CNG AND US MARKET POSSIBILITIES

April 6, 2015


Compressed Natural Gas or CNG is finding its way into a variety of applications, both commercial and residential.  Our country is looking for alternatives to petroleum-based products for transportation and CNG is one method to accomplish this desired outcome.

  • Global CNG demand was 61,668 MCM in 2013 and is expected to reach 108,957.9 MCM by 2020, growing at a CAGR of 8.5% from 2014 to 2020.
  • Light duty vehicles (LDV) were the largest CNG consuming segment and accounted for 48.3% of total market volume in 2013. Growth of passenger cars particularly in emerging markets of BRICS is expected to drive this segment. LDV is also expected to witness highest growth rate over the forecast period. The segment is expected to grow at an estimated CAGR of 9.1% from 2014 to 2020.
  • Asia Pacific was the leading regional CNG market and is expected to continue its dominance over the next six years in the global market. The region accounted for 46.6% of total market volume in 2013. Positive outlook on automotive industry coupled with government support to promote the use of alternative transportation fuel particularly in China and India is expected to drive the regional CNG market. Central & South America is expected to be the fastest growing regional market for CNG at an estimated CAGR of 17% from 2014 to 2020.
  • Highly fragmented CNG industry participants compete on the basis of price differentiation across various regions. Major industry participants operating in the global CNG market include National Iranian Gas Comp, Indraprastha Gas Ltd (IGL), China Natural Gas Inc and Mahanagar gas Ltd (MNGL).

Industry Analysis

In the United States, the CNG market has grown at a rate of 3.7% since the year 2000. The market for these products has seen slow growth to this point for the following reasons: 1.) Availability of the products, 2.) Heat build-up during the compression process, 3.) Time delays in the refilling process and 4.) The expense of locating CNG at the market locations. The areas of greatest growth in the CNG market are in the area of transporters that possess fleets (Tractor Trailers), Straight Trucks, and Public Transportation such as school and/or city buses. California and Texas lead the way with CNG fueling stations on a national level. There are approximately 1,300 CNG fueling stations in the US today; however, 730 are public stations with the remainder being private fleet stations.  To give you an idea as to the need, there are currently fewer than ten (10) public CNG filling stations within the Tri-State area of Tennessee, Georgia, and Alabama. Southeast Tennessee currently has no CNG fueling stations. The industry is rapidly changing as the 2014 EPA NHTSA Heavy Duty Truck Program has been put in place by President Obama. This legislation has forced fleet and fuel managers to reduce emissions as well as increase fuel efficiency. Small savings have been made by reducing drag, adequate tire pressure, and reduced idling practices. CNG is a “game changing” modification that addresses the new standards that are currently in place as well as future reductions that are scheduled for 2018.  The proper approach is to adopt a customer centric approach that addresses the needs of the immediate market based on available original equipment and after market manufacturers. Some industry pundits have estimated CNG will realize 25% annual growth for the next five (5) to ten (10) years on a conservative level.

Market Segment

Key points in defining the market segment for CNG are existing markets and projected future markets. Electric power and industrial markets make up almost 60% of the current consumer market. Existing markets include the fields of Agriculture, Industrial, and Motor Fuel in a static environment. Projected markets include opportunities in a more mobile environment. Transportation appears to be the most likely segment to grow as it makes up less than one percent (1%) of total natural gas used. Currently, the market is distributed with limited, if any, diversity of participants. Trending for share gains and losses typically represents large potential for gains across the entire industry. Share losses are predominantly absorbed by the diesel fuel and propane distributors, as recent supply shortages have clearly proven in the motor fuel and poultry industries. Market share will be lost by the above mentioned industries due to loss of confidence by the respective customer bases. The current and projected trends in the motor fuel industry are now driven by the Tier II Fuel Initiative causing off road diesel fuel to be banned in the near future. The result of the ban will continue to be increases in motor fuel pricing. As motor fuel costs increase, CNG becomes not only the clean alternative fuel replacement, but also the affordable alternative. CNG cuts the cost of a diesel equivalent gallon by as much as fifty percent (50%) based on the volatile and often fluctuating diesel market. Also, CNG is a much more effective fuel in cold weather areas as opposed to diesel and the multiple problems which exist.

The implied trends in the propane and agricultural industries currently indicate an extended, long-term propane supply shortage. The result is that CNG becomes the efficient, clean energy solution by cutting propane costs by twenty-five (25) to fifty percent (50%). Users of CNG are looking for quality and productivity improvements. The history of CNG development has resulted in the need for creative technology solutions that enable the full application of the CNG Natural Gas Industry. Recent patenting and innovation that Cielo has identified allows CAF to operate more efficiently than diesel or propane. The stability of this market segment is solid, based on CNG product category performance over the past two years. The forecasters predict an exponential growth over the next two years.

The major market segments for CNG are:

  • Agricultural, with customer applications being in the fields of poultry farming, grain drying, irrigation, hydroponics and propane displacement for remote locations with no historical access to natural gas.
  • Industrial, with customer applications in the fields of electric generators, heat production, lumber drying, and forklift fuel.
  • Motor Fuel, involving Duel Fuel Fleets and Designated Gasoline Fuel Fleets.

The Motor Fuel segment of the market is generally based on diesel with retail prices in the range of $3.50 to $4.00 per gallon. The vast majority of sales in this category will be handled by on site stations at fleet terminals or using the GTM model providing on demand fleet fueling. Transportation represents the largest sector of gas consumption and emissions in the US. The aforementioned legislation has forced fleet and fuel managers to prepare for potential penalties that could have dramatic balance sheet implications if found to not be compliant.

Over the past thirty (30) years, equipment manufacturing companies have proven that meaningful features can be developed for this class of fuel. These companies have primarily focused on the use of pipelines to improve the quality of transport in Natural Gas. These products have been successfully distributed in many areas of the industry, in a limited capacity.

In the next 5 to 10 years it is estimated that there will be more than 18 million vehicles on US highways. The market potential for CNG in these quantities–with a current retail price of $2.50 per DGE (Diesel Gallon Equivalent)–is approximately $2.6 billion per month in revenue with an equivalent net profit of $45 million dollars. This translates to a market share of approximately two percent (2%) of the overall market. An excellent comparison is the country of Iran has 3,300,000 natural gas vehicles on the road today compared to United States with 250,000 to 300,000.

In conclusion, CNG seems to be one very great possibility for commercial AND domestic transportation.  Only time will tell.  As always, I welcome your comments.

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