Feature: Industry sees bright future for LNG to fuel Europe's trucks

London — When Gasunie and its partners announced last year plans for a 5 Bcm/year LNG import terminal in Germany, many industry players were skeptical that northwestern Europe needed another facility given the chronic under-utilization of the region's existing plants.

But a new market is opening up for LNG across Europe, which could give the fuel a boost in demand in the coming years, namely as a low-emission fuel to power Europe's growing fleet of heavy-duty trucks.

With diesel in the dog-house over its environmental credentials and electrification seemingly better suited to cars and lighter-duty trucks, heavy-duty truck manufacturers and users are increasingly looking at LNG as a strong contender for market growth.

Current demand is difficult to quantify, but S&P Global Platts estimates EU consumption at just 70,000 mt/year -- the equivalent of one large cargo of LNG, or around 0.1 Bcm of gas.

That is based on an estimate that Europe currently has around 2,000 LNG-fueled trucks covering around 120,000 km each per year at a consumption rate of around 28 kg/100 km of LNG.

That is a very small market. China, for example, already has 300,000 trucks running on LNG. So just how big can this market in Europe get?

The jury is very much out -- the European Commission has given a very wide range of estimated future demand of between 3.5 Bcm/year and 34.5 Bcm/year by 2025 depending on the penetration rate of LNG in trucks.

Brussels' base scenario from 2015 was 17.3 Bcm/year demand by 2025 -- a consumption level equal to the current demand of Poland or Belgium -- with a penetration rate of 10%.

According to industry group Natural Gas Vehicles Association (NGVA) Europe, an estimated 400,000 trucks could be fueled by LNG by 2030 in Europe, a number that seems optimistic given the current estimate of 2,000 trucks.

But if the 400,000 truck figure was realized, that would require demand of around 19 Bcm, according to Platts' estimates.

INFRASTRUCTURE DEARTH

To realize anything near that number, there is a need for significant investment in new infrastructure in Europe.

According to NGVA Europe, there were only 101 LNG filling stations across the whole of Europe in 2017, with Germany home to just two, evidence of the massive lack of infrastructure needed for LNG-fueled trucks to enter the mainstream.

The situation is better elsewhere -- the NGVA says Spain has 22 filling stations, the Netherlands 21, the UK 18, Italy 10 and France nine.

"In Germany, LNG has not been introduced seriously at all," Lars Martensson, director of innovation at Sweden's Volvo Trucks, said last month at the European Gas Conference in Vienna.

Martensson said there has been a "lack of understanding" on the part of truck owners about benefits of LNG-fueled trucks.

"It needs a joint effort between gas suppliers, truck builders and major truck buyers -- Ikea for example -- to push LNG as a true alternative to diesel," Martensson said.

The problem seems to be the issue of who will commit serious investment in LNG-fueled trucks first, the truck-makers or the filling station companies, -- a typical "chicken and egg" scenario.

"It's the chicken and egg problem that we are trying to solve," Martensson said. "It needs cooperation with filling stations to grow the market step by step. I would like to see some support from policymakers at the same time," he said.

One company looking for force demand growth is Germany's Uniper, which in 2016 founded the LIQVIS initiative to promote the use of LNG in trucks.

Keith Martin, chief operating officer at Germany's Uniper, said last month in Vienna that the company viewed LNG as a fuel in trucks as a "scalable business."

"We see significant upside potential," Martin said, adding though that capital expenditure would likely require some national and EU support.

In June 2016, LIQVIS together with Italian vehicle manufacturer Iveco, opened Germany's first LNG truck filling station in Ulm, designed to test engine concepts for long-haul freight.

LIQVIS also opened France's first LNG filling station the same month near Marseille.

"We are convinced that the expansion of the LNG fueling station network will progress -- less tentatively than it has so far -- as trucking companies increasingly rely on LNG as a fuel," the company said. "They will be impressed by its price and emissions benefits. The technology is mature and ready for application."

PRICE BENEFIT

The International Energy Agency, in a 2017 report on the future of trucks, said that the price gap between LNG and diesel has been fairly consistent and robust even following the 2015 drop in oil prices.

"On an energy equivalent basis, the price of LNG has fluctuated over the past decade at around an average of 55% of diesel," the IEA said.

Volvo's Martensson said it was important for Europe to pick the best alternative for the future -- and that price would be a critical component, with the Swedish truckmaker estimating that LNG is currently 40% cheaper than diesel, a figure backed by Italy's Iveco.

"One third of the total cost of truck transportation is fuel, so a 40% reduction is something our customers are very positive about," Martensson said.

Gasunie senior project manager Marcel Tijhuis told the Vienna conference last month that the potential in Germany alone was significant.

"There are three million trucks running every day in Germany," Tijhuis said. "We think that is an interesting opportunity in Germany from a truck perspective," he said.

Under the Alternative Fuels Infrastructure Directive from 2014, the EU requires its member states to develop by 2025 national policy frameworks to facilitate LNG for road transport by providing refueling points along the EU's main transportation corridors.

The directive suggests that refueling points along this network should be located approximately every 400 km for LNG.

Italy's Snam has already invested into the development of LNG fueled trucks in Italy.

"We have already had a lot to do with heavy trucks in Europe," Vittorio Musazzi, managing director of Snam's LNG business, said in Vienna.

It has signed a number of strategic deals, including with manufacturers Fiat and Iveco.

According to Snam, Italian demand for LNG in trucks is forecast to grow from 40,000 mt/year in 2017 to 324,000 mt/year by 2025.

It expects around 200 LNG filling stations to be operational in Italy by 2025, with around 10,000 truck engines to be LNG fueled by that date, representing some 25% of new engines sold in Italy.

France's Total is also a keen advocate of LNG in trucks. Philippe Sauquet, the head of the company's gas, renewables and power division, told Platts earlier this month in an interview that while there was a need for traditional engines, gas had a role to play.

"For trucks, the solution of electricity is problematic as you need to use your truck all day long. We can see a real interest for LNG," Sauquet said.

BP's vice president of Group Strategic Planning, Dominic Emery, also sees a case for LNG in trucks.

"We see 3-4%/year growth in use of gas in transportation -- albeit from a very low base -- with growth in CNG for passenger vehicles and LNG in trucks," he said. "We think it is pretty exciting."

--Stuart Elliott, stuart.elliott@spglobal.com
--Edited by James Leech, james.leech@spglobal.com