The Road Ahead for Alternative Fuels

A confluence of factors, from economic to environmental, is pushing demand ever higher for vehicles that don't use good old gasoline

In fashion trends, we've already been revisiting the 1970s. Disco is popular again. And it seems this retro turn is bringing back all things, good and bad. For example, the fuel crunch is back. Natural disasters and a strained political climate have pushed oil prices up to startling levels. Add to that the world's growing fuel consumption, and you get a worldwide imperative to grow the use of alternative fuels. This year should see the alternative fuels industry reaching out to consumers - fleets and individuals - to let them know that there are fuels and vehicles available that have the potential to stabilize fuel costs. Environmental drivers, too, will have even more effect, as nations, industry, and individuals try to lessen the impact of a world that is rapidly becoming more mobile.

In this worldwide scenario, all alternative fuels will see unique opportunities for growth. And while nearly every national and state government is moving to implement alternatives, it won't be enough without aggressive outreach from the alternative fuel vehicle (AFV) industry. Governments are paving the way - or at least carving a path - alternative fuel and technology providers will have to help fleets and individuals see the shortand long-term cost and environmental benefits of more actively deploying AFVs and advanced technology vehicles.

For fuel cost impact, take a look at what the Alternative Fuel Vehicle Institute is focusing on for this year's Clean Cities Congress: educating fleets that are facing nearly doubled fuel costs. Package carrier UPS reports that its fuel costs grew by 45.3% between the second quarter of 2004 and the same time in 2005. The State of Utah will have to find another $685,000 to deal with increasing gas prices. New Mexico anticipates that the state will pay $2.1 million more for fuel this year. A transportation company in New Jersey that has contracts locked in place for school bus services expects its $1.5 million fuel bill of last year to increase by $4-6 million this year.

Going forward, growing transportation markets, such as India and China will need more and more fuel, putting even greater pressure on the world's petroleum supply. Fortunately, potential consumption powerhouses are making a real effort at smart growth.

Low-impact deployment

Because the current crunch has created a sense of immediacy for finding alternatives, it is likely that biofuels and electric (particularly hybrid) vehicle technologies will springboard even further ahead.

Production technologies for biofuels ethanol and biodiesel have made steady improvements as predicted. The supply is increasing,but industry is happily worried that it cannot meet demand. However,the supply of biofuels must keep pace: Fleets have made it clear that reliable supplies are necessary for real commitment to use these fuels. If industry can't meet the demand with a sure supply, the booming business could stagnate and collapse. AltFuels Advisor expects the biofuels industry to concentrate deliveries to power users, but it won't be a simple matter of shifting supply. Requirements for biofuel blends in national fuel supplies will require service to a thin but broad market while simultaneously serving more dense markets that may be spread out geographically.

Hybrid vehicle demand is being met with new entries from automakers. But while demand has spiked, automakers will struggle to serve it until hybrid system and component costs can undergo further reductions. This is where work on high-power and high-energy batteries and other power sources will be critical, finding a way to serve the unique power needs of these vehicles with lowcost, robust products.

Transit and other commercial fleets will continue to be a critical market, although the military is fast growing out of its development role and working toward being a real customer.

Technology for vehicles that burn natural gas will continue to improve, but it will likely be deployed in markets outside the U.S. where there is a strong fueling infrastructure and technical and funding resources can be concentrated on vehicle development rather than being divided between vehicles and infrastructure building.

While OEMs are turning out natural gas vehicles for European and Latin American markets, U.S. customers will turn again to conversion specialists, now recognized as "mini OEMs" to serve their needs. Heavy-duty customers will fare a little better with availability.

The battle between natural gas and diesel

In heavy-duty applications, natural gas has been battling with diesel. In the U.S., natural gas infrastructure, vehicle, and fuel costs have hindered uptake. However, the natural gas vehicle industry has been looking forward for years to emissions regulations that will take effect in 2007 and 2010. Diesel engine manufacturers will have to add cost to their systems to meet the regulations, bringing natural gas and diesel closer to cost parity. The addition of unpredictable conventional fuel costs should help close the gap even more.

However,those pending emissions regulations make 2006 a potentially pivotal year. If the battle over mandates to lower emissions in California is any indication,these 2007/2010 regulations could be under assault this year as diesel engine manufacturers struggle to protect their lead.

Money still talks louder than science

The environment has long been considered a major driver of alternative fuel use. But so far, without any economic push, it hasn't been enough to force real change. This year, AltFuels Advisor sees a trend focusing on the bottom line, particularly fleets, with an industry effort to help fleets identify and refine the business case for alternative fuels.

Efforts to control transportation's impact on the environment will help effect incentives at the national, state, and local levels, but the incentives are only padding, and only temporary. Cost will be key. Fortunately, many of the early adopters, particularly the fleets of private companies with broad international markets have made a careful study of the bottom-line impact of using alternatives on a small scale in controlled demonstrations with free-market elements. UPS, FedEx, Purolator - these package carrier giants will play a key role in driving other businesses to consider using alternative fuels by logistic and financial example.

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