What liquefied natural gas means for the trucking industry--and why brokers need to pay attention
So why is Shell investing so heavily in this alternative fuel? Though LNG is a fairly new vehicle fuel source in Canada, it is one that has significant economic and environmental benefits—particularly for the trucking industry. “For heavy-duty truck operators facing a challenging economic climate, LNG could be a cost competitive fuel option, particularly for those looking to invest in new fleet vehicles,” said Jean-Marc Morin, Shell Canada general manager commercial fuels, in a company press release.
Shell isn’t the only company committing to LNG. Gaz Metro’s “Blue Road” project will see the completion of three LNG refueling stations between Quebec City and the Greater Toronto Area. The first fueling station is already operational in Boucherville, Que. As more LNG refueling stations appear, more trucking companies are investing in LNG-fueled trucks. Quebec-based Robert Transport ordered 180 LNG-fueled trucks in 2010, is currently running 74 and will have another 50 become operational this spring. Bison Transport, based in Winnipeg, recently signed a five-year agreement with Shell Canada to run 15 LNG trucks in Alberta and Vedder Transport of Abbotsford, BC currently operates 50 LNG tractors.
Sherry Orr, national practice leader, transportation at BFL in Calgary (and the former president of a trucking company), says it’s absolutely imperative that brokers understand why trucking companies are making the switch to LNG. “We are representatives of our clients and we need to know what they’re doing and we need to understand it thoroughly,” she says. “There are so many brokers that like to dabble in trucking, but don’t understand it. If you don’t understand it, how do you explain it to an underwriter for them to properly underwrite it? Are you doing the best job for your clients? You really, really have to know not only the industry, but you have to understand what this [switch to LNG] means. It’s not a big, scary thing.”
The Move to LNG
There are several important reasons why fleet operators are considering LNG as an alternative fuel source. First and foremost is cost. “The cost of diesel fuel is very volatile, especially if you operate in the US,” explains Orr. “Liquefied natural gas is more stable. Currently it’s not taxed, so there are a lot of benefits to that.” More stringent diesel emission regulations also came into force in 2007 and 2010. Orr says, however, that the diesel engines that comply with these regulations aren’t economical for fleet owners. “It takes more diesel fuel to run these new engines than it does to run an older-style engine that doesn’t have emission standards on it.” LNG, therefore, can offer huge savings.
There are so many brokers that like to dabble in trucking, but don’t understand it. You have to understand what this switch to LNG means. It’s not a big scary thing.”
When discussing fuel savings, however, Alicia Milner, president of the Canadian Natural Gas Vehicle Alliance, says operators need to evaluate LNG on an energy-equivalent basis. Trucks need 1.7 litres of LNG to produce the same amount of energy as one litre of diesel. “[But] what you pay for the 1.7 litres is still going to be 30% below what you pay for that litre of diesel,” explains Milner. Though fueling up may be cheaper, initial costs can be daunting. LNG-fuelled trucks can cost between $70,000 and $100,000 more than similar diesel-powered tractors.
But LNG trucks also offer environmental benefits. According to Environment Canada’s National GHG Inventory, heavy diesel vehicles contribute 25% of Ontario’s on-road carbon emissions, even though they represent only 3% of the vehicles on the road. This is a big issue for the trucking industry as, for the first time, Canada and the US are beginning to regulate heavy-vehicle GHG emissions. “Up until now, that has not been part of any regulation related to heavy vehicles,” explains Milner. Rather than just testing the engine for compliance, the new regulations require that the complete vehicle meets the emissions standards. The new heavy-duty regulations take effect with 2014 model year trucks and aim to reduce GHG emissions in 2018 model year trucks by 23%, explains Milner. LNG produces 30% fewer GHG emissions than diesel from extraction to consumption, according to a report by the Natural Gas Use in Transportation Roundtable, making LNG an attractive means to comply with these regulations.
LNG in Action
If a trucking client is considering switching to LNG, brokers will need to be part of the process to ensure the proper risk management procedures are put in place.
“To underwriters, if [LNG] is not explained well, it could turn out to be a big scary thing and then insurance costs could go up,” explains Orr. To properly demonstrate that LNG-fueled vehicles are a safe risk to write, brokers need to be well informed. “What type of training are you giving your driver around using this type of equipment? Where are you going to go with the truck? Who is going to be doing the refueling? What type of fueling training are you giving?” These are the types of questions brokers need to ask their clients to ensure safety, she says. “The broker has to make a good explanation [to the underwriter] of what the safety plan for the trucking company is,” she says.
When Robert Transport decided to purchase LNG trucks, the company’s broker was involved right from the beginning, says Yves Maurais, technical director of Robert Transport. “When we discussed [switching to LNG] with our insurance broker, we basically [asked] him, ‘What do you want us to do so that you’ll be comfortable with the security systems or ventilation systems we install?’ ” As an early-adopter of LNG in Canada, there were no Canadian regulations available for the company to follow. Instead, Maurais’ broker and insurer looked abroad for technical guidelines and came back to him with detailed information on what safety measures needed to be put in place. “The key point was the modification of the garage areas where we would work on the trucks indoors,” Maurais says. Methane detectors had to be installed, the lighting and electrical motors that were used to raise the doors had to be changed so there was no possibility of sparking, the heating systems had to be changed to remove open-flame pilots, and the ventilation systems had to be upgraded. It was a significant investment.
In 2012, the Canadian Natural Gas Vehicle Alliance developed a technical guideline to help fleet owners (and their brokers) in the transition to natural gas vehicles. The guideline gathers all required information on what facility modifications are needed to safely maintain, load, and store natural gas vehicles indoors. Operators can now use this guideline to work with building design professionals to determine what renovations and upgrades they need to make to their facilities, says Milner. The organization is also working with the Canadian Standards Association to develop a code for refueling stations (which is expected to be in place by fall of 2013) and with the federal government on developing training courses.
Being one of the first to transition to LNG wasn’t easy for Robert Transport. LNG trucks are more expensive and the company’s garage modifications were costly. (“Depending on the size of the garage, you could [spend] anywhere from 50 to $100,000,” says Maurais.) But the environmental benefits and fuel savings have made the initial costs worthwhile. As for insurance, the switch has been relatively painless. “We had an increase in premium simply because the trucks are more valuable,” he says. “Other than that, there were no…additional premiums for using a natural gas truck versus a diesel truck.”
Does the math add up and will more trucking companies transition to LNG? Only time will tell. But as more refueling stations appear and as governments enforce stricter GHG regulations, alternative fuel sources are becoming more attractive—and brokers with trucking clients better be paying attention.
Copyright 2013 Rogers Publishing Ltd. This article first appeared in the April 2013 edition of Canadian Insurance Top Broker magazine.