The Canadian NGV Market – An Overview
The first article in our series looking at the Canadian NGV Market.
Although a relatively small contributor to the overall global penetration of natural gas vehicles (NGVs), Canada is now experiencing a strong drive towards the adoption of natural gas as a fuel for fleets and light vehicles.
However, experts estimate that in terms of NGV take-up, Canada is currently three to five years behind the US.
There are a number of reasons for this lag. Canada’s sheer geographical scale and unevenly spread population, leading to unevenly spread natural gas supply, is one major challenge. Yet the growth levels currently being seen are impressive. According to figures from Natural Resources Canada, in June 2014 it was estimated that there were as many as 20,000 NGVs in the country – a rise of around a third on the previous year.
Yet this still lags far behind the historic high for the number of NGV vehicles of over 30,000 in the mid-1990s. The collapse in oil prices in the early 2000s put paid to those levels – and may be another reason why operators have been reluctant to invest in NGVs since.
The prevailing trends in the market now, however, are for high levels of investment. So what is driving this, and what are the constraints to this growth?
Fleet managers tend to highlight favourable costs compared to diesel and the environmental benefits of natural gas when explaining their decisions. According to the NGV Roadmap 2011 (NGV Technical Forum, 2011), the top ranking applications with strong internal rates of return are LNG highway tractors, LNG urban tractors, CNG transit buses and CNG refuse trucks.
Refuse has proven to be the leading growth market for natural gas vehicles in Canada to date, along with, to a lesser extent, transit. “Private companies and municipalities aren't dabbling. They’re putting in 25-50 units at a time,” states Charles Ker, industry relations manager, Cummins Westport Inc. “The value proposition for this market is strong because of diesel dynamics and the way the refuse market operates in general. They are a true RTB segment.”
However successful they have been, this has perhaps not been quite enough to convince others to move over to NGVs. There are a number of other factors generally considered to be key to determining the future growth of the natural gas vehicles market. One of these – and perhaps the most obvious – is the price of the gas itself, although with the shale gas boom the outlook here is generally stable. However, Canadian operators are currently subject to a degree of tax uncertainty.
Infrastructure meanwhile is of course a big issue given Canada’s geography, with both suppliers and fleets reluctant to be early movers. This is a major reason why the greatest growth is currently seen in return to base (RTB) fleets which don’t suffer particularly from range anxiety, and those with sizeable fleets that can justify private refuelling.
Vehicle and engine availability is a factor that is constraining some sectors, especially long-haul trucking, in contrast to RTBs. Some executives claim the market suffered a setback when Westport withdrew support for a 15L NGV engine, hampering conversion rates. It may be however that the introduction of Volvo’s 13L LNG engine will go some way to answering demand.
Perhaps key for NGV growth in Canada is that support varies widely across Canadian provinces. British Columbia is the pioneer with a range of government-backed incentive programmes and as a result is home to some of the most advanced NG players such as Fortis BC and ENN Canada. British Columbia and Alberta sport the largest number of both CNG and LNG filling stations. Manitoba, meanwhile, though sandwiched between relatively CNG-ready Saskatchewan and Ontario, has none.
The reason for this is perhaps that conditions are not conducive to building out in the province. This may be attributed to the fact that Manitoba is currently applying a fuel tax. And in Ontario, despite the presence of a burgeoning natural gas for fleets provision, there is a lower appetite than in British Columbia, perhaps due to the provincial government’s focus on electricity generation.
Clearly, these differences between provinces also create problems for fleet managers for whom range is a priority. It is also a concern for long haul fleets transiting the major trucking corridors of the 401 from Windsor to Montreal and the I5 coming into Vancouver.
“We’re in the early stages of seeing the development of stations going into Eastern and Western Canadian corridors,” states Alicia Milner, President of the Canadian Natural Gas Vehicle Association (CNGVA). “Other linkages that are going to be important for Canadian fleets are the north/south connections to the US. But all the other areas that aren’t on those dense corridors are much harder to get a truck stop style of fuelling station, unless there’s critical mass.”
The Road Ahead
Clearly, there are sectors and regions of Canada where the use of natural gas for vehicles currently makes much more sense than others. Given the impressive levels of government support in British Columbia, this is a natural place to start. However other provinces like Quebec are jumping on the bandwagon and providing support through incentives, even if the situation is a little more uncertain in others.
Heavy duty trucking presents opportunities, but understandably uptake will be slower due to lack of infrastructure and the expense of providing this. The need for anchor fleets still holds true and while companies such as ENN Canada with large CAPEX resources find themselves free to develop infrastructure, others including Fortis BC need proof of custom before proceeding.
This infrastructure is slowly coming online however, partly through influences outside road transportation such as the use of natural gas in marine applications. With a good choice of engines hopefully becoming available in the future, the sector may yet experience stronger NGV growth. In addition to this, expectations are that the next opportunity lies in delivery and food transportation, again within the RTB segment.