Energy & Environment Perspectives 2008 1 David Demers, CEO, Westport Innovations Inc. 2 Westport Innovations Inc. Recognized as the world leader in gaseous fuels technology (natural gas, hydrogen, LPG, biomethane) for heavy-duty transportation applications More than 50 OEM vehicle manufacturers in 20 countries offer our engines Customers in 35 countries including Beijing, Washington, Los Angeles, Boston, Paris, Moscow, Delhi HQ in Vancouver, Canada; operations around the world #2 Fastest Five Year Growth in North America #1 Fastest Five Year Growth in Canada 1
(US) 3 4 Two Views of the Future of Oil 1: Supply will rise to fill demand Chart Source: National Petroleum Council, July 18 2007 Demand and Supply Outlook 2: Demand will rise, but supply has peaked Rate of new discoveries will continue to fall Chart Source: ASPO, July 2007: New oil discoveries history vs. consumption 2
5 How big is our problem? Source: Energy Watch Group Oct 2007 6 Simmons & Co. Call Peak Oil Nov 2007 3
What is driving demand for oil? Transportation 7 Source : EIA Annual Energy Outlook 2007 There is no economic activity in the world that doesn t depend on transportation Transportation represents the major global energy challenge Transportation is the only application 100% dependent on oil Transportation is the leading cause of air pollution and the fastest growing source of greenhouse gas emissions 8 4
Everyone talks about cars... But even in the US, trucks are the challenge! 9 US Petroleum Production and Consumption Source: Transportation Energy Data Book 26; US Department of Energy http://cta.ornl.gov/data/index.shtml 10 A few Transportation Energy Factoids 1 barrel of oil yields 19.5 gallons of gasoline US consumes 45% of the world s gasoline US gasoline consumption grows about 2% annually We use about 180 Billion gallons of gasoline and diesel today in the US In 10 years, we will grow consumption by 22% (35 Billion gallons) 35 Billion new gallons means 1.8 billion barrels of new oil in 2017 (assuming we can keep pumping at the same rate) = about 5 million barrels/day 5
Don t Forget About... Urban Environmental Challenges 11 Toronto Vehicle Pollution Is a Major Urban Issue 40% of urban pollution comes from transportation; commercial vehicles are the biggest polluters 99.8% of these vehicles use conventional liquid fuels today Legislation and Clean Air Incentives ($) in specific regions demanding urban clean air solutions Shanghai Sao Paulo Los Angeles And of course there s that other issue... Climate Change 12 Earth is within ~1 C of the maximum temperature of the past 1 million years Absent action, the majority (~60%) of all species could be extinct within 100 years Source : National Academy of Sciences of the United States of America, Proceedings, October 2006. Stern report cited potential $7 Trillion economic impact Stern Review on the Economics of Climate Change October 30, 2006 6
Transport is the fastest growing sector for carbon emissions 13 source: The U.S. Inventory of Greenhouse Gas Emissions and Sinks: Fast Facts, US EPA, Apr. 2006. Available at http://www.epa.gov/climatechange/emissions/usinventoryreport.html Diesel Trucks in Los Angeles: Emissions from Diesel Trucks a Particular Concern 14 Los Angeles Basin - Modeling of health risks from air toxins. Current air toxin risk assessment After elimination of diesel sources Source: South Coast Air Quality Management District, Los Angeles MATES II 7
It s been slow to emerge... But political will to adopt new fuels is here 15 State of the Union Address January 2007 Low Carbon Fuel Standard Signing January 2007 Port of Los Angeles Clean Air Action Plan December 2006 Goal of Reducing Petroleum Consumption by 20% in 10 Years Transportation Fuel Sold In California Must Be 10% Less Carbon Intensive By 2020 Hundreds of $Millions Being Invested to Cut Particulate Matter (PM) Pollution by 47% in 5 Years US Federal Target of 35 Billion Gallons of Alternative Fuels by 2017 16 How do we achieve 20% substitution? 2017 US Vehicle Fuel Consumption: 20% Substitution Target = 35 Billion Gallons/year 180B 18B 17B Low Carbon Gaseous Fuels: Natural Gas Hydrogen DME Biomethane Gasoline Gallon Equivalents Sources: U.S. Department of Energy, Energy Information Administration, Gas Vehicle Report Biodiesel: 2 Billion Gallons/Year potential (in 2015) Ethanol: 14-15 Billion Gallons/Year potential (in 2017) 8
We did reasonably well over the last decade with CNG City Buses 17 1995: US Transit Bus Fuel Consumption 2005: US Transit Bus Fuel Consumption Diesel 91% Diesel 80% CNG 1% CNG 14% Natural gas also growing in Refuse Trucks 18 2500 2221 2000 1500 1496 1000 692 500 0 240 1998 2002 2005# 2010+ Source: Greening Garbage Trucks II EnergyVision 2004 # 1,071 identified by fleets; rest by third parties + Industry forecast 9
Why Natural Gas? Its cleaner... Its available... Its cheaper 19 Price History for Crude Oil, Diesel Fuel, and Pipeline Industrial Natural Gas 350 U.S. No 2 Diesel Retail Sales by All Sellers [Cents per Gallon] Diesel Fuel Price [US $ per barrel or US cents per diesel-equivalent gallon]. 300 250 200 150 100 50 Natural Gas for Commercial Consumers [Cents per Diesel-Equivalent Gallon] Cushing, OK WTI Spot Price FOB [Dollars per Barrel] Natural Gas Crude Oil 0 Mar-94 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 data source: US DOE Energy Information Administration Liquid Biofuels: We will need everything we can produce, but there are costs 20 Biodiesel Ethanol Increased NOx Emissions; carbon footprint not a proven winner unless clean electricity and properly selected feedstock Inconsistent feedstocks and production processes guarantee fuel composition variations across the country More expensive May Void Manufactures Warranty if Blended at Greater than 5% to 20% (B5 or B20) Substantial Evaporative HC Emissions More Expensive even with subsidies, Land Intensive Not Suited for Medium and Heavy-Duty Vehicles Raises Feedstock and Food Price Concerns Needs new technologies (cellulose...) for real scale 10
Refuse Trucks: Unique Opportunity to exploit Biomethane resource Landfill sites are a very large natural source of methane (a particularly active greenhouse gas) from decomposing organic matter Some landfills are now collecting the methane and flaring it or generating electricity A higher value option would be use biomethane as fuel for the refuse trucks: During combustion, biomethane is converted to carbon dioxide (a 20 times GHG savings) and further reduces GHG compared to diesel A fuel available at the cost of the infrastructure only A renewable resource that displaces fossil fuel 100%. When combusted, biomethane produces substantially less NOx, PM and other urban pollutants than gasoline, diesel and other fossil fuels. 21 22 Los Angeles Pump Prices 3/29/2007 Note: Ethanol Equivalent in BTUs $4.88 11
23 Estimated Annual Fuel Cost Savings: California $21,684 $23,685 $18,459 $14,344 $3,200 $4,800 Estimated Incremental Cost* Annual Fuel Usage (Gallons) Comparison Fuel Taxi (CNG) $0-$3,000 5,000 Gas Shuttle Van (CNG) $7,000 7,500 Gas Source: Clean Energy Fuels Inc. Note: Assumptions Based on Fuel Prices as of 12/31/06 * Includes US Vehicle Tax Credit Refuse Truck (LNG) $18,000 11,120 Diesel Refuse Truck (CNG) $18,000 11,120 Diesel Municipal Transit Bus (LNG) $18,000 16,680 Diesel Municipal Transit Bus (CNG) $18,000 16,680 Diesel 24 12
The Rest of the World is Catching On to Potential of Natural Gas 25 Source: IANGV 2007 26 Source: IANGV 2007 13
27 China: LNG as a Transportation Fuel China is rapidly developing natural gas resources and infrastructure Large scale development of natural gas heavy-duty vehicles is possible with LNG arriving at terminals 28 LNG Arrives at Dapeng Terminal 06/06 Dapeng 3.3 million tonnes/year contracted; expansion to 9 million tons 14
Conclusions: The next decade will be interesting! The world is at the beginning of an historic change to its economic and political systems as less-developed economies catch up and the oil economy crests Global energy use patterns will change with rapidly developing Asian economies taking an ever-increasing share until full development is reached Our transportation fuel patterns will change: away from oil in developing economies; to low carbon fuels in developed economies Oil prices will continue to rise inexorably as demand outstrips supply Climate change will force us to a low carbon energy system New types of vehicles and new transportation systems will abound In the near term (10-20 years) natural gas will predominate; in the longer term pure hydrogen will likely emerge 29 30 15