RESEARCH REPORT. Executive Summary: Natural Gas Trucks and Buses

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1 RESEARCH REPORT Executive Summary: Natural Gas Trucks and Buses Heavy Duty and Medium Duty Trucks and Buses, Refueling Stations, Demand Drivers, Policy Factors, Technology Issues, Key Industry Players, and Global Market Forecasts NOTE: This document is a free excerpt of a larger report. If you are interested in purchasing the full report, please contact Pike Research at sales@pikeresearch.com. Published 3Q 2012 Dave Hurst Senior Research Analyst John Gartner Research Director

2 Section 1 EXECUTIVE SUMMARY 1.1 Key Market Issues for Natural Gas Trucks and Buses Medium duty (MD) and heavy duty (HD) trucks and buses can use significant amounts of fuel, so not surprisingly many governments and businesses are seeking ways to reduce these vehicles fuel costs and emissions. Consequently, diesel and natural gas (NG) are growing options in these commercial markets. NG is often promoted for transit buses and the trucking industry as a means to reduce fuel costs, lower emissions, and at the same time, promote the NG refueling infrastructure so that it can then serve the consumer market as well as other fleet vehicles. In general, original equipment manufacturers (OEMs) can build trucks and shuttle buses on assembly lines or truck body builders or conversion companies can convert them from other vehicles. OEMs manufacture most HD transit buses on their standard assembly lines. NG trucks typically run on compressed natural gas (CNG) because their tanks weigh less and are less costly than those for liquefied natural gas (LNG). LNG trucks, however, are increasingly used as longer range vehicles (400 miles or more compared to 150 to 300 miles for CNG). Currently, the worldwide breakdown of refueling stations for these two types of natural gas is 117 LNG refueling stations versus 20,233 CNG refueling stations. About 45% of the LNG refueling stations are located in the United States, even though China has the largest number of annual sales for LNG fueled trucks, with 3,020 vehicle sales anticipated in In the truck market, end use largely drives vehicle design. As a result, the rebounding construction industry is expected to push growth in the overall truck market. Other strong targets for NG trucks are the refuse market and transit bus market; both are seeing significant growth in NG despite relatively flat overall markets in North America. As cities expand in the Asia Pacific markets, the construction, refuse, and transit segments are all seeing strong growth. 1.2 Demand Drivers and Barriers for Natural Gas Trucks and Buses Four basic demand drivers fuel the market for light duty (LD) natural gas vehicles (NGVs).» Economic interest: As a vehicle fuel, natural gas provides a financial benefit. In most cases, the incremental cost of an NGV is between 15% and 40% more than a diesel equivalent, depending on the vehicle s type and fuel capacity. Due to lower fuel costs, this initial cost is typically recovered within 2 to 7 years. After that, for its remaining lifetime, an NG truck or bus can still provide several years of cost savings. 1

3 » Environmental benefits: NGVs have substantially lower greenhouse gas (GHG) emissions, particulate matter (PM), and nitrogen oxide (NOx) than diesel-powered trucks and buses. Governments, therefore, see using NG trucks and buses as a tool for reducing GHG emissions. While these vehicles reduce smog and other emissions, the owners (or operators) can enjoy the marketing benefit of promoting themselves as green.» Availability of fuel and vehicles: The growth of fuel and vehicle availability and a wider range of HD truck engines have increased the appeal of trucks in segments in which they may not have had a strong presence in the past. New more powerful HD engines are increasing the capabilities of vocational trucks and over-the-road (OTR) tractors.» Energy security: In many countries, natural gas may be a domestic fuel that reduces reliance on imported petroleum products or imported refined gasoline. Each of these key drivers holds different weight in different regions and with different stakeholders, but most market players generally accept all of them as the main reasons for purchasing NGVs. Chart 1.1 Percentage of MD/HD Vehicles Sales by Segment, World Markets: % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Heavy Duty Bus Medium Duty Bus Heavy Duty Liquefied Natural Gas Truck Heavy Duty Compressed Natural Gas Truck Medium Duty Truck North America Latin America Western Europe Eastern Europe Asia Pacific Middle East/Africa (Source: Pike Research) 2

4 1.3 Market Forecasts for Natural Gas Trucks and Buses Pike Research expects the global market for NG trucks to grow at a compound annual growth rate (CAGR) of 14% between 2012 and 2019, reaching 111,319 sales in MD trucks are expected to be the largest of the truck markets growing to 85,848 vehicle sales, while HD trucks will reach 25,471 vehicles. Asia Pacific is the largest NG bus market, accounting for 86% of NG bus sales by While the North American and Western European markets will see strong NG bus growth (10% CAGR), Asia Pacific will see growth rates of 21% with India, China, and Thailand leading the region in NG bus sales. Chart 1.2 Annual Sales of NG Trucks and Buses by Segment, World Markets: (Thousands Vehicles) Heavy Duty Bus Medium Duty Bus/Shuttle Bus Heavy Duty Trucks Medium Duty Trucks (Source: Pike Research) Large markets for CNG light duty vehicles (LDV) passenger cars and light trucks will often have a low mix of NG trucks or buses. Market manipulation is one reason for this low number of NG trucks and buses. In Iran, the government subsidizes diesel fuel so that it costs only about a quarter of CNG; that effectively kills the NG truck market there. Another reason is market forces; in Pakistan and Ukraine, for example, the cost of CNG is not low enough for purchasers to recover the cost of CNG conversion within what might be considered a reasonable timeframe. A key to growth in the market for NGV is robust opportunities for refueling. The regions with strong NGV markets now are likely to see slow growth in refueling stations, while those markets with strong NGV growth forecasts should see a corresponding growth in NGV stations. 3

5 Currently, China and Thailand are the global leaders in refueling infrastructure with Thailand s refueling stations growing from 502 in 2012 to 1,338 in China s refueling infrastructure is anticipated to increase by 2,145 stations: from 2,830 stations in 2012 to 4,975 stations in The Asia Pacific region leads worldwide growth in refueling station installations during the forecast period, beginning with 7,676 stations in 2012 and reaching 11,564 stations by Chart 1.3 Cumulative Natural Gas Refueling Stations by Region, World Markets: ,000 30,000 (NG Refueling Stations) 25,000 20,000 15,000 10,000 5,000 North America Eastern Europe Latin America Western Europe Asia Pacific Middle East/Africa (Source: Pike Research) The market for MD/HD NGV is still in its early stages in most regions. Pike Research expects strong growth in Asia Pacific and Western Europe as countries in those regions (particularly China and Germany) focus on building infrastructure and promoting their markets. However, the markets are still relatively small, so companies can expect challenges in growing market share at a significantly faster rate than the overall market. 4

6 Section 9 TABLE OF CONTENTS Section Executive Summary Key Market Issues for Natural Gas Trucks and Buses Demand Drivers and Barriers for Natural Gas Trucks and Buses Market Forecasts for Natural Gas Trucks and Buses... 3 Section Market Issues History of Natural Gas Trucks and Buses Medium and Heavy Duty Trucks Truck Class Definitions Medium and Heavy Duty Buses Light Duty Vehicles Natural Gas Supply Gas Mining Hydraulic Fracturing Transporting Fuel Natural Gas Imports and Exports Europe Natural Gas Imports and Exports European Pipelines Asia Pacific Natural Gas Imports and Exports Refilling Infrastructure Availability LNG Refueling Infrastructure Availability Regional Markets Natural Gas Imports and Exports

7 2.10 Current Market Opportunities and Barriers Construction Industry Pick-up and Delivery Refuse Vehicles Port/Rail Yard Operations Transit Buses The Manufacturing Process for NGVs Fuel Costs Performance versus Diesel/Gasoline Engines Maintenance on NGVs versus Diesel/Gasoline Engines Competing Technologies Ethanol Liquid Petroleum Gas/Autogas Hybrid and Electric Vehicle Technologies Hydrogen Hydrogen Fuel Cell Advancements CNG/LNG Handling Training Issues Section Technology Issues Chemical Characteristics of Natural Gas Compressed Natural Gas Liquefied Natural Gas Biogas Propane (Liquefied Petroleum Gas) LPG Infrastructure

8 3.2 NGV Engines Dedicated Mono-fuel Engines Bi-fuel Engines Dual-fuel Engines Medium and Heavy Duty Engines Refueling Technology CNG Refueling LNG Refueling Liquefied CNG Refueling On-vehicle Storage Tanks Section Demand Drivers Market-based Demand Economics Cost Recovery Analysis Relationship between Alternative Fuel Demand and Gas/Diesel Prices Energy Security Issues Environmental Benefits Vehicle Availability Government Emissions Regulations United States California Air Resources Board Certification Canada Europe China

9 4.2.5 India Japan Latin America Government Incentives United States T. Boone Pickens Impact on the U.S. Market Alternative Fuel Incentives Canada Europe Japan China Regional Regulatory Incentives Section Key Industry Players Natural Gas Truck and Bus Vehicle and Equipment Manufacturers Autocar, LLC Capacity of Texas, Inc Cummins Westport Inc Emission Solutions, Inc Beiqi Foton Auv Bus Company Freightliner Trucks Gillig LLC Hyundai Motor Company Isuzu Motors Iveco SpA

10 OJSC KAMAZ Mack Trucks Mercedes-Benz Mitsubishi Fuso Truck and Bus Corporation Navistar International Corporation New Flyer Renault Shaanxi Heavy duty Automobile Co., Ltd Volvo Group Global Westport Innovations, Inc Weichai Power Co., Ltd Key Suppliers of NGV Converters and Equipment Advanced Fuels Technologies, Pty Ltd Agility Fuel Systems Altech-Eco Corporation BAF Technologies The Bosch Group Chesapeake Energy Corporation Clean Energy Fuels Corporation Cummins Westport Inc Faber Industrie, SpA Fuel Systems Solutions, Inc General Electric GNC Galileo IMPCO Automotive

11 Kraus Global Landi Renzo SpA Leggett & Platt Commercial Vehicle Products Hexagon Composites Group Lincoln Composites, Inc Raufoss Fuel Systems AS Magneti Marelli OMB Saleri SpA OMVL SpA Natural Drive Productive Concepts International LLC Prins Autogassystemen BV Swagelok Company Section Key Market Forecasts Global Natural Gas Vehicle Forecast Market Forecasts for North America Forecasts for Latin America European Sales Forecast Asia Pacific Market Forecasts Middle East/Africa Market Forecast LNG Truck Market Forecast Natural Gas Vehicle Refueling Stations Summary and Conclusions

12 Section Company Directory Section Acronym and Abbreviation List Section Table of Contents Section Table of Charts and Figures Section Scope of Study Sources and Methodology Notes

13 Section 10 TABLE OF CHARTS AND FIGURES Chart 1.1 Percentage of MD/HD Vehicles Sales by Segment, World Markets: Chart 1.2 Annual Sales of NG Trucks and Buses by Segment, World Markets: Chart 1.3 Cumulative Natural Gas Refueling Stations by Region, World Markets: Chart 2.1 LNG Refueling Stations, Worldwide: Chart 2.2 Total Construction Spending, United States: Chart 2.3 Refuse Truck Sales by Drivetrain, United States: Chart 4.1 Cost Components of Transporting CNG Fuel, United States: Chart 6.1 Annual NGV Sales, World Markets: Chart 6.2 Percentage of Annual NGV Sales, World Markets: Chart 6.3 Annual NG Truck Sales, North America: Chart 6.4 Annual NG Bus Sales, North America: Chart 6.5 Annual NG Truck and Bus Sales, Latin America: Chart 6.6 Annual NG Truck Sales, Europe: Chart 6.7 Annual Heavy Duty NG Truck Sales, Top European Markets: Chart 6.8 Annual NG Bus Sales, Europe: Chart 6.9 Annual NG Truck and Bus Sales, Asia Pacific: Chart 6.10 Annual Heavy Duty LNG Truck Sales by Region, World Markets: Chart 6.11 Percentage of MD/HD Vehicles Sales by Segment, World Markets: Chart 6.12 Cumulative Natural Gas Refueling Stations by Region, World Markets:

14 Figure 2.1 U.S. Petroleum Use by Sector and Truck Type: Figure 2.2 United States Truck Classes... 7 Figure 2.3 Cutaway-Cab and Stripped-Chassis Vehicles... 9 Figure 2.4 Natural Gas Production in Trillion Cubic Feet by Source: Figure 2.5 Hydraulic Fracturing Diagram Figure 2.6 Natural Gas Pipeline Additions, United States: Figure 2.7 Russian and European Natural Gas Pipelines Figure 2.8 Projected Routes of Nord Stream, Nabucco, and South Stream Pipelines Figure 2.9 Average Daily Long-Haul Truck Traffic on the U.S. National Highway System: Figure 2.10 Proposed Natural Gas Highway, United States Figure 2.11 Construction Industry Output, Figure 2.12 Costs of CNG versus Gasoline in Different Scenarios of Transportation & Distribution Grid Development Figure 3.1 Westport LNG 15L Engine and Fuel Components Figure 3.2 Diagram of Liquefied CNG Refueling Station Figure 4.1 Well-to-Wheel Greenhouse Gas Emissions for Various Fuels Figure 5.1 Fuel Systems Solutions Company Diagram

15 Table 2.1 European Vehicle Classes... 8 Table 2.2 NGV Refueling Stations by State, United States: Table 2.3 NGV Refueling Stations by Province, Canada: 2010 and Table 2.4 Cost of Natural Gas Compared to Other Fuels, United States: January Table 3.1 Properties of Natural Gas Compared to Other Fuels Table 3.2 Engine Components Typically Upgraded by OEMs Table 4.1 Incremental Cost Recovery, United States: Table 4.2 United States Truck Fuel Economy and Emissions Regulations Table 4.3 Summary of EPA Age-based Vehicle NG Conversion Program Table 4.4 Brazil Emission Standards for HD Diesel Engines Table 4.5 Natural Gas Vehicle Incentives, Europe: Table 6.1 Countries with the Highest Mix of MD/HD NGV Sales:

16 Section 11 SCOPE OF STUDY Pike Research prepared this report to provide participants at all levels of the medium and heavy duty truck and bus markets, including vehicle OEMs, suppliers, trade associations, and gas providers, with a study of the market for NGVs and refueling technologies. The major objective is to determine the state of the industry and likely future growth of NG-powered medium and heavy duty trucks and buses. In addition, the report provides a review of major demand drivers, as well as key industry players within the competitive landscape. The report s purpose is not to present an exhaustive technical assessment of the vehicles and technologies covered. Rather, it aims to provide a strategic examination from an overall tactical business perspective. Pike Research strives to identify and examine new market segments to aid readers in the development of their business models. All major global regions are included and the forecast period extends through SOURCES AND METHODOLOGY Pike Research s industry analysts utilize a variety of research sources in preparing Research Reports. The key component of Pike Research s analysis is primary research gained from phone and in-person interviews with industry leaders including executives, engineers, and marketing professionals. Analysts are diligent in ensuring that they speak with representatives from every part of the value chain, including but not limited to technology companies, utilities and other service providers, industry associations, government agencies, and the investment community. Additional analysis includes secondary research conducted by Pike Research s analysts and its staff of research assistants. Where applicable, all secondary research sources are appropriately cited within this report. These primary and secondary research sources, combined with the analyst s industry expertise, are synthesized into the qualitative and quantitative analysis presented in Pike Research s reports. Great care is taken in making sure that all analysis is well-supported by facts, but where the facts are unknown and assumptions must be made, analysts document their assumptions and are prepared to explain their methodology, both within the body of a report and in direct conversations with clients. Pike Research, a part of the Navigant Consulting, Inc. Energy Practice, is a market research group whose goal is to present an objective, unbiased view of market opportunities within its coverage areas. Pike Research is not beholden to any special interests and is thus able to offer clear, actionable advice to help clients succeed in the industry, unfettered by technology hype, political agendas, or emotional factors that are inherent in cleantech markets. 97

17 NOTES CAGR refers to compound average annual growth rate, using the formula: CAGR = (End Year Value Start Year Value) (1/steps) 1. CAGRs presented in the tables are for the entire timeframe in the title. Where data for fewer years are given, the CAGR is for the range presented. Where relevant, CAGRs for shorter timeframes may be given as well. Figures are based on the best estimates available at the time of calculation. Annual revenues, shipments, and sales are based on end-of-year figures unless otherwise noted. All values are expressed in year 2012 U.S. dollars unless otherwise noted. Percentages may not add up to 100 due to rounding. 98

18 Published 3Q Navigant Consulting, Inc Pearl Street, Suite 300 Boulder, CO USA Tel: This publication is provided by Pike Research, a part of the Navigant Consulting, Inc. ( Navigant ) Energy Practice and has been provided for informational purposes only. This publication may be used only as expressly permitted by license from Navigant and may not otherwise be reproduced, recorded, photocopied, distributed, displayed, modified, extracted, accessed, or used without the express written permission of Navigant. Navigant makes no claim to any government data and other data obtained from public sources found in this publication (whether or not the owners of such data are noted in this publication), and makes no express or implied warranty, guaranty, or representation concerning the information contained in this publication, its merchantability, or its fitness for a particular purpose of function. Any reference to any specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise, does not necessarily constitute or imply an endorsement, recommendation, or favoring by Navigant. Navigant does not assume, and hereby disclaims, any liability that may result from any reliance on or use of any information contained in this publication, or for any loss or damage caused by errors or omissions in this publication. This publication is intended for the sole and exclusive use of the original purchaser. If you do not have a license from Navigant covering this publication, please refrain from accessing or using this publication. Please contact Navigant to obtain a license to this publication. 99