By Julie Gordon
VANCOUVER, April 9 (Reuters) - Just over a year ago,Canadian trucking firm Bison Transport took a bet on apotentially game changing technology, buying 15 big rigs poweredby liquefied natural gas.
The privately-held company was attracted by the promise of acheap and abundant fuel source and lower greenhouse gasemissions. If all went well, it would be the first step towardconverting more of its 1,250-strong fleet to a type of fuel thatcosts about $1.50 less per equivalent gallon than diesel.
After 14 months on the road, though, the Winnipeg-basedcompany has found that the reality - at least initially - isless rosy. The savings on fuel have been offset by other coststhat are much higher than expected.
Bison is not alone. There are already signs that broaderadoption is falling short of initial expectations, particularlyin off-road sectors like locomotives and mining vehicles.
While the lack of fueling infrastructure remains the largesthurdle, other operational teething pains are now tempering someof the growth in LNG use that was expected to further reduce oildemand in North America, as well as carbon emissions, accordingto interviews with industry experts and officials from fivetransport companies.
Bison had anticipated that LNG, which generates fewer milesper unit than diesel, to be 10 percent less efficient; instead,the drop was closer to 18 percent. Maintenance costs were aboutdouble that of a diesel tractor, more than budgeted.
While Bison is not considering abandoning its investment, itnow expects to take at least four years to break-even on therigs - which cost roughly $75,000 more than standard engines -rather than the two-year pay-off it had hoped for.
"We just wanted to be clear that when you first look at LNG,it can look like there's a potential windfall for carriers, andthe reality is not that," said Lionel Johnston, corporatemarketing manager with Bison, a top Canadian carrier known forits large, modern trucks that haul two trailers.
The longer pay-off "doesn't mean it's a bad investment, butit was definitely not as good as we were hoping," he said.
To be sure, it takes time for both technicians and driversto adjust to new equipment, impacting early costs, and technicalglitches are not uncommon with new technologies.
Still, Royal Dutch Shell last month surprised theLNG industry when it scrapped a small-scale liquefaction unit itwas building at its Jumping Pound complex near Calgary.
"This additional demand has not developed in line withmarket expectations," said Shell spokeswoman Destin Singleton.The company also paused work on two other plants, in Ontario andin Louisiana, but Singleton said those projects may resume dueto better opportunities for LNG-powered marine vessels.
A BRIDGE TO RENEWABLE
Operators of commercial trucking fleets have been eyeingnatural gas as a potential fuel since the shale boom sent pricesplunging. Gas burns cleaner than diesel and is produceddomestically, thus insulating supplies from global politicalevents that can drive up petroleum prices.
Thus far it's been compressed natural gas (CNG), rather thanits frozen cousin, LNG, that has captured more of the market.
With cheaper fuel and a more established infrastructure, CNGvehicles now make up a large portion of smaller truck fleets forcompanies like garbage collector Waste Management andUnited Parcel Service's (UPS) local delivery. They areideal in urban or short-haul operations.
North America's CNG infrastructure is also more developed,with 681 public stations across the United States, according tothe U.S. Department of Energy. By comparison, there are 52public LNG stations, with another 37 planned, the data shows.
And CNG is cheaper than LNG at about $2 less per equivalentgallon than diesel, providing hefty savings in vehicles that use40,000 gallons of fuel or more each year.
But LNG is ideal for large highway tractors that haul heavyloads. Its energy density is greater than CNG, which means itsfuel tank is smaller and lighter, leaving more room for cargo.
Support is still building despite some setbacks. Forexample, UPS has started deploying its new fleet of 1,100heavy-haul LNG trucks, which have a 600 mile range.
However long-haul applications raise other problems, sayindustry insiders. Drivers can only be on the road for so manyhours, and the trucks are restricted to routes where there areexisting fueling stations.
Heavy-duty fleet operators are "recognizing it's not goingto be a universal fit and in some cases there might be parts ofthe operation where natural gas just isn't going to work," saidErik Neandross, chief executive of Gladstein, Neandross &Associates, a clean transportation consulting firm.
Indeed, the viability of natural gas as a diesel alternativedepends on many factors, in particular whether a fleet burnsenough fuel to justify the additional cost of buying LNG rigs.
LEARNING CURVE
Bison's rough first year experience was familiar to otherearly adopters in the trucking sector, they said. Early costsare often higher-than-expected, as truck service and maintenanceshops need to be retrofitted for the natural gas technology andtechnicians need time to get comfortable with the new equipment.
In Bison's case it did not convert its shop for the trial,so maintenance was done externally, leading to higher laborcharges. Many of the trucks also had fickle fuel sensors, gaugesand software, which had to be addressed by suppliers.
Other companies Reuters spoke with also ran into technicalissues. One, Quebec-based Robert Transport, was forced toinstall solar panels on truck roofs to power energy-intensivemethane detectors. Raven Transport, a beverage hauler based inFlorida, said its first rigs stalled on the road and had to betowed after the LNG tanks were filled at the wrong pressure.
Westport Innovations, a leading natural gas enginedesigner behind many models now on the road, says that it cantake time to work out the bugs for first-generation technology.
"There have been challenges with reliability or just withperformance not as expected," said Karen Hamberg, vice presidentof strategy at Westport. "So those things are being addressedand as we see new products being launched, there will be higherlevels of reliability with those new products."
The Vancouver-based company is working on itssecond-generation heavy-haul offering, the HPDI 2.0, which itsays will deliver breakthrough performance and fuel economy,making it competitive with current high performancediesel-fueled engines.
Back on the road, industry experts say once equipment anduse practices are modified, maintenance costs should be close toin-line with diesel, no more than 1 to 2 cents more per mile -or up to $2,000 for a 100,000-mile per year vehicle.
"When you're saving in the order of magnitude of $25,000 onfuel and paying $1,500 more in maintenance, that's obviously afair trade off," said Neandross.
UPS was the only company that Reuters spoke with that saidits LNG maintenance costs were currently even with diesel,though trucking companies that have made the switch say that asthey gain experience, reliability goes up and costs come down.
PREACHING THE GOSPEL
Fueling infrastructure remains a critical issue.
"It's like the chicken and egg, if you don't have fuelstations, then people won't buy trucks, and if people don't buytrucks, then you don't get infrastructure," said Yves Maurais,engineering manager for Robert Transport, which runs its 125 LNGtrucks between Quebec City and Windsor, Ontario.
Despite the hurdles, many early-adopters remain strongsupporters of natural gas for transport.
"Natural gas is good for the environment, and it's good forthis country to reduce its dependence on foreign oil from ourenemies," said Phil Crofts, director of marketing for DillonTransport, an Illinois-based firm with 25 LNG and 150 CNGtractors. "So we are disciples and we are spreading the gospel." (Additional reporting by Edward McAllister in New York; editingby Jonathan Leff and Martin Howell)
