Opportunities Synergy Natural Gas and Renewable Energy

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For medium and heavy duty fleets with predictable, periodic driving patterns, immediate opportunities exist for significant fuel cost savings if routes can utilize the existing, limited refueling infrastructure. If a natural gas vehicle uses sufficiently large quantities of fuel, fuel cost savings can accrue quickly enough that even a risk-averse investor may find a switch to natural gas attractive. Also, depending on the vehicle operator, construction of refueling infrastructure may be an economic option, using their own vehicles as an “anchor” fleet. Many organizations that invest in a natural gas refueling station do so with an anchor fleet in mind or even under contract in order to help ensure demand for their product beyond a less-certain demand from public use. 138 With LNG prices as low as $1.70 per GDE in April 2012, the economics and operational feasibility of LNG for heavy-duty long-haul trucking are now quite favorable to fleet operators. New long-haul vehicles typically drive 100,000+ miles per year in their first few years; with diesel prices around $3.80 per gallon139 (and expected to average around $3.91 per gallon for the next five years), significant cost savings can be accrued to pay back the added cost of the LNG truck, which can range between $40,000 and $75,000.140 Heavy-duty LNG vehicles have ranges of approximately 400 miles and drive routes that are known to fleet operators and predictable to potential gas suppliers looking to enter the market, requiring a small number of strategically placed stations along shipping corridors.141 Royal Dutch Shell and Clean Energy Fuels Inc. have recognized this as a potentially profitable opportunity and are in the process of constructing LNG and CNG fueling stations along major interstate trucking corridors. Both companies plan to offer long-term fuel contracts to truck fleets, shielding fleet operators from fluctuating market prices and guaranteeing fuel costs that are lower than diesel fuel costsmm for the lifetime of the truck, which can be up to five years.142,143 Yet, even if stations are available, more frequent refueling is necessary due to lower ranges. This can be undesirable to fleet operators, as they prefer their drivers to travel a full shift before stopping to refuel. Also, the size of natural gas tanks can impinge on the driver’s sleeping space or require other space compromises. There are also immediate opportunities for certain medium and heavy-duty commercial fleets, such as transit busesnn or delivery/refuse trucks, to convert to natural gas fuels. In May 2012, Waste Management announced that 80% of its refuse truck purchases during the next five years will be fueled by natural gas, stating that its projected fuel savings will pay back the additional cost of the NGV in just over one year.144 Like long-haul trucking, fuel risk can be mitigated by using financial instruments or securing long-term contracts with natural gas providers. Many operators have routes that are local, periodic, and already undergo some form of logistical planning. Strategically placed private refueling stations can be built and integrated into route planning to realize significant cost savings. Also, if these fleet operators already own sites that are used as logistical hubs and/or refueling stations, they would be natural locations for natural gas refueling infrastructure. Technology to compress, dry, and filter pipeline natural gas to create CNG on a small scale is inexpensive relative to LNG and is likely the more attractive immediate option to operators. However, small modular liquefaction facilities are in various stages of mm Shell guarantees that LNG fuel will be at least 30% cheaper than diesel for the lifetime of the truck. nn There were an estimated 846,051 buses operating in the United States in 2010 (“Table 1-11: Number of U.S. Aircraft, Vehicles, Vessels, and Other Conveyances.” Research and Innovative Technology Administration, U.S. Department of Transportation, 2012. Accessed August 30, 2012: http://www.bts.gov /publications/national_transportation_statistics/html/table_01_11.html). 35

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