Is CNG a stop-gap solution for electrification? | Utilimarc Fleet FYIs

Gretchen Reese (00:24):

Hey, there. Welcome to the Fleet FYIs podcast, the weekly podcast by Utilimarc that reveals how you can make the most of your data for smarter fleet management. My name is Gretchen, and every week you'll hear from me or some of the industry's finest in candid conversations that will not only shed some light on over two decades worth of fleet data insights but also some of the industry's hottest talking points and key metric analysis with the aim to help you better understand your fleet from every angle.

(00:52):

But before we begin, if this is the first time you've heard our show, thanks for stopping by. I'm so glad you decided to come along for the ride with us. But I've got a quick favor to ask you. Once you finish today's episode, if you could take a few minutes to leave us a review on your favorite podcasting platform, we would really appreciate it. Give us a rating, five stars, I hope, or tell us what you liked, or leave us a comment or a question about what you've heard in today's episode. If we haven't yet covered a topic that you're interested in hearing more about, let us know. We would be happy to go over it in detail in a later show.

(01:34):

Hello, everyone and welcome back to another episode of the Fleet FYIs podcast. We all know by now that sustainability will be a challenging movement going forward for everyone, and we're not just talking about fleets here. And whilst a lot of people tend to focus on the green, quote, unquote, "aspect of this movement," I like to bring in the profitability and longevity side too. Why? Well, again, trying to avoid sounding like a broken record here, but I don't think it's going to happen. Sustainability is multifaceted, and you'll know this if you've been an avid listener of our show, I like to say that a lot. Because let's be honest, I would argue that the profitability and longevity side is as much, if not more important than the green side itself. Why? Well, in simple terms, you can't go green if you're not around to do it, right? But for those that are looking to, and feasibly can go green, what are we considering now as a potential solution until the EV procurement processes are a little, hopefully, a lot smoother in the future?

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Well, for some it's CNG. And whilst fleets around the world announced comprehensive plans for electrification, charging infrastructures, I'm sure you know, and long-term zero emission goals, a crucial piece of this puzzle is still missing. The EVs, right? So as EV production struggles to keep up, and delivery dates being pushed back and pushed back and pushed back and pushed back, many fleets are left wondering whether their sustainability goals are even feasible in the immediate future and if these mandates are making it even harder for something that's really setting them up to fail. Well, let's dig in.

(03:37):

So what's the problem here? Well, as we all know, the global EV shortage is making it harder for fleets looking to lower GHG emissions in the upcoming years and then ultimately phase out their internal combustion engine vehicles. There's several contributing factors as to why EV supply chain hasn't been able to keep up with the recent boom in demand. And I wanted to talk about some of those reasons on this episode, even though I'm sure we've all heard about it, but I wanted to delve into it in a little bit further detail.

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So first up, we have the global chip shortage. It's not just something that is unique to the US, it's happening all over the world, this we all know. The COVID-19 pandemic and subsequent closing of factories around the world has led to a persistent chip shortage that the industry still has yet to recover from, which is annoying in the short-term and really, really crippling in the long-term.

(04:26):

Now, these chips or otherwise called semiconductors are an essential component to electric vehicles. In fact, they require about double the amount of chips as non-electric vehicles, making the shortage even more difficult for EV production than it would be for an internal combustion engine. At the start of the pandemic, many auto manufacturers cut back drastically on the amount of chips that they were buying in order to protect themselves against an inevitable downtick in vehicle demand. Because when you think about it, if people are losing their jobs, they're not going to be buying vehicles. Makes sense. However, two years later, chip manufacturers and automakers are both struggling to meet the demand that accumulated whilst these factories were closed. And it's also a little bit more difficult to meet the demand now that consumers are ready to purchase vehicles again. They're just falling behind. Companies like Ford and General Motors, Rivian, Lordstown, I mean Chevy, anyone you can think of, they've directly cited the chip shortage as the cause of delayed vehicle production and delivery. It makes sense. That's a pretty good reason.

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Now, the second piece of this, and in terms of supply chain difficulties is this limited lithium supply. And with an increasing demand for electric vehicles comes a growing need for one of the electric vehicle's most essential components, lithium. Today's EVs run on lithium-ion batteries that promise a high level of energy storage in a relatively small amount of mass, which is crucial to the amount of range that we can actually get out of these batteries now for these vehicles. The problem, however, is that as a finite resource, lithium will ultimately become more expensive and increasingly scarce as the demand surges. According to Reuters, "Lithium demand is expected to hit 1 million tonnes by 2025 and 3 million tonnes by 2030." For reference, demand in 2020 was just 320,000 tonnes. It's a pretty big difference, right?

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Additionally, the West dependence on Eastern resources for EV production only exasperates these supply chain challenges. China currently holds about 80% of the world's lithium-ion battery capacity, and it becomes nearly impossible for Western countries to gain autonomy over EV production as a result. And if you think about it, any increase in the cost of lithium could directly affect or actually would directly affect vehicle prices and a delay in mass EV adoption. Again, something to think about there.

(07:14):

But that then pegs the question, what are we doing to try and mitigate these challenges or be proactive about how we're going to solve them if we know that there is potential delays in the procurement processes going forward or potential challenges that could arise after the pandemic supply chain issue is sorted out? Well, this is where CNG comes in as a potential solution. As it becomes evident that mass EV adoption will take longer than anticipated, fleets and automakers look for other ways to decarbonize transportation. I mean, you kind of have to at this point. One potential solution is the use of natural gas to power light to heavy-duty vehicles. We know this already, we've seen some CNG refuse trucks and buses driving around in Minneapolis. Perhaps you've seen them in your own neighborhood as well.

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But natural gas is a fossil fuel that occurs naturally. Obviously, deep below the Earth's surface due to the decomposition of plants and animals over millions of years, kind of similar to petroleum. But the thing is, unlike petroleum, which is also another fossil fuel, natural gas is a more favorable option in terms of environmental friendliness. This is because the fuel burns cleanly and emits less than half the amount of greenhouse gases as regular oil or coal. So whilst it might not be a zero-emission solution, it's a very low emission solution, which is on the right track.

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Compressed natural gas or CNG, is the most commonly used form of natural gas, and it's produced by compressing natural gas into 1% of its original volume. Though it's been traditionally used for domestic purposes with more than half of the homes in the US depending on natural gas today, more vehicle fleets are actually moving towards natural gas as an alternative to petroleum-powered vehicles. CNG can be used in like I said, light to heavy-duty applications just so long as it's used in CNG dedicated equipment, that piece is really important. But alternatively, regular internal combustion engine vehicles can actually be professionally converted to be CNG compatible, which is kind of a cool piece about technology now.

(09:12):

In addition to the sustainability factor, using CNG in vehicles could also be a favorable option for fleets as CNG can cost as little as half the price per gallon compared with gasoline. Which I mean, I'm sure right now, seeing as we're all looking at the price at the pump, I think it actually cost me about 70 bucks to fill up my tank the other day. But my point is, additionally, with 98% of natural gas that we're using, it comes right from North America, CNG prices will stay relatively stable compared to commonly imported fuels, which is where we start to see that fuel prices become a little bit more volatile like we're seeing right now.

(09:49):

Now, one question that a lot of people ask here though is long-term feasibility, because even with so much promise in CNG-powered vehicles, no technology is perfect, right? We've experienced this from the start of switching from horse and buggy to the Ford Model T, and as we've gone on. But being a non-renewable resource, natural gas can unfortunately only be a temporary solution for fleets until the supply runs out. Natural gas can present a major opportunity for fleets in the short-term, especially right now when EV production is not meeting the demand of the consumers that are looking to procure these vehicles to meet sustainability goals. However, fleet managers that are considering using compressed natural gas in the immediate future should also think ahead to their long-term sustainability strategies as well. It could be an ideal stopgap solution for fleets today, while OEMs and industry leaders try to figure out what comes next.

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But I would love, love, love to hear your thoughts. Do you think CNG will be a stopgap solution, or do you think it'll be a solution all on its own as a low-emissions fuel source? Let me know. Tag me on LinkedIn. Use the #UtilimarcFleetFYIs. Send me an email. Send a carrier pigeon. You know the drill by now. I am so looking forward to hearing from you. But anyways, until next Friday, that's all from me. Ciao.

(11:30):

Hey, there. I think this is the time that I should cue the virtual high five because you've just finished listening to another episode of the Fleet FYIs podcast. If you're already wanting more content, head over to Utilimarc.com, which is Utilimarc with a C, U-T-I-L-I-M-A-R-C.com for this episode's show notes and extra insights coming straight from our analyst to you. That's all from me this week. So, until next time, I'll catch you later.