NZC Newsletter: A Love Story for Low Carbon Fuels


TLDR: In which the author’s heart is broken and replenished around sustainable fuels. Or the bullish case of renewable natural gas (RNG) in transport.

Low carbon fuels: a love story

Last week, GNR producer Opal Fuels LLC merged with SPAC ArcLight Clean Transition Corp. II for a valuation of around $ 2 billion. Yes, $ 2 billion. That’s a lot of money. But wait, is the RNG transportation fuel market really that big? Aren’t there just around 175,000 NG trucks on the road today? Who uses this trick and where? I’m glad you asked the question, because today we’re going to unbox all your questions and more. But first, a love story about my first foray into alternative fuels:

The year was 2011 and I was struck by the promises of a man named T. Boone Pickens. Like many in the freight industry, I have clung to the idea that natural gas trucking is a game-changer for fleets. The technology was available and the funds were pouring into the refueling infrastructure. His company, Clean Energy, would vertically integrate and deliver low-carbon fuel to the masses at a lower price than diesel. We embarked on a first demonstration project, hired a handful of trucks, set up the refueling agreement and signed a pilot customer. And then… everything stopped. After only a few months our client was disappointed and so were we. The project fizzled out as quickly as it started. My heart was broken that we couldn’t evolve this solution. But I have learned a lot from this lost love. I am wiser now and have a healthier outlook on the adoption of new technologies and the macro forces at play in the energy transition.

Looking back on the experience, there were three main reasons why we were unsuccessful. The engine technology was too small for our application resulting in low fuel consumption. Our client has not been able to effectively leverage the emission reductions and capitalize on the brand value of our sustainable freight solution. And finally, the fuel savings were not enough to overcome the high equipment costs and network limitations.

So what’s different this time? Are we destined to repeat the same cycle of natural gas hype of the last decade in freight? No no no. It finally seems that all of these hurdles have been overcome, or at least the last of them will be very soon. Let’s dig.

Photo credit: Cummins Inc.

Equipment

Our project in Southern California is based on the rental of five Freightliner Cascadias equipped with a Cummins-Westport ISX-12G engine running on compressed natural gas (CNG). I remember seeing this beauty on display at the Great American Trucking Show in Dallas the year before. But what a difference a year and a full trailer make …

This engine model was (and still is) perfectly fine in good running conditions. Trolling trips from the port, short and regional light freight services, etc. are all interesting applications. I mean, UPS has made a huge investment in this technology because it fits perfectly with the service routes and the resupply needs of the business. Amazon recently made similar commitments.

Our experience suggested that the engine model was undersized to operate in long haul operation. However, while current fleets have driven millions of miles on CNG and LNG using smaller engines, Cummins is now expanding its offerings by introducing a 15-liter engine.

With a larger engine available to provide fleets with the horsepower and torque needed to run efficiently in long-haul applications, I expect adoption to increase. Plus, it’s expected to weigh up to 500 pounds less than comparable diesel engines, making it more efficient and less prone to sacrifice payload. With equipment capable of doing any job, we should see more fleets making data-driven, TCO-based purchasing decisions. This includes taking into account revenue and marketing opportunities as well as the life cycle costs of the fuel.

Photo credit: UPS

Brand equity

The main opportunity at the time of our pilot project was to reduce costs, not necessarily emissions. With the price of diesel around $ 6 a gallon in California, we had a pretty easy sale to get gas trucks on the road. But the pioneers in the CNG trucking space found a difficult path to evolve. The fuel savings were there but minimal. And it was overkill to pay for expensive equipment with no path to long-term profitability.

More importantly, very few freight buyers were looking to actively reduce emissions. It’s only in the last three or four years that companies like AB Inbev have taken significant steps to reduce emissions from the global supply chain. Growth in business climate commitments is accelerating rapidly, with the Science-Based Targets Initiative reporting more businesses reached in the past 18 months than in the previous six years.

And with this emerging model of stakeholder capitalism, where companies seek long-term value creation by taking into account the needs of all stakeholders and society as a whole, comes the opportunity for service providers. logistics to truly differentiate themselves. Expect continued momentum for green freight providers as shippers continue to understand their footprint and work with their suppliers to reduce emissions.

OK, we have good equipment and interested customers. But haven’t we had this for quite some time, to some extent? Why are there still so few of these trucks in service?

Photo credit: Opal Fuels

Fuel availability and cost

The third important leg of the stool here is the RNG. RNG is a big problem for fleets and shippers. And obviously, from the headline article above, this is also a huge investment opportunity for producers of RNG fuel. If we’re just tracking the money, a lot of big bets are being made on scaling this carbon-free refueling solution.

To create RNG, biogas from landfills, dairy farms and wastewater treatment plants that would otherwise be released into the atmosphere is collected and processed, according to the Environmental Protection Agency. Landfill RNG can reduce GHG emissions by 50-70% compared to diesel, while supplying dairy farms with RNG offers an even greater emissions benefit. RNG can be easily transported via NG pipelines to any of the approximately 900 NG stations in North America. But the main markets with massive growth in RNG use are on the West Coast, where bulky clean fuel standards are accelerating adoption.

Ten years ago, during our pilot program, the California Low Carbon Fuel Standard (LCFS) was in its infancy and faced legal hurdles. The program has endured and evolved so that today, an LCFS credit is the most expensive carbon credit on the planet. At today’s prices, a diesel equivalent gallon of low-carbon dairy RNG is worth 10 times the price of its fossil-fueled alternative, providing a huge incentive for fuel producers to expand.

I’ll have to devote a future entry to breaking down the intricacies of clean fuel standards as they are long and interesting and won’t fit into this article. If you’re dying for substance, ACT did a great job of recapping last year here.

Conclusion

I am optimistic about the expansion of RNG into the freight markets. The technology, emission reduction and fueling infrastructure are all available today. While many would argue that resources should instead be directed to an electricity or hydrogen powered future, I think we are facing a flex-fuel future. A future where, hopefully, we find a way to fairly integrate carbon pricing. A future where the right fuel in the right application at the right price will do the job. I hope that’s not ridiculously idealistic. I’ve been heartbroken before and I don’t want this to happen again.

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About Victoria Rothstein

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