was seen as being available in abundance in North America, whereas oil was seen as being an import from politically unstable or hostile areas. Natural gas prices were still subject to some regulation, whereas domestic oil prices were increasingly tied to a fluctuating world market that was strongly influenced by political events.
- •
Alternate transportation fuels were seen as a mechanism for
Support for NGV in 1984
The positive factors for NGV led to a widespread interest in NGV. In the United States, the American Gas Association (AGA) actively promoted the fuel through media-oriented events. Federal US support for NGV was minimal, and support by individual states (who levied taxes on retail fuels, i.e. the road tax, collected at “the pump”) was spotty. In many states, fleets that converted to NGV did not have to pay road tax on fuel by neglect rather than by legislation. No US state supported an outright
What limited growth of NGV: lessons learned
In 1985 about 15,000 vehicles converted to NGV in North America, most of those in Canada where more active support and promotion programs improved economics and awareness. The growth rate of sales was over 100% per year. However, for commercial sustainability (suppliers who were profitable), at least 60,000 conversions per year were needed. What did we learn in trying, unsuccessfully, to reach this level?
Conclusion
There are powerful reasons to explore alternate transportation fuels, with urban air quality being the prime consideration. Public policy can be designed to support the adoption of an alternate fuel. However, if the fuel is to be sold to end-users rather than forced by mandate, the history suggests that a number of lessons can better ensure that a fuel becomes commercially viable, i.e. it sustains profitable suppliers. Key lessons are:
- •
Once the alternate fuel is available to customers,
References (4)
- Dhaliwal, B., Yi, N., Checkel, D., 2000. Vehicle emissions effects of alternative fuels in light duty and heavy duty...
- Flynn, P.C., 2000. Infrastructure profitability issues in NGV. SAE Technical Paper Series 2000-01-3081, SAE...
Cited by (70)
Environmental impacts and cost analysis of low impact developments in arid climate: A case study of okanagan Valley (Canada)
2023, Journal of Cleaner ProductionNatural gas as a vehicular fuel in Brazil: Barriers and lessons to learn
2022, Energy PolicyEconomic and environmental performances of natural gas for heavy trucks: A case study on the French automotive industry supply chain
2021, Energy PolicyCitation Excerpt :The challenge for expanding the use of an alternative fuel such as natural gas is to make it both economically and ecologically attractive to diverse users and producers. Hence government policy in favour of NGV uptake needs to establish the natural gas ecosystem (Flynn, 2002; Yeh, 2007). A clear and steady path of government support should then offset the uncertainty of fuel prices.
The role of charging and refuelling infrastructure in supporting zero-emission vehicle sales
2020, Transportation Research Part D: Transport and EnvironmentCan public slow charging accelerate plug-in electric vehicle sales? A simulation of charging infrastructure usage and its impact on plug-in electric vehicle sales for Germany
2019, International Journal of Sustainable Transportation