Third advent: NGV fuel came back earnestly and for good
October 1, 2013
Published in corporate Gazprom Magazine Issue 9
1 RUB billion of investments to be channeled to the construction of new gas filling stations – the figure seemed to be unreal when Gazprom announced it in the beginning of this year. In previous years much less funds, especially after the crisis, had been allocated to the construction of compressed natural gas (CNG) filling stations. And, quite unexpectedly, it was announced in summer that RUB 14 billion would be invested in the NGV sector development. In between these two events the Government took the decision to convert motor vehicles to natural gas and to provide filling stations with gas filling equipment.
What was happening looked more likely as a surprise. Before that, the Law on Alternative Vehicle Fuels had been collecting dust in the State Duma for over 15 years. No doubts that the Government had made certain actions towards developing the natural gas vehicle (NGV) sector after the crisis (the latest notable event had been amendments into the Law on Energy Saving and Energy Efficiency Improvement dated August 2012). These steps paved the way for decision-making in 2013, but left the industry fairly unaffected.
We repeatedly wrote that the Government’s will was the most important factor for developing the NGV sector. And the matter is not just about Russia’s specific nature as a country. All over the world the alternative vehicle fuel market develops only if the government and major oil and gas companies provide their full support to it.
Actions taken in 2013 are completely different from the previous ones and ideally targeted at ‘pressure points’ of the industry, namely, a lack of infrastructure, consumer and supply. That’s why in the past the NGV industry went round in circles: car makers were saying that there were no customers, and potential customers were saying that there were no filling stations that couldn’t be built because there were no NGVs. In practice, Gazprom was almost the only Company that carried on the construction of methane filling stations. Although, after the crisis the construction continued mainly in the regions where the NGV sector had been actively evolving in the past, for example, in the Stavropol Region. In other words, it was the question of strengthening of the existing distribution network rather than the large-scale expansion.
The Government’s directive to convert up to 50 per cent of public transport to natural gas satisfies the consumer, the directive on providing the existing filling stations and those under construction with gas modules supplies the infrastructure and car makers, while watching such major changes, eagerly introduce their NGV equipment in the Russian market.
Today the vicious circle is broken. The Government’s directive to convert up to 50 per cent of public transport to natural gas satisfies the consumer, the directive on providing the existing filling stations and those under construction with gas modules supplies the infrastructure and car makers, while watching such major changes, eagerly introduce their NGV equipment in the Russian market. In fact, we may say that the third large-scale program for motor vehicles conversion to natural gas stated in our country (the first one had been launched in 1936, the second – in 1985).
Gazprom created a special-purpose subsidiary – Gazprom Gazomotornoye Toplivo. In addition, the Company signed an agreement with heads of several major producers and distributors of motor vehicles (KAMAZ, VOLGABUS, MAN Truck & Bus RUS, Iveco Russia and STORK). The companies plan to jointly develop and deploy NGVs of various classes. Rosneft and Volkswagen, on their turn, intend to bring methane-powered Volkswagen, Audi and Skoda cars to the Russian market. Moreover, Rosneft announced that it was ready to build one thousand gas filling stations. Unfortunately, the schedules and financing volumes of the company were not announced.
In August Gazprom adopted a program, according to which nearly RUB 14 billion was planned to be allotted for the development and upgrade of gas filling stations between 2013 and 2014. More than 300 NGV facilities will be built and retrofitted in a total of 31 Russian constituent entities. And these are not just filling stations, but also the conversion and maintenance shops.
Gazprom Neft, being the first in Russia to open a filling complex with all types of oil and gas fuels, is already building multi-fuel filling stations. Multi-fuel filling stations are not just important for developing the NGV sector. Perhaps, along with the factory warranty for NGVs they can be called one of the key elements of the industry’s development. In this regard one can only welcome the Government’s directive, according to which the list of minimum services required at filling stations was expanded by introducing gas filling stations.
Significant shifts are taking place in the domestic segment of cargo and cargo-passenger transport powered by gas. Such domestic majors as KAMAZ and GAZ operate in it. Thus, early this year GAZ Group launched pilot operation of pre-production cars GAZelle BUSINESS CNG running on gasoline and methane.
VAZ still lags behind its peers. The company intended to launch mass production of Lada Priora powered both by gasoline and methane, but changed its plans and now it counts on Lada Granta – a brand new car produced by VAZ. From the market standpoint it is more logical, since the new model has been very successful and its lifecycle has only started. However, since the car belongs to the budget segment, the price factor may play a decisive role in the fate of this model. Meanwhile, VAZ produced several electric vehicles based on the first-generation Lada Kalina worth some RUB 1 million…
Pros and cons
Natural gas is the global leader among alternative motor fuels (including electricity). Of course, it costs money to convert vehicles to liquefied petroleum gas (LPG) – from RUB 20 thousand and to CNG – from RUB 40 thousand. In this case engine intervention is inevitable, and it is necessary to choose the right installer for this purpose. It will be much easier when Gazprom establishes certified conversion centers. A car owner will have to put up with a NGV cylinder in a trunk (at least a 42 L toroidal LPG cylinder placed instead of a spare wheel).
Nevertheless, the main advantage of gas is its price which is 2–2.5 times lower than that of gasoline 92. The introduction of gas in transport will reduce the cost of combustibles and lubricants. It’s not just the budget savings, but also the prime cost reduction in construction, agricultural sector, etc. Reduced costs of combustibles and lubricants mean lower costs of a road kilometer, a square meter of a residential building, a kilogram of potato.
Gasoline, of course, has a number of advantages attributable not so much to the area of energy and chemistry, but to the comfort of the user. The car owner doesn’t need to convert the car, no need to deprive himself of some space in a trunk (or a spare wheel) and gasoline (and diesel fuel) transportation is more convenient and easier to refuel. Considering this, it is necessary to make the switch to gas for the consumer not only profitable (which is largely dependent on the annual mileage), but also comfortable. It is necessary to combine the carrot-and-stick approaches. For instance, it is possible to label NGVs and allow them to travel on bus lanes, deny the entry for gasoline- and diesel-powered cars to some city districts, cancel the parking payment for NGVs inside the Garden Ring, etc. The relevant international experience is available. And this makes sense, as natural gas when burned releases much less harmful substances that is extremely important for the ecology of big cities.
Too much ado?
Perhaps, our country makes too much fuss over NGVs? Perhaps they are already obsolete as well as all other vehicles with internal combustion engines and the future belongs to electric vehicles? Europe is producing such vehicles, allocates grants, arranges special parking lots, i.e. struggling to make its vehicles environmentally friendly and noiseless. And here we are talking about some conversion operations, cylinders, gas. Even if we look at the price, it is much cheaper to drive 1 kilometer on electricity than on any liquid or gaseous fuel. Maybe the Government should focus on this environmentally clean type of vehicle which is also cheaper to refill?
Of course, batteries instead of a gas tank, a nice charging stand instead of a bulky dispenser plus the frequently stylish design of electric vehicles – it is so great and so similar to the very 21st century depicted in the science fiction. But if you ignore the veneer and go deep into the matter, it would appear that at the existing technological level electric vehicles underperform by all basic parameters as compared to NGVs.
First of all, the supposed environmental friendliness. A weighty battery box with its toxic stuff in a conventional vehicle is no match to the monster weighting quintals, which is installed in electric vehicles. Its production conditions and rapid wear-out (approximately over 5 to 8 years under the certain charging conditions) as well as the subsequent disposal represent an enormous burden on the environment.
Besides, natural gas is the primary energy source that exists in nature and that was not artificially transformed. This means that unlike gasoline, the energy needed to bring natural gas to a state of engine fuel is so insignificant that it can be neglected. In fact, one and the same gas is used for power generation and for fueling vehicles. Of course, the efficiency of cutting-edge generating plants running on gas is nearly 1.5 times higher than that of the internal combustion engine, but the electricity still has to be delivered to ‘the socket’. And transportation losses are such that less than 20 per cent of raw materials reach the socket. In such circumstances even if the efficiency of an electric engine were 100 per cent (in fact, it is about 90 per cent), it would still lose in terms of the primary energy conversion in comparison with an internal combustion engine.
Indeed, gas has to be delivered to filling stations and it requires more energy than to deliver it to a thermal power plant. This factor is really important considering the insufficient loading of filling stations. But with the growth of pumping volumes its value can also be neglected.
Finally we arrive at a rather simple idea: compressed methane is currently the most energy efficient fuel. In terms of this parameter it prevails over conventional oil fuel, dimethyl ether, hydrogen, electricity, LPG, etc. It is perhaps not so obvious to the countries that are not so rich in gas and have less developed gas transmission infrastructure. In our country the nature itself provides preconditions for rational changes in the fuel mix.
Experience gained and borrowed
The foreign experience is rather illustrative. The USA generate the greatest amount of news about the NGV industry today. The fact is that in the United States a considerable amount of gas is nowadays produced from shale. The booming domestic production brought about a drop of the wholesale price for the blue fuel. It declined until the middle of the last year reaching a minimum of some USD 70 per one thousand cubic meters. With the prime cost of the produced shale gas at USD 150 and more, it caused a crisis in the industry, hurried sale of land plots and infrastructure facilities by major players and writing off billions of dollars in losses. Geologist David Hughes announced the following data: in 2012 revenues from shale gas sales made up USD 32.5 billion and the cost of drilling – USD 42 billion (around 7 thousand wells). The scope of drilling began to decline (to date – four times versus the production peak) and the prices began to grow (approximately two times versus the minimum).
In 2012 CNG accounted for some 50 per cent in the US total consumption of all alternative motor fuels in the gasoline equivalent (electricity accounts for some 1 per cent).
The US Government did a very sensible thing: it tried to expand the domestic gas market. It should be noted that in ‘the pre-shale years’ the USA were not in a haste to develop the NGV industry. However, according to the US Energy Information Administration, by 2011 the CNG accounted for some 50 per cent in the US total consumption of all alternative motor fuels in the gasoline equivalent (electricity accounts for some 1 per cent). But the existing level of consumption was not high enough to match the new level of production. The US Government resolved to rapidly stimulate the industry. Meanwhile, according to the US mass media, the popularity of NGVs is growing slowly. The Washington Post attributes this to their high initial cost and small amount of filling stations. In other words, the necessary foundation required to promote this sector was not created. In fact, the NGV sector had to be boosted a decade ago for the US domestic CNG market to give an impetus to the gas production.
Such countries as Iran, Pakistan, Argentina, India, Brazil, Italy, Poland and Turkey demonstrate less highlighted, but more impressive success in the NGV segment. In all these countries the number of NGVs is either approaching or has exceeded one million vehicles (10 times more than in the USA).
China is among the undisputed leaders of the industry. For the Celestial Empire the gas-powered transport is not only a matter of ecology, but also a matter of conquering new markets. Nowadays this country is developing its own NGV equipment powered, inter alia, by liquefied natural gas (LNG). And considering the small weight and large resource capacity of LNG tanks in comparison with CNG (approximately three times more gas per unit volume), the future belongs to LNG equipment.
LNG filling stations open not only in China, but also in the USA, Sweden and other countries; the Netherlands, Norway and Russia are seriously considering the prospects of fueling vessels with LNG. In 2014 it is planned to launch the LNG engines manufacturing in Yaroslavl. According to the Yaroslavl Region Governor Sergey Yastrebov, these engines will be developed in Yaroslavl jointly with a Canadian company. It is likely that a few years later, when gas becomes habitual and as widely used as other fuels in the domestic transport, a pro-active application of LNG as a vehicle fuel will begin.
So far, the Government will have to make amendments into the legislation. And they concern not only building codes, but also the obsolete pegging of the CNG price to the price of gasoline A-76. In fact, there is no such gasoline at filling stations. Besides, Ai-80 is very rare. It would be reasonable to peg the price to gasoline 92. In fact, this is exactly what sellers do. It would be fatal in the current circumstances to entrust the pricing to the unmanageable market – in this way one can lose the cost benefit and relatively quick payback of equipment that would mean to alienate a potential customer.
Under the current conditions the NGV sector development is especially significant. It is beneficial for Gazprom to expand its domestic market due to the increased CNG consumption. The cost of gas at a filling station is commensurate with export prices (less transportation costs). Of course, this work is a matter of a long-term-future as the Company envisages significant investments and their return will take many years. Suffice it to say that RUB 14 billion to be spent this year alone are the cost of a little more than 1 billion cubic meters of compressed gas at Russian filling stations. Thus, in order just to earn this sum, it is necessary to sell thrice as much gas via CNG filling stations than in 2012. RUB 14 billion are only slated for 2013 and 2014. More investments in the industry will be needed. Therefore, it is necessary to make plans covering more than this decade. The Government can afford this. Moreover it must plan for decades ahead and create infrastructure that will be extensively used by the following generations.