The Directive on the Deployment of Alternative Fuels Infrastructure : An analysis of its effects on the market uptake of natural gas vehicles

Sammanfattning: The EU transport sector is currently extremely dependent on foreign oil and the import bill for this fuel was in 2011 approximately € 210 billion. The European Commission (EC) claims that this dependency will eventually affect the member states’ economic security and mobility as oil is a finite resource. At the same time, the transport sector needs to reduce its CO2 emissions with 60% until 2050. Therefore in 2013, the EC proposed the “Directive on the Deployment of Alternative Fuels Infrastructure”, which purpose is to create road fuel infrastructure for the alternative fuels electricity, hydrogen and, the main focus of this report, natural gas. The EC believes that infrastructure acts as a major barrier for the adoption of natural gas vehicles (NGV), which in the EU has been extremely limited. The scientific community agrees that infrastructure is an important barrier, but not the sole decider for the market penetration of NGV’s. Empirical evidence claims that in order for large-scale adoption to occur, natural gas needs to be priced at least 40% lower than conventional fuels (gasoline, diesel) and the payback period (the added investment cost of an NGV) must be lower than four years. Historical data shows that if these criteria are not met this will lead to market failure, even if the adequate infrastructure is in place. The two criteria are examined in this report in the four of the largest EU countries: Germany, UK, France and Spain whom together account for a majority of all vehicles registered in 2012. Italy was excluded as it has already has a well-developed NGV fleet. Two car models from different price ranges in NGV, gasoline and diesel versions were studied: the Fiat Punto and the Audi A3 Sportback. Payback periods where calculated based on yearly average annual distances travelled per country, fuel prices, vehicle fuel efficiency and the added investment cost for an NGV compared to gasoline and diesel vehicles. In order to compare fuel prices default energy content values were used to convert CNG into gasoline and diesel equivalents. As the price of CNG is heavily dependent on favorable taxation one needs to question the economic sustainability, and therefore this study also analyses the future price difference between gas and the conventional fuels using a supply and demand model with oligopoly conditions. This model was complemented with the 4 A’s method, which are Availability, Accessibility, Affordability and Acceptability. Results show that the conditions for NGV’s compared to diesel vehicles are optimal in Germany, UK and Spain, as they all have fuel price difference of minimum 40% and payback periods significantly below 4 years. As a majority of all new vehicles registered in the EU are diesel models this will have a strong positive impact on the NGV market. The conditions for the gasoline comparisons are suboptimal, or slightly inconclusive as the payback periods in a few cases are above, or just below four years. As default values have been used during calculations the numbers are sensitive to change and simply too uncertain to draw any solid conclusions. The price differences between CNG and gasoline are within the criteria level of 40%. The price difference analysis between oil and natural gas shows great uncertainty, as there are many factors involved, such as environmental and geopolitical. A potential factor that could decouple prices is “fracking” of domestic EU shale gas resources, but this seems unlikely to happen due to environmental, social and economical reasons. Imported US LNG could have a similar effect but it might be exported east in order to meet the increasing demand from countries in Asia pacific. In conclusion, if the Directive on the Deployment of Alternative Fuels Infrastructure was implemented we would likely see a moderate to high market penetration of NGV’s, mostly due to their comparative advantage towards diesel vehicles. As gasoline meets the fuel price difference criteria this will also have a positive effect on the NGV market albeit limited by questionable payback periods.