MSE 604 Engineering Economics Team 4 Prof. Gus Elias CSUN Anas Alsuwidan 105923192 Dinesh Reddy Suluguri 105903666 Kiran Kumar Dunna 106132232 Kulvinder Atwal 101897911 Maneesha Gandupalli 105925493 Saurabh Pillai 105880422 Varshini Lingam 105986190 Cover Letter Dear Mr. Alatorre, We at Drshti value the opportunity to aid you in your decision to explore the possibility of converting your fleet to CNG, thereby envisioning a sustainable future. We have combined your valuable inputs, our intense research and analysis as well as our combined experience to determine the recommended vision for your organization. This report aims to concisely present our findings, insights and recommendations. Since it is critically important that this report exceeds your expectations in both content and presentation, we welcome any suggestions or comments that you may have to offer for a revised statement of work. At Drshti, we believe in serving our clients with honesty and integrity, as well as in forging long standing relationships with our clients. In this vein, we look forward to discussing this and other projects with you in the future. Thank you once again for choosing us. Warm regards, Co-founders & Equity Partners Drshti LLC 1 Saurabh Pillai The Team Anas Dinesh Kiran Kulvinder Maneesha Saurabh Varshini 2 Saurabh Pillai Agenda Executive Summary Introduction Background Information Environmental Aspects Social Aspects Economic Aspects Financial Analysis Conclusion 3 Saurabh Pillai Executive Summary Drshti LLC has been given an opportunity to evaluate the possibility of LA Metro converting its fleet from Diesel to CNG. After investigating the situation based on Environmental, Social, Economic and Financial Analysis, it is recommended that LA metro convert its fleet to CNG as soon as possible to maximize benefits for all the stakeholders. 4 Saurabh Pillai Introduction Drshti LLC | LA Metro CNG Project | Strategic Approach 5 Saurabh Pillai Drshti LLC Consultancy Founded in 1987 Specialty: Sustainability Consulting LLC in Delaware 7 Co-founders and Equity Partners Business License in California Major Revenue: Service Fees Business Type: Service Headquarters: Los Angeles, CA 6 Saurabh Pillai LA Metro CNG Project The year is 1993 LA is troubled with smog and unhealthy air quality LA Metro would like to explore the possibility of converting its bus fleet to run on Compressed Natural Gas (CNG) to run a cleaner fleet and to save on operational cost LA Metro has entrusted Drshti LLC to investigate the matter on its behalf
7 Saurabh Pillai Strategic Approach Solution Environmental Social Economic Financial Inspired by the Balanced Scorecard Framework that deals with evaluating a business strategy using multiple viewpoints We evaluate the project based on the following aspects: Environmental Social Economic Financial 8 Saurabh Pillai Background Information Diesel and LA Metro | CNG 9 Dinesh Reddy Suluguri Diesel and LA Metro ! Largely a fractional distillate of petroleum ! Also created using other sources like biomass ! Diesel engines are purely mechanical ! No spark plugs; less likely to stall ! Used extensively in high torque applications ! Major downside is the high amount of harmful emissions ! Particularly carbon dioxide and particulate matter ! LA Metro facing accusations of playing a major role in the LA smog problem due to its diesel fleet 10 Dinesh Reddy Suluguri CNG - Basics ! Natural gas ! 95% methane ! Produced by natural transformation of organic material over millions of years ! Compressed Natural Gas (CNG) ! Gaseous fuel consisting of hydrocarbons ! Mainly methane ! Produced by compressing Natural Gas under 200-250 bar ! Compressed to less than 1% of its volume at STP 11 Dinesh Reddy Suluguri CNG - Properties Colorless, odorless, tasteless Cleanest form of fossil fuel Non toxic Lighter than air Doesnt catch fire easily from a safety standpoint Low flammability range
12 Dinesh Reddy Suluguri CNG Good or Bad? Advantages ! Cleaner Environment ! Reduced maintenance cost ! Cheaper than other fossil fuels ! Safer than conventional fossil fuels ! Tax credits in certain regions for CNG users Disadvantages ! CNG vehicles significantly more expensive ! CNG tanks on vehicles are bulky ! Limited availability compared to gas/diesel ! Currently cheap, but may become more expensive 13 Dinesh Reddy Suluguri Environmental Aspects Reduced Emissions | Environmental Effects 14 Varshini Lingam Reduced Emissions CNG burns with lesser CO 2 per mol However, the energy released upon burning is also lower
4CNG+4O 2 4CO 2 +8H 2 O
4Diesel+71O 2 48CO 2 +46H 2 O
15 Exothermic 900 kJ/mol Exothermic 3300 kJ/mol Varshini Lingam Environmental Effects 16 CO 2 and CO Affects plant physiology causing reduced oxygen generation Green house effect leading to severe climatic change Affects the carbon cycle Health issues such as cancer NO x
Global Warming Toxic chemicals that cause damage to life and property Visibility impairment such as ground level ozone/smog Acid rain causes large scale damage to life and property Particulate Emissions Health issues such as cancer, asthma, bronchitis Visibility problems such as smog/haze caused even in far off areas Toxic nature harms life and property Soiling and damage to property and materials Varshini Lingam Social Aspects Social Benefits| Health Advantages| Safety Advantages | National Interests 17 Maneesha Gandupalli Social Benefits 18 Maneesha Gandupalli Health Advantages Minimizes lung damage and respiratory infection Minimizes cancer risk No particulate emissions mean reduced childhood illnesses and respiratory problems Cleaner air increases metabolism and leads to overall good health Reduced noise pollution reduces stress 19 Maneesha Gandupalli Safety Advantages Fuel systems are sealed and storage cylinders are strong Safer than other fuels in case of leaks because lighter than air High ignition temperature Relatively low flammability range 20 Maneesha Gandupalli National Interests Reduced dependence on foreign oil since CNG is domestically available Domestic sources available for at least 100 years Job creation and increased economic activity with countrywide shift to CNG 21 Maneesha Gandupalli Economic Aspects Economic Benefits| Intangible Drilling Costs 22 Kulvinder Atwal Economic Benefits Price Fluctuation of CNG is less CNG is cheaper than Diesel Significant savings in operational costs All the CNG in America is domestic Helps the economy Secures jobs Generates economies of scale 23 Fuel Cost per 100 KM Propane 18.98 Natural Gas (CNG) 20.83 Diesel 21.25 Gasoline 25.26 Gasoline with 10% Ethanol 26.43 E85 (Gasoline with 85% Gasoline) 38.11 Kulvinder Atwal Intangible Drilling Costs Intangible drilling costs (IDCs)- key to attract investments IDCs- drilling and completing natural gas wells with no salvage value IDCs-I.e. clearing and surveying of grounds, preparation of drilling location, wages, fuel, repairs, drilling muds, etc IDCs-60-80% of drilling Cost IDCS-Treated as expenses Tax
0"&1' !"# %&'( )*+, %+23&14'+5 SLay ulesel Cnly new 8uses CnC CnC now hased CnC Varshini Lingam Best Option 33 Cpt|on NV 1. Stay D|ese| -7.41L+09 2. Cn|y New 8uses CNG -2.70L+09 3. CNG Now 3.62L+08 4. hased CNG -7.38L+08 Operational Cost NPV Option 3 has the highest NPV and is recommended Varshini Lingam Best Option IRR The IRR was evaluated iteratively for option 3 CNG Now! and found to be 20.7983929% Since the IRR is greater than MARR, option 3 is a sound financial investment 34 Varshini Lingam Best Option Payback Period 35 The payback period for option 3 is 11 years !"#$$%&$' !)#$$%&$' !*#$$%&$' $#$$%&$$ *#$$%&$' )#$$%&$' "#$$%&$' +#$$%&$' $ * ) " + , - . ' / *$ ** *) *" *+ *, *- *. *' */ )$ ! " #
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()*+,- ./ 0,123 %3)456' 789.* : ; "43<4=> ")5?.2 Varshini Lingam Financial Recommendation Each CNG bus presents massive operational savings over Diesel Comparison in Option 3 and Option 4 indicates that the earlier the fleet is converted, the greater the savings Option 3, CNG Now! is recommended from a financial standpoint
36 Varshini Lingam Conclusion Final Recommendation | LA Metro Today | Thank You 37 Saurabh Pillai Final Recommendation ! Financially, Option 3 is recommended ! Practical constraints may pose a problem ! A large fleet cant be converted all at once ! Disruption in service ! However, the earlier the change is executed, the greater the benefit ! Environmental ! Social ! Economic ! Financial ! It is recommended that the LA Metro fleet be converted to CNG as quickly as practical constraints allow 38 Saurabh Pillai LA Metro Today 39 Saurabh Pillai References ! http://en.wikipedia.org/wiki/Compressed_natural_gas ! http://www.treehugger.com/cars/la-metro-retires-last-diesel- bus-now-relies-on-cleaner-cng-buses.html ! http://anga.us/blog/2013/5/16/cleaner-transportation- powered-with-natural-gas ! http://www.metro.net/news/simple_pr/metro-retires-last- diesel-bus/ ! www.marcelluscoalition.org/.../Final-2011-PA-Marcellus- Economic-Impacts 40 Saurabh Pillai References ! https://www.encana.com ! http://www.nature.com/scitable/knowledge/library/effects- of-rising-atmospheric-concentrations-of-carbon-13254108 ! http://www.extraordinaryroadtrip.org/research-library/air- pollution/understanding-air-pollution/nitrogen-dioxide/ health.asp ! http://www.epa.gov/region7/air/quality/pmhealth.htm ! http://www.examiner.com/article/volatile-organic- compounds-affect-air-quality-and-human-health 41 Saurabh Pillai References ! https://www.fueleconomy.gov/feg/bifueltech.shtml ! http://www.consumerenergycenter.org/transportation/ afvs/cng.html ! http://anga.us/issues-and-policy/natural-gas-taxes- idcs#.U2rsL_ldVjI ! http://pinnacleexploration.com/Tax%20advantages %202.htm ! http://aboutnaturalgas.com/content/key-benefits/ economic-impact/ 42 Saurabh Pillai References ! http://www.ladowntownnews.com/news/metro- replaces-last-diesel-bus-in-fleet/ article_27aa076e-90a2-51e0-9b6e-975e3837e8c9.html ! http://media.metro.net/about_us/finance/images/ cafr_2009.pdf ! http://www.fta.dot.gov/documents/ Useful_Life_of_Buses_Final_Report_4-26-07_rv1.pdf ! http://www.omnitekcorp.com/projectmanage.htm 43 Saurabh Pillai Thank You Any questions? 44