Natural gas vehicles (NGV) will represent just 2% of the overall demand for natural gas in the United States by 2025, making them unlikely to cause a spike in natural gas prices, according to a report by the American Clean Skies Foundation (ACSF).

In a 35-page report released Thursday, “Driving on Natural Gas: Fuel Price and Demand Scenarios for Natural Gas Vehicles to 2025,” the ACSF looked at three different growth scenarios for NGVs to determine whether it made economic sense for the U.S. to invest in natural gas as a transportation fuel.

Under the highest growth scenario (high adoption rates for light-duty and heavy-duty trucks fueled by natural gas) NGVs would require a “modest” 0.2% of overall natural gas demand in the U.S. in 2013. That figure would climb to 2.3% in 2025, when the ACSF estimates 2.4 million NGVs will be on the road, including 480,000 heavy-duty trucks.

The ACSF added that NGVs would consume about 711 Bcf of natural gas annually by 2025 under the highest growth scenario, displacing more than 180 million bbl of oil. The effect on natural gas prices in 2025, across all three scenarios, ranged from an additional 3 cents/MMBtu to 27 cents/MMBtu.

“The incremental rise in fuel prices for this high-growth scenario was only approximately 25 cents/MMBtu, or 5%,” Gregory Staple, ACSF CEO and co-author of the report, said. “That’s largely because we expect the growth in NGVs over the next decade to provide adequate time for supply and infrastructure developments to keep pace with demand, and thus to moderate any incremental natural gas price impact.”

The ACSF attributed the growing interest in NGVs to “the swift and stunning rise in domestic natural gas production, principally from shale formations,” but the group also acknowledged the significant price difference between diesel and gasoline, and compressed and liquefied natural gas (CNG and LNG). Public policy and environmental benefits were also giving NGVs a boost.

“Some studies suggest that a transition to NGVs has the potential to increase natural gas demand significantly, which could trigger price increases given concurrent increases in natural gas demand from the power sector, manufacturers and prospective exporters,” the ACSF said.

“Others contend that U.S. gas producers have sufficient reserves to accommodate the foreseeable demand from various sectors of the economy (including exports) and that, in any case, increased demand from NGVs — both in the trucking and automobile sectors — is likely to be quite modest for at least the next decade or so. As a result, any price increases for NGV fuels are likely to be limited and will not change the basic economic case for fuel switching or building out an NGV infrastructure.

“Nonetheless, the required investment, along with growing competition for natural gas from other sectors, has given some transportation managers, investors and policymakers reason to pause.”

In its report, the ACSF makes the case that it will take time for NGVs to earn acceptance in the marketplace with consumers. The group said it was analogous to the evolution of the heavy-duty Class 8 truck market, which was 90% gasoline in 1950 but 90% diesel in 1970. By the 1990s, diesel had completely displaced gasoline.

“Diesel faced considerable challenges as a new market entrant competing against a well-entrenched incumbent in gasoline,” the ACSF said. “Diesel engines had higher upfront costs, added more weight to the vehicles, and required the establishment of a new fueling infrastructure to support them. Diesel succeeded in becoming the fuel of choice in the Class 8 segment despite these obstacles, though it took decades to achieve.

“The position of NGVs today is in many ways similar to that of diesel Class 8 trucks in the 1950s.”

Under a light-duty vehicle (LDV) scenario, the ACSF said such NGVs — namely passenger vehicles and light-duty trucks — should have an easier road to acceptance in eight “focus states” (California, Colorado, Ohio, Oklahoma, New York, Pennsylvania, Texas and Utah) because they have “the greatest opportunity and interest in adopting NGVs.” The report figures 80% of incremental fuel consumption growth in the U.S. will take place in these eight states, with the remaining 20% coming from the other 42 states.

The LDV scenario projects the number of passenger vehicle NGVs will increase from 4,600 in 2013 to more than 92,000 in 2025. The number of light trucks would also increase during that same time frame, from about 13,000 to 228,000 net additions. That means nearly 500,000 passenger vehicles and 1.1 million light trucks, all NGVs, could be on the road by 2025.

According to the ACSF, natural gas demand from NGVs under a scenario favoring the adoption of heavy duty vehicles (HDV) would rise to about 1.8 Bcf/d in 2025, of which LDVs would account for about 130 MMcf/d and HDVs about 1.65 Bcf/d. Meanwhile, under the LDV scenario, natural gas demand would be about 500 MMcf/d in 2025: 300 MMcf/d for passenger cars and light trucks, and 200 MMcf/d for HDVs.

Under the aforementioned highest growth scenario — a combination of HDV and LDV adoption — natural gas demand for the transportation sector would be about 2 Bcf/d, or about 2% of total estimated demand in the U.S.

The ACSF predicted annual average Henry Hub natural gas prices in 2025 would be $5.72/MMBtu under the HDV scenario, $5.50/MMBtu under the LDV scenario, and $5.74/MMBtu under the combined, highest growth scenario. Outside of those projections, the control price would be $5.47/MMBtu.

“Price increases are expected to be minimal because the United States has vast natural gas resources in shale formations,” the ACSF said. “Natural gas producers can and will bring new supplies to market relatively quickly and at affordable prices to satisfy new demand. In other words, the development of shale has flattened the nation’s natural gas supply curve.

“In sum, this analysis should give businesses, consumers, regulators and political leaders confidence that moving to NGVs will likely have a minimal impact on prices and competition for natural gas. On the other hand, realization of the most aggressive NGV scenarios in this report would provide significant environmental, economic and energy security benefits.”

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