Hexagon Composites ASA (HEX) Earnings Call Transcript & Summary

Good morning, everyone. At Hexagon, we're very pleased to see so many take some time out of your day today to join us for this RNG and regulatory roundtable. My name is Karen Romer, I'm the SVP, Communications at Hexagon, and I'll be the facilitator today. Before we get started, if some of you may be new to us, we wanted to just share a 2 minute brief on the company. So I'll show you a short film first. [Presentation]

So that was a little bit about the company. And just to reiterate some of the points, we are based headquartered in Norway. We're listed on the Oslo Stock Exchange. We are global leaders in Type 4 composite cylinder technology. And our customers, our customer base consists of blue chip automotive, industrial and logistics companies. And last year, in 2022, we had NOK 4.9 billion in revenue. We have a very broad portfolio of clean energy solutions for transportation and storage. And if you look on the left-hand side of the screen, you see that Hexagon Agility offers solutions that encompass compressed natural gas, renewable natural gas, liquid natural gas and bio-LNG. And then on the right-hand side, our brand, Hexagon Purus encompasses hydrogen, liquid hydrogen and battery electric. And as you can see, we are a fuel and technology platform agnostic company, and we're very proud of that. We're also extremely proud of the fact that last year, we enabled the avoidance of 1.35 million metric tons of CO2 equivalents. That's the same as taking up 280,000 cars, automobiles, off the road for a complete year. Now before we jump into today's presentation, let's get some terms correct here. We use the term renewable natural gas. That's the equivalent of biomethane, and you'll hear us often refer to it as RNG. So RNG is the term that we're going to use in this presentation. And for these purposes also, renewable natural gas is generated for from organic waste, and it does not compete with food and feed production. So we have a 2-part program today. For the first 45 minutes, you're going to hear about the sustainability focused regulation and the impact on RNG. And in the second half, you're going to hear about how RNG is escalating the decarbonization of the commercial vehicle industry. In this first section, we'll open up with some remarks by Jon Erik Engeset, who is our CEO. Then we'll be talking about the regulatory landscape in Europe, and then we'll also turn to some of the learnings from the U.S. Finally, we'll end with a -- this section with a panel discussion and Q&A from the audience. So we'll invite you to participate. And those of you that are online, you feel free to use the Q&A field in your -- on your screen to submit questions throughout the presentation. We will also include them in that panel or Q&A discussion. So presenting today here in the auditorium, we have with us, Jon Erik Engeset. We also have Ashley Remillard, our SVP of Legal and Government Affairs. Joining us also is Harmen Dekker, the CEO of the European Biogas Association. And then remotely joining us from the U.S. is Daniel Gage, who is the Secretary General of NGV America. So without further ado, Jon Erik?

Thank you, Karen. Great to see so many joining us here in the auditorium and many more, I hope, online to learn more about RNG, which we at Hexagon believe, is such an important part of the solution to the decarbonization of the transportation sector. As you can hear my voice is a little bit rusty today. Apologize for that, but I will be quite brief. So bear all with me. So we have some challenges. Of all the CO2 emissions in 2021, we counted approximately 20% came from the transportation sector. And of that, 25% from heavy-duty. So a very, very, very significant portion of CO2 emissions that need to be removed. And all forecasts indicate that the number of vehicles on the roads in Europe and elsewhere will grow over the next decades. So this problem is going to just grow and grow unless we do something quite radical. And unfortunately, we are not doing it yet. 97% of all new cars last year was diesel vehicles, all new heavy-duty vehicles where diesel. And I learned yesterday that in Europe, actually it went up from '21 to '22 by 0.5%. So we've talked about this problem now for decades actually, and with more and more intensity. And we're meeting at conferences and we have research institutes looking at what the solutions are, but we are not making progress yet. That's the bad news. The good news is that there are technologies that can address this quite efficiently. We actually believe, firmly believe, it is possible to decarbonize the transportation sector, the land transportation sector by 2050 if you apply the right mix of technologies and energy alternatives. And as Karen already mentioned, we, as the Hexagon Group, we've taken an agnostic approach. We count ourselves as the global leader in hydrogen technologies for energy storage. We have a major operation now in the U.S. for battery, for trucks. And we believe both of those will capture a significant sector. Some say that batteries, for example, May take as much as 20% of the heavy-duty segment in the medium term, and medium term defined until 2040. But that -- those 2 technologies will not solve alone the problem by themselves. And that's where RNG comes into the equation. And as you see from this slide RNG is, by any comparison, as energy source the most attractive alternative because it is carbon negative. It captures methane that today is flowing to the atmosphere. And methane is, in 100 year's perspective, 25x more aggressive than CO2. So that methane has to be captured regardless of what you use it for. But it is also a perfect alternative to use for decarbonization of transportation. And that's why we are so passionate about it. If we believe that hydrogen, for example, could capture all of the heavy-duty truck market, we might have gone in that direction, but we don't. We firmly believe there's going to be a mix depending on the geography, depending on availability, depending on the application of the trucks and several other factors. And we have been quite, at least me personally, have been quite impressed with how the EU has responded to the energy crisis, the measures that have been taken over the last 12, 18 months in response to the Ukraine war. In my opinion, have been -- my opinion have been very, very targeted. And part of that program is to increase biomethane from around 3.5 billion cubic meters in 2021, growing to 4 billion cubic meter in 2022, up to 35 billion cubic meters by 2030. That is a massive undertaking. And that is actually 5x more than the total biomethane production in the world in 2022. So it will be very interesting to see if they can reach that full ambition, but they are going to move very, very strongly in that direction. And we see the majors, Shell Goldman Sachs investing in Europe, BP investing correspondingly significantly in the U.S., and we could make that list of examples much, much longer. So in our opinion, there is not one solution that can replace diesel. And there is going to be a mix, and RNG in our opinion, is a very, very, very key component of that mix. And that is what we want to talk to you more about today.

Thank you very much, Jon Erik. So turning to what is RNG, we're going to be talking about it quite a bit today, but we want to kind of set the foundation for what it actually is. So we have a short video to present. [Presentation]

Okay, thank you. Okay. So to -- we know what RNG is now, but I want to highlight one of the most important features of RNG. And Jon Erik mentioned this earlier that RNG captures methane that would otherwise be emitted into the atmosphere. So the UN projects a 25% growth in the global population by 2050. The World Bank expects 69% more municipal solid waste by 2050. And then according to the European Commission, decomposing waste accounts for 26% of EU methane emissions. So there's -- we know there's a waste problem. We know that there's an emissions problem, and RNG helps solve the second one by using the first one. It is unique in that, and it is already part of the solution across Europe and North America. And as the video showed, depending on the biomass source, RNG has an 80% to 200% reduction in CO2 emissions on a well-to-wheel basis. So moving into the regulatory area, the landscape in Europe. I want to go over a few -- a handful of different regulatory regimes in Europe at the moment. RNG does retain solid regulatory support in the heavy-duty vehicle segment. And the first, I want to discuss is REPower EU, that was mentioned earlier. So this is the -- excuse me, the European Commission's plan to make Europe independent from Russian fossil fuels. The target is a 35 billion cubic meter of biomethane production in use by 2030. Today, the EU produces only 3 billion cubic meters. So this is a tenfold scale-up is a very aggressive target. This will require building approximately 5,000 new biomethane plants with an estimated EUR 83 billion in capital investments. And there's also the biomethane industrial partnership that will support achieving this target within the EU. There's also the EU taxonomy. And as a reminder, this is a classification system established to clarify which investments are considered environmentally sustainable in the context of the European Green deal. The aim of the taxonomy is to help investors make greener choices. And RNG qualifies as contributing substantially to climate change mitigation under the EU taxonomy. There's also the renewable energy directive called RED III. This is the legal framework for development of renewable energy across all sectors of the EU economy. And the new proposal RED III increases the target of renewable energy sources from 32% up to 40% by 2030, and it recognizes the decarbonization potential of RNG. And lastly, I want to touch on the advanced fuel infrastructure directive. So this requires one LNG refueling station at least every 400 kilometers on the TEN-T core network within Europe. As part of the Fit for 55 proposal that came out a couple of years ago, it removed the CNG target but kept the LNG target. And this is very meaningful because there's notes that the commission kept it specifically for the heavy-duty sector, recognizing the appropriateness of RNG and LNG for the heavy-duty and medium-duty sector. This was adopted by parliament back in October of 2022. So there's a, I think, over 600 LNG stations across Europe, making a very robust infrastructure, allowing for adoption of this type of technology. And with that, I'm going to turn it over to Harmen Dekker, the CEO of the European Biogas Association to talk about some recent proposals relating to CO2 emissions in the EU.

Thank you, Ashley. And also thanks to Hexagon for inviting me for this presentation. I'm trying to shed some light on what is happening within Europe. Europe can be extremely complex, and this presentation will prove that. So stay with me. So what has happened? Over the past 2 years, the European Commission has looked at how can we contribute as fast as possible to our goal to net zero emission by 2050. And as it was said already earlier, the transport sector is growing, not only growing in the number of trucks. It's also growing in the CO2 emissions. It's the only one sector within Europe, which is growing in CO2 emissions. So there is a large effort in trying to see if they can curb them. Now what I've done is they would like to have a 100% reduction of the CO2 emissions by 2035. And I'll come to that in a second, how they do I have already split it out and a few sub-targets, 55% reduction for the light-duty cars as well as defense for 50% in 2030. Now how do they measure that? And that is the curious thing. They do this on the tail pipe approach, meaning there shouldn't come any CO2 out of the tail pipe. So this would mean that 55% of the cars in 2030 should be a newly built should be, in total, have a reduction on the CO2 pound, leading up to 100% in 2035. That has been approved by the European Parliament in October. And so trying to make things complex. So the European Commission puts out a proposal that is being discussed by the European Parliament, then goes into the tri-lock between the European Parliament, European Commission and the member states. And that's where the next step is coming in. We are now in uncharted territories because, for the first time, within this process, Germany has said no way this is not going to happen. The ban on internal combustion engines by 2035, we do not agree with. So this is where we are. Germany said we are not going to underwrite this new type of legislation. We would actually -- and this is -- and it comes a little bit technical. We would like to involve also synthetic methane or synthetic fuels into this new legislation. So there will still be an internal combustion engine by 2035. Now when they started, Germany was a, as they call it, a blocking minority. So they blocked the new legislation for coming into force. Nowadays, they have mustered some more countries in their proposal. And the curious thing is that they now have a majority and population of Europe, saying the internal combustion engine cannot be banned. Why is this important to know? This was -- the previous legislation was about light-duty vehicles. The next step there the European Commission is already looking at is the heavy-duty vehicles. And this is what I put forward as a proposal. So while still the light-duty vehicles is being discussed, this is what the European Commission put forward. 45 emission -- 45% emission reduction by 2030, 65% by 2035, 90% by 2040. Talking with the manufacturers like e-vehicles, Scania, Volvo, they will say de facto. This means we will not invest in internal combustion engines whatsoever, which will mean there will be only diesel trucks coming up leading up to 2040. That means -- actually, that this law in our view is, slightly put, irresponsible. We are not going to make headway in reducing our CO2 targets. And put on top of that already what was said earlier, we think that 20% can be by 2040 battery electric vehicle trucks, we are not going to make the 90% effort. We are not going to get there. So why is this interesting? This proposal, which is now being put on the table by the European Commission is already under strain because the light-duty vehicle proposal is being blocked. What are the alternatives? European Commission is looking at this as a tail-pipe approach. We are saying, make sure that you look at this from a well-to-wheel approach, so you can allow auto fuels to be there as well. European Commission set in the consultation before they put out this draft regulation. To do this, we have to do the crediting system and it becomes way too complex. Actually, that's a political answer because it's more complex. It's already being done in other countries. So it can be done. So what we need to do is either go for a crediting system, either/or we put all the new fuels, including electric or hydrogen on the same level. For example, saying each station, which is there in Europe needs to be by 2040, needs to be 100% green. Just to give you something to think about, the IEA said in 2022, the green electricity production within Europe was 7%. Meaning that if that 7% is equally spread along all end users, only 7% of what is being used within the cars and the trucks is green. For CNG in Europe, that 17% is green, and it's moving up. In the States, I believe, it was 60%. So we have already an advantage. So by actually putting a proposal forward, which is increasing the amount of CO2. In transport, we are proposing to make sure that you use biomethane in the coming years. And looking at what is happening right now within Europe on the light-duty vehicles, we have a great window to see on how to implement this. Thank you.

Thank you very much, Harmen. Okay. So we're going to turn to key learnings from the U.S. So one of the kind of critical components that you mentioned was the credit system. So we'll get into some of the details of that. But first, I want to go over some of the positive regulatory landscape mechanisms in the United States that includes financial incentives and credit programs. So the first is the Fleet Inflation Reduction Act. You may have heard of this. It was passed back in August. The first part of it is an extension of the alternative fuel tax credit. This is a $0.50 per gallon fuel credit for the use of RNG as a transportation fuel. This has previously been retroactive, meaning that fleets did not know at the beginning of the year if they'd be able to take advantage of this credit uniquely in -- as part of the Inflation Reduction Act, it is prospective. Meaning that for planning purposes, fleet can now determine that at the end of 2023, they will, in fact, be able to take advantage of this credit. It was a big win for RNG in the U.S. The next part of it is the clean fuels production credit, so the alternative fuel tax credit will transition to this new credit program in 2025 through 2027. And this -- it's a technology-neutral production tax credit, and it's a dollar production tax credit for clean fuels. There's also the investment tax credit. And this is a new tax credit program, and you can see credit up to 30% for capital investments in qualified biogas projects. and that does include RNG divesters. So back from the video, the divesters at dairies and other agricultural facilities. And those construction must begin by December of 2024. The next program is the EPA Clean Trucks Plan. This is an emission-based standard. It sets the NOx standard. This was adopted back in December of 2022. It sets the NOx standard at 0.035 grams per horsepower hour. This has been at 0.5 grams per horsepower hour for probably the last decade, so this was a significant move from a NOx perspective. But most importantly, this is expected to drive up the cost for diesel trucks. The technology that you need in order to make diesel compliant with this, it's extremely expensive. We know some engine manufacturers already been going to offer a diesel option. This begins in 2027. So it's, again, a huge driver for adoption of natural gas vehicles. The last program is the renewable fuel standard. This is the credit system that we were mentioning that I think could be very informative for what -- for what transpires in Europe. These are credit programs driving production in use of biomethane. And I'm going to have -- I'll turn it over to Dan Gage from NGV America to get into the details of these types of credit programs in the United States.

Thanks, Ashley, and thanks to Hexagon for having me today. I want to highlight 2 particular programs in the U.S. that are accelerating the transition to renewable fuels: The renewable fuel standard program, or RFS; and the low carbon fuel standard program, or LCFS, which can also be referred to as a clean fuel standard program. They are both successfully lowering the carbon content of transportation fuels deployed in the United States, but the programs are different. The RFS is designed to specifically reduce greenhouse gas emissions by increasing the production and use of renewable fuels. It does that by requiring a certain volume of renewable fuel to replace petroleum-based fuel that's in use. It is a national program. It applies to all transportation fuels, both on and off-road. So fuels intended for construction, rail or non-ocean-going marine use, they do qualify. The RFS was created by Congress, and it's administered by the U.S. Environmental Protection Agency. LCFS programs are designed to reduce the well-to-wheel carbon intensity of transportation fuels. They are state-specific programs, and they apply to every on-road fuel, including fossil fuels but only on-road fuels. In an LCFS program, both conventional and renewable fuels compete. The first LCFS program in the United States began in California in 2011, and it's administered by the California Air Resources Board. Since then, the states of Oregon and Washington have adopted similar programs. Those are both administered by their state-specific environmental protection agencies. So what are these programs sort of individual focuses? Well, the federal RFS program targets the volumes or percentages of renewable fuel in our nationwide system. So those targets are set periodically by the EPA, and compliance is measured by the volume of renewable fuel used as a percentage of total transportation fuel used. In contrast, LCFS programs focused on reducing GHG emissions from the in-state fuel supply as a whole, and their compliance is measured by a fuel carbon intensity, not net volume. So under the RFS, biofuels like RNG or biomethane must reach a 60% life cycle GHG reduction threshold for the fuel that they are replacing. And in an LCFS program in terms of GHG reductions, they have a declining average that's set annually to every year for gasoline diesel and the fuels that replace them. In California in 2020, qualifying fuel pathways had to have a carbon intensity score of plus 90 or lower in order to earn credits. Next question is who's obligated to participate and how they comply? Well, petroleum importers, refiners and wholesalers are the obligated or the regulated parties for both programs. But under the RFS, compliance is achieved by blending renewable fuels into transportation fuel or by obtaining credits, and those credits are called renewable identification numbers or RINS, and giving credits allow you to meet an EPA specified renewable volume obligation. So one RIN is equal to the ethanol energy content of 77,000 BTUs. One gasoline gallon equivalent is equal to about 1.48 RINs, while one diesel gallon equivalent is equal to 1.7 RINs. Now under the LCFS, carbon intensity is expressed in grams of carbon dioxide equivalent per megajoule of energy provided by that fuel. And the CI takes into account the GHG emissions associated with all of the steps of producing, harvesting, transporting and consuming a fuel. So it's really the complete life cycle of the fuel. Fuels and fuel blend stocks that are introduced into that state fuel system that have a CI higher than the benchmark, well they generate deficits. And similarly, fuels and fuel blend stocks with a CI below the benchmark, they generate credit. So annual compliance is achieved when a regulated party uses credits to match its deficits. And so theoretically, an LCFS program lets the market determine which mix of fuels will be used to reach the program's targets. Now both programs have supported the expansion of domestic biomethane production, or harvesting as I call it, for use here as a transportation fuel. In 2021, 64% of all natural gas motor fuel dispensed nationally in the U.S. was derived from renewable sources. In California alone, that number was 98%, and that's due to RFS plus these LCFS incentives. California fleets that fueled with bio-CNG in 2021, they achieved a carbon negativity -- they achieve carbon-negative really, for the second full year in a row, with an annual average CI score of negative 44.41. That's lower than any other fuel and the only carbon negative outcome mix in the entire LCFS program. Thank you so much for having me, Ashley, back to you.

Thanks, Dan. Okay. So just to kind of summarize all of the speakers' messages today, decarbonization of the heavy-duty transport sector must begin now. We recognize that there is no one size fits all clean energy solution. We are fuel agnostic, and there will not be in the future. But the path to decarbonization can be accelerated immediately by targeting the high-emitting, long-haul heavy-duty transport segment. And RNG solutions leverage technology, infrastructure and an energy source that is readily available today. There's a lot happening on the regulatory landscape, but it's all supportive of RNG. And I think it should be seen as a very viable technology to achieve decarbonization as soon as possible. And with that, I'll turn it over to Karen to begin the panel.

Thank you. Okay. And thank you, Jon Erik and Harmen for joining us. And then also we should have Dan also on the screen. Perfect. Thank you. So we will take questions from the audience, but I'll begin first with a few that we think might be what's on your mind. But I'll start with you, Jon Erik, if I may. What do you think is the most important factor in facilitating RNG market growth in the EU?

Now we've just seen the example from the U.S. I think the big difference there is the credit system. I think the reason why the Europeans are focusing on tail pipe emissions is because it's the simplest way of measuring, but it is not the right solution. To get a well-functioning well-to-wheel alternative to work, you need also a well-functioning credit system. So that's the one to focus on. And I hope we can learn from the good experiences in the U.S. and copy as much as possible of that.

Thank you. Harmen, you mentioned the coalition of member countries that has the potential to block the light-duty ICE ban or the I-C-E ban. What happens next? Is there a new proposal under development? .

This is a crystal ball. What has happened next is they have blocked it. So the European Commission officially really should start again and redrive the legislation. But that's a period, of course, for another 2 years maybe. So what they are trying to do is to see if they can satisfy Germany. So the first proposal they have put on the table right now was to allow for synthetic fuels to be there. And actually, there was a wipe off the table by Germany. They did not agree. And actually, Italy is now preparing to include in the proposal biofuels, including biomethane. But what happens, I do don't know. We'll see. But at least it's positive.

Stay tuned for more. Exactly. Okay. Great. And Dan, also, we have a question for you. Do you believe additional RNG support schemes will be announced in the future? Or are the current regulations sufficient to stimulate the RNG market growth? .

Well, Ashley mentioned the tax credit that's a $0.50 per gallon credit that is -- that continues through December 2024. But we're also working on a $1 per gallon RNG tax credit, it would be specific to biomethane. And it has been already introduced in the previous congress. We're in the process of currently reintroducing that, and it would be very similar to what the biodiesel folks already get. So we're very hopeful and very bullish that this year, we'll get that $1 credit introduced. And that would, again, just be another layer on top of the RFS and the LCFS states. These would be stackable credits for fleets that obviously transition to RNG.

Okay. I think we had a little difficulty in the sound, but I'm hoping that -- Ashley, was there anything you want to emphasize?

I guess just to reiterate, so it's an RNG specific tax credit. So the alternative fuel tax credit that is in place applies to technologies beyond RNG. But what's been introduced is an RNG-specific tax credit that is $1 that's running through the legislature right now. I think we could more or less hear what Dan said, but to clarify.

Fantastic. And hopefully, we can solve the sound problem. We also have a question for you, Ashley. [Operator Instructions] Ashley, we know that California is at the forefront of enacting legislation that reduces emissions. Can you describe briefly what's happening and how that is driving adoption of near zero or below zero technologies?

Sure. So there is a lot happening in California. But the one I guess I'll focus on is what's referred to as the Omnibus Rule that it sets the -- so I mentioned the EPA Clean Trucks Rule that sets the NOx standard at 0.35 grams per brake-horsepower hour . So in California, we have something a little bit different. It's called the Omnibus Rule, and it sets the low NOx standard at 0.05 grams per brake-horsepower hour in 2024 and 0.02 grams per brake-horsepower hour in 2027. So it's actually more aggressive than the federal standard. And what that's going to do -- I mean, I mentioned that some of the engine manufacturers aren't even having a diesel option. And particularly in California, they're just only going to offer natural gas in order to meet those requirements. So what it's going to do is spur investment in R&D trucks in the near term, which will help again achieve that decarbonization faster.

Excellent. Okay. I do have one question here. I think this is probably for you, Harmen. We've heard about the credit system in the U.S. Are there any in the EU? And what is the status of the credit programs in the EU?

Right. Within the EU, we do not have a credit system. So the EU has not put anything out. However, of course, the EU consists of a lot of member states, so each member state can define their own rules. So to pick out 2, you have the credit system in Germany, GHG quotas, which is driving a lot of the bio-LNG for the heavy-duty trucks at this very moment. So almost all the bio-LNG which is being produced now is going into Germany. But the U.K. recently has put in also a credit system for the transport. So they are recognizing actually the importance of biomethane.

Excellent. Thank you. Do we have any questions in the audience here in the auditorium? Okay. Well, Harmen, I'm going to throw one more your way. Demand for biogas and biomethane is set to grow from 3 bcm today to 35 bcm by 2030. Is there sufficient capacity growth to reach this goal? Who are the companies construct -- this is long, constructing the biogas digesters who will finance and own them? And what is in it for the farmers.

All right. If I don't answer them all. So first of all, the target is 35 billion cubic meters by 2030. The total potential as we have mapped it out for Europe is at least 150 billion cubic meters. With that, we will be able to between -- depending on the total natural gas supply, it will be about 50% of the total gas supply. And actually, we have some extra on top of that, we are still trying to define. But together with hydrogen, we will be the 2 major renewable gases there. So with regard to the feedstock, we do not see a problem for 2030 for -- to produce the 35 billion cubic meters. Then the companies were stepping in, actually, this was a market for the SMEs before. And we see Jon Erik also showed it already, the real oil majors are coming in. Large companies are coming in. So investments are going up very, very quickly. Only in the recent months, this was more than [ 3 billion ] within Europe. And we are actually mapping this out within the EBA, so we are coming out with an investment outlook in the coming months as well. Then with regard, I think it was the farmers? All right. So with regard to the farmers, they will have a crucial role because the largest potential to produce biomethane or sustainable biomethane is coming from the agricultural sector. So we see already a lot of farmers are teaming up to make biogas plants together. We see also that the smaller biogas plants will not be there, or lesser so because we need to professionalize and have some larger plants to meet the goals.

Excellent. And we do have another question from the audience. We have -- yes, we have one here in the room. So we'll bring you a microphone, and then we'll move to the -- thank you.

Thank you. Very interesting as always. But one of the big problems in Europe now is gas supplies. And isn't it logical that EU doesn't want to add more demand on gas and want to use all the RNG they can to meet the existing natural gas demand, such as warming houses and allowing people to prepare food, et cetera? So I appreciate longer term. But one of the differences between Europe and U.S. is abundance of gas in the U.S. and the desperate shortage of gas in Europe. How does that affect -- how do you think it will affect, sort of, the development in the next couple of years?

I can at least start and maybe you can jump in. But it was -- we actually discussed this question is why is it best suited for the transport sector. And I think the key is the decarbonization and the replacement of diesel. And that's what, on a one-to-one basis, taking a diesel truck off the road and replacing it with a renewable natural gas truck will achieve decarbonization faster and more efficiently with that -- with the use of that gas. . We'll probably be talking about that exact issue in the second session, but that's kind of the highlight is that it's the removal of the diesel that makes it so well suited for the transport sector.

Maybe indeed, I can add true we are going to replace natural gas or at least part of that, the natural gas stream, which is coming on. But the natural gas is being used currently already in transport and is being used in industry and in the housing. So we have a pathway for in front of us to make sure that, that is being filled by green hydrogen and biomethane, but it will still flow in every end-use sector. And just to give you an example on why gas is so important and is still being [ seen it ]. If you look at the electricity infrastructure, where we need to put some extra money in to make sure that we can electrify as much as we can, it will cost towards 2030 within Europe, EUR 0.6 trillion, EUR 584 billion, that's the forecast to actually make the infrastructure ready. Whilst for gas, we have it. So we only have to inject it and go for it.

Jon Erik you had a comment?

Harmen really covered it because your question is an excellent one. But there are 2 -- at least 2 parts of it. It is the availability of the energy and the energy carrier and then it is the distribution. And in addition to solving the shortfall of gas with Russia being out of the market, there is also this massive infrastructure build out needed. And to build out infrastructure, to service transportation is extremely costly. So -- but I think it's a fair remark. And I'm not sure if there is this really, really hard evidence available. But that is part of what needs to be presented to justify that transportation, among other hard-to-abate sectors, is disserving the allocation of biomethane to solve its decarbonization challenge.

Excellent. Okay. We have time for one more question. I do have a question from the online audience. And I think all three of you could probably answer, but how about the available filling station infrastructure for heavy-duty trucks to run on RNG in Europe. Can you comment on that?

Sure. I guess we can go down the line again. But -- so I mentioned the advanced fuel infrastructure directive. That has been in place for -- when it comes to LNG filling stations, for several years. So the fueling infrastructure is there. It's in place. I think there's over 600 stations. The longest distance can be 400 kilometers. They retained that goal. It has to be achieved by 2025. So both from a regulatory perspective, the requirement is there. But also it just has the prior kind of regime that was putting that in place that filling stations are, in fact, there, and the infrastructure to support them is available for RNG right now. And RNG is a drop-in fuel for -- with CNG trucks. It's just -- the trucks that are serviced by the LNG stations now can continue to be serviced with RNG as well.

Any further comments? I think we'll put a pause there and thank everybody for participating in this first session. So thank you very much. And to please stay tuned, we'll be back at 5 minutes after the hour to start on the second session. So those of you in the studio audience or studio audience -- in the audience here can also refresh your coffees and get some snacks outside. Thank you. [Break]

Yes. Can you hear?

Sure. I could hear Dan. It was a little scratchy, but he came through okay. Okay? Says you'll be back in 12:05, but your clock is not running. Testing 1, 2, 3. Okay.

Welcome back to our RNG and regulatory roundtable. We've just had a good session with good discussion. -- in part 1 on regulation in the EU and also what we can learn from the U.S. And now we're going to move on to the case for renewable natural gas and transport. And from a commercial perspective, how is RNG accelerating the decarbonization of the heavy-duty truck industry. So today, we're going to cover the most -- the cost-effective and scalable renewable solution for heavy-duty transport. Then we're going to talk about the heavy-duty landscape and the technology in that landscape and the demand for it. We will have the unique pleasure of having also a fleet perspective. We have a gentleman joining us, who's formally with UPS that will talk to this. And then we will have a Q&A, which will be led by Thomas Ness, who's the equity researcher at SpareBank 1. And then we'll wrap it up with some closing remarks. So first up will be Eric Bippus, our SVP, Global Sales and Marketing for Hexagon Agility. Then we'll be joined by Mike Casteel, who is the UPS Fleet Procurement Director, who's now retired and then Thomas Ness, who will join us and leave the Q&A session, the panel session at the end. [Operator Instructions] Okay. And so I will turn it then over to Eric.

I'm really excited to be here, really for a couple of reasons. Number one, to -- just the passion that Jon Erik showed to open up the first session in regards to how we believe, at the Hexagon Group, we have a great solution, multiple great solutions, not just for in the future, but today, but more importantly, I'm really excited that Mike's going to be joining us today to give you that fleet perspective. It's one thing to talk about our technology and how we believe it can fit in the space. But to understand how fleets are deploying it, not as a new science project in dozens here, but in thousands over a 10-year period. And we know that this can be recreated and is. So before we get to Mike, I'm going to share some facts with you. You've seen a bit of this today, but there's some real importance of this. Number one, we know we've got a 2030 target that's looming out there that we've got to reduce emissions by 30% or maybe even the proposed 45% that Harmen shared earlier. We also know that the transportation sector, specifically the heavy-duty transport sector, are very high emitters. And every year, roughly in the EU and in North America, about 330,000 new heavy-duty vehicles go into the marketplace. And astoundingly, as Jon Erik pointed out, from '21 to '22, in the EU, the share of diesel actually went up. So as we get closer to 2030, we're going in the wrong direction. So looking at the transport modes in the European sector, if we exclude maritime and aviation and focus on road transport, roughly that 20% of total global emissions, 73% of it is road transport. If we focus on that heavy-duty segment and why do we want to focus on that, of the 70 million trucks that are on the road in the EU today, 330 roughly new ones going into the market every year, they are, without a doubt, on a per vehicle basis, high emitters. There's 290 million passenger cars on the road. So far more, however, on heavy-duty truck has the equivalent annual emissions of 20 passenger cars. It's also very difficult to solve from a technology standpoint this heavy-duty space. It's high payload. It's long-haul applications, high energy requirements that you have to package onto the vehicle. So as you go to cleaner and cleaner energy and lower and lower energy density, it can become very, very challenging. So what we want to do is establish, number one, as we talk about technologies that we're using in North America and deploying in mass, is it even feasible to do it in North America, and we've shared a bit of that already today. But let's kind of quantify what we have from an energy consumption requirement for Europe. In Europe, if you took the entire commercial vehicle park, heavy-duty truck, medium-duty bus, it's roughly 1,100 terawatts of energy demand in a typical year. Is there enough RNG available in the market? Absolutely. As we know Europe is going to ramp tenfold where they're at last year from 3.5 BCM to 35 by 2030 in biomethane production. There's sufficient biomass available to cover the entirety of the energy demand of this commercial vehicle space. Now we're not saying the entire commercial vehicle space someday will be covered by renewable natural gas, but the biomass available, the waste product is available to be converted. So that's not an issue. You've seen this graph already, and this is a representation of a Class 7 truck in the European market and the well-to-wheel savings that you have from an emission standpoint. So diesel being 663 grams per kilometer for a truck, you see RNG for manure, a negative 745, or if it's from other RNG, could be wastewater, could be landfill waste, could be crop waste, as low as a positive 147. So roughly that window of 20% to 200% improvement. For a fleet to deploy it, not only do we need the fuel to be available and available now, they got to fill their vehicles up. So when we look at the North American market, Ashley shared with you and Dan shared with you earlier today, that 64% of the pipeline gas that's used in heavy-duty transport in North America today is renewable natural gas. There's 1,500 CNG filling stations and 115 LNG. And with another 15 and 35, respectively, planned. Europe is actually growing faster than North America on an annual basis, 634 LNG filling stations for heavy-duty truck, and there's a big difference between filling stations for light duty and heavy duty, heavy -- these are designed specifically for heavy-duty truck, which is a 200% improvement over the last 2 years with plenty more continued. However, pipeline gas today is at 17% and growing and with the ramp-up plan, getting to 35 Bcm, we're confident that, that will continue to grow. There are 100% RNG stations. The U.K. has done a good job with some incentivization schemes, as Harmen talked about, to drive RNG behavior in the U.K. market. So you can find stations in the U.K., Sweden and the Netherlands that are 100% or 90-plus percent RNG availability. So let's talk about platforms. As you're a fleet, it's one thing to be supplied by a cottage industry. If you buy a truck, you deploy it, invariably, it's going to break down, you need to service it. It's really important for fleets to be available to get the technology from OEMs. And when we look at CNG in the European market and the North American market, there's over 100 CNG platforms that are available today from 15 different OEMs, Scania, Freightliner in North America, Kenworth, the PACCAR Group, IVECO, [ indiscernible ], Volvo and more. However, as we talk about our fuel-agnostic approach and we look well into the future, we believe that from a solution standpoint, as we talk to fleets and consult with fleets, there's many applications that are suitable for EV and for hydrogen solutions. And it starts at the lower range where you have -- and we'll talk about range. But certainly, from a medium-duty standpoint, a city truck, a package car. And we're already seeing the European market has done a very good job on transit. We see about 12% to 13% share of BEVs in city transit today, and we expect that to grow significantly. Oddly enough, CNG continues to grow in the transit market in Europe, taking those longer-haul routes and taking diesel out. So diesel has been eliminated significantly from a transit standpoint. So let's look at Range technology. If a fleet has to acquire technology and then radically alter its operation, that's cost, that's a problem. There's all kinds of issues around that. Some of that is I have to deploy more trucks to cover the same route miles. I need more drivers. That's more cost in addition to the truck. So looking at the heavy-duty space only, not medium-duty and lighter ones, and we look at BEV solutions today, based on a 660-kilowatt battery pack, you can get about 450-kilometer range. The line that you see on the right-hand margin would be your typical diesel truck with a high-energy density diesel system can easily get 2,000 mile range. So you can see you're not close today, not to mention the infrastructure issues. Hydrogen today -- you can get up to 600 miles. There's a directive out right now to extend the length of trucks in the European market, which would allow for a back-of-cab system, which will allow in the future to potentially get 900 kilometers of range. LNG today can easily get 1,900 and some applications, even 2,000 kilometers of range. Now you're getting into the diesel space, while you see adoption of LNG prewar at significant volumes, like 10,000 units per year. And then CNG taking advantage of the back-of-cab system can get to that 2,000 kilometer range as well. However, today, typically CNG systems are limited to 700 or less in the European market. So from a range standpoint, in the Europe fleet wanting you to adopt today, you're focused on 2030 targets and hitting that, there's really only two solutions right now, LNG and CNG for the European market. Switching over to North America moving over there, a lot of excitement in North America. We've had great adoption of compressed natural gas systems over there. It tends to be more compressed versus liquid. A significant uptake on renewable natural gas at 64%. And Ashley mentioned earlier that actually California is 98% of the gas that comes out of the pipeline for the transport sector is renewable. The exciting thing is, today, we're only pursuing about 100,000 of the heavy-duty trucks in the North American market because there's a limitation on engine technology, nonfuel storage, not elsewhere, but an engine technology. Cummins is releasing a new engine in late 2023 for the 2024 selling season that will allow us to go after the entirety of the 330,000 average vehicles that are sold in that market per year, and that's the extreme long-haul applications. This is a higher horsepower engine, significantly more efficient. So we're very excited about that. So with that, I'm going to switch over to Mike Casteel, UPS, to talk about what they've done over the last decade. Mike, over to you in Atlanta.

Thanks, Eric, for the introduction. UPS is a global logistics company serving 220 countries and operating over 120,000 vehicles worldwide. As a director of fleet procurement for UPS, I was responsible for all fleet purchases in the U.S. and Canada. As with all transportation companies, we are always working on ways to reduce fuel usage and cost. UPS has a history of testing alternative fuels and vehicles. They often refer to it as a rolling laboratory. Often, this testing coincided with high fuel costs and high oil costs. When deciding to evaluate and deploy alternative fuel technology, our first consideration is to determine if the technology fits the operation and can do the job that is required. The truck is a tool used to do a job, and the job comes first, but we also had our sights set on longer-term financial implications. Ultimately, any fleet technology must be technically feasible for the operation and also be financially sound or at least have the potential to eventually become so. Over the years, UPS has tested natural gas, propane, electric and hybrid electric vehicles at various times. Typically, this would be focused on the medium-duty delivery fleet, reason being that's where the technology was being made available in the industry. That all changed in 2012 with the introduction of the Cummins 12-liter dedicated natural gas engine. For the first time, an alternative to diesel fuel was possible in a heavy-duty application that offered substantial displacement of traditional fuel and the technical performance necessary for operational compatibility. We began testing the heavy-duty natural gas tractors in 2012 with Agility Systems and the Cummins engine. We demonstrated the ability to drive 600 miles round-trip without refueling, which is a key metric to enable a seamless introduction into many of our operations. From the start of the pilot test, it took only about 6 months to get approval from senior management to move ahead and to begin to expand the natural gas fleet. For UPS, a normally risk-averse company, that short duration from pilot to more robust deployment was an unusual move, but the business case was solid, and it offered potential for widespread adoption of an alternative fuel that was both environmentally and economically sustainable. The financials were fairly straight-forward. There's an upfront investment, which includes the cost of the truck over diesel and the cost of the fueling infrastructure, which is private natural gas stations installed at UPS sites. In 2013, natural gas provided about a $2 per gallon savings versus diesel fuel. So these projects goals were to maximize the asset utilization of the trucks and the stations. The more fuel that ran through the fleet, the greater the savings. Using around 20,000 gallons per year per truck, the fuel savings provided substantial positive cash flow to recover the investment within an acceptable time frame. UPS keeps their trucks for the life of the vehicle, and the natural gas stations are about 20-year assets. So once the fuel savings recovers the initial investment, these assets continue to provide substantial cost savings for many years. Since the initial two deployments in 2013, the UPS natural gas fleet has grown from those two stations and 120 trucks to over 60 stations and over 4,000 heavy-duty natural gas trucks and over 6,000 medium-duty natural gas trucks, and UPS continues to add vehicles in stations each year. The price gap between diesel and natural gas has fluctuated over the last 10 years. But today, it remains significant, and in some areas still exceeds $2 a gallon. Aside from the positive financial case, UPS recognized the environmental advantages provided by lower emissions of natural gas. Today, there's even more focus on sustainability, not just for UPS, but for any fleet to consider. And many companies have set aggressive sustainability and greenhouse gas reduction goals. At UPS, the sustainability goal today is 40% alternative fuel in our ground operations by 2025 and overall carbon neutrality by 2050. Natural gas is less carbon-intensive than diesel fuel. But fossil natural gas is not going to move the carbon reduction meter by itself. Renewable natural gas, however, is. And a key fact is that all CNG vehicles and infrastructure are completely compatible with RNG. For heavy-duty fleets, from well to wheel, RNG is the only alternative to diesel that has the potential for significantly reducing carbon emissions while also meeting financial targets and operational demands. And it's low risk. No other technology is even close. In closing, in today's environment, deploying new, not-yet-proven technology requires an appetite for risk and significant investment. Cost of cash and capital are increasing. New technology needs to fit seamlessly into a fleet operations and it needs to eventually deliver a positive return on investment. From a fleet perspective, no alternative fuel or technology is truly sustainable unless it is economically sustainable. RNG offers positive total cost of ownership. It significantly reduces CO2 emissions from transportation as well as harmful methane emissions. The technology is proven. The infrastructure is well developed, and the technical aftermarket support is in place. For UPS and many other fleets, the adoption of RNG by all measures is just good business. Thank you.

Thanks, Mike. I should probably stop talking right. That was a pretty powerful message. But to recap and summarize a bit here, we've identified that the highest carbon abatement potential is renewable natural gas today. We've identified that is the best performing from an energy choice. We have the technology out there. We can get the 1,900 kilometer range for North America. And Mike mentioned that when CNG technology in North America hit that 600-mile range, now fleets could operate the technology and not disrupt their current activity. It's got great infrastructure. Europe is doing a great job on the LNG filling stations the fact that continues to grow at the pace that it is, is very good. You have a very long range between the LNG station. So a 400-kilometer target between filling stations will suffice for the European market. And we know there's sufficient biomass available to hit that 35 Bcm goal in 2030. Mature technology. I can't tell you enough how important this is to have that many platforms available from that many OEMs gives the fleets a high level of comfort of being able to deploy it, but also keep the product on the road. And then finally, in addition to the one that I started with, in regards to the carbon reduction, it's got to pay out. If this needs to continuously be funded indefinitely, it's never going to work. And we've just heard from Mike, from a UPS perspective, by the way, which I looked this morning before we presented, they have the highest earnings of any courier in the world, and they go back and forth. We've seen them at FedEx at who's the largest. They typically don't get it wrong. So why are we excited about the future? We're very excited. You can see from a North American perspective. We absolutely are on the beginning of a curve that we think with the new technology in Cummins and the 15 liter and being able to access an additional 230,000 heavy-duty trucks. They're dying for a solution to fill that the growth potential is significant. In the European market, we're confident from an LNG perspective, biomethane production increase, the lengthening of the chassis to allow for back-of-cab systems. That's going to be a great advent for CNG. In a base case scenario, 2, 3x growth, but we're really looking at the 5x growth out to 2030 as we get closer to that 2030 target of 30%, maybe even 40% reduction. That's still only less than 20% share of the overall park. And going back to our multi-fuel agnostic approach, there's multiple clean energy choices that are going to have to take diesel out of the marketplace. This is a picture that gets 20% of it out on renewable natural gas. How do we fit into it? So from an enabler of RNG production, not just from getting a stranded RNG production site, we have our Hexagon Agility Mobile Pipeline units that we have, both for Europe and North America that take it from point A to a fixed pipeline, potentially a gas filling station or our mobile refilling units that can either fill industrial applications, but more than likely, commercial vehicle applications, which are also equipped with our CNG and LNG product from a natural gas standpoint. It could be transit, could be heavy-duty truck, could be refuse applications. And once again, this is not start-up technology. Over the last decade, we -- today, we have 70,000 vehicles on the road, and we put 100,000 vehicles on the road over the last 12, 13 years. So this is not a new technology. It's very mature. There's service networks in place to support the fleets in their activity. So you can see why we firmly believe that today, this is not a future thing. Clean Air Everywhere is certainly achievable. Thank you. With that, I'll invite up Thomas Næss.

Thank you, and thanks for a great presentation. I've been following Hexagon for the past 2 years, and it's super exciting to see the traction RNG is really getting now. And it's super exciting to speak with you, Eric, especially because you're agnostic to technology. You've been selling battery systems, fuel cell electric vehicle systems and also CNG, RNG. Can you take us through the process how you choose technologies with your customers?

Yes, sure, sure. And then I'd like to hear from Mike as well. Typically, a fleet that we would approach, we always go to the end customer first, to get voice of customer to say, okay, what is your fleet pattern? Do you have a multi-mode operation you're hauling long haul across the country? Or are you more of a city route application where it's relatively shorter haul applications. So one of them is the usage pattern, the type of operation that they are. And very often, they have multiple. So there's multiple solutions. The other thing is geography. There's different fuels available, different infrastructure available in different geographies, which is another reason that we have an agnostic approach. But typically, we'll try to match the technology, its readiness to what their pattern of usage is. Today, the bulk of what we saw from a revenue standpoint is going to be the compressed natural gas in the heavy-duty long-haul space. Mike, maybe you want to elaborate a bit on how you pick a technology for the various usage patterns that you have.

Yes. It's -- UPS, we're not really choosing a technology as much as we're using everything. I mean UPS uses electric vehicles also. The application is the key to it. And it got to a point where the natural gas fleet was no longer experimental. It just became routine. I mean when we could fit the infrastructure and the fleet, the combination of those things, when they come together in a certain location. And we're a return to base operations. So we're able to use those stations exclusively. And so we -- and we can predict exactly what our fuel usage is going to be over a long period of time. So when we're choosing a technology, we're basically just looking to see, is this going to work? Can I do the job with this technology? And can I make the financials come together? So in a Class 8 world today, there is no other option. Everyone is testing electrification with -- in heavy-duty applications, but it's in its infancy. For us, natural gas has become -- it literally is routine.

Do you ever think biomethane can help protect some geopolitical influences and flip trading energy prices? I guess this is a question to all.

Yes, yes, that's a challenge. It's certainly different for each market. Mike mentioned it earlier. In the United States, we've been blessed with a lot of natural gas supply. So our price of natural gas has been very steady over a 10-, 15-year period of time. You see high fluctuations in diesel price, very much tied to the commodity price. Europe is a different scenario. Certainly in the last 2 years has proven that. However, Europe has recovered phenomenally quick and got that spike that took place about a year ago has come back down, not down all the way where it was, but the reaction of the world to support the European market and the European markets change, it was really quite astounding. Mike, do you have any thoughts on the stability and/or fluctuation of diesel price in your operation?

Well, that was actually one of the key factors that started this journey. When the hydraulic fracking technology became mainstream, it became apparent to some of us that the price of natural gas is going to be very, very stable compared to oil-based fuels. So it was almost a captive fuel in the United States. It's difficult to export. So they've made some strides there, and they're exporting LNG today to a greater extent. But there's still a lot of stability. Plus the natural gas market is very accustomed to leveraging or levelizing pricing and buying fuel on a forward market. So a fleet that wishes to budget, it's actually easy to do that in a natural gas world. You can do it with diesel fuel, too. It's just -- it takes a little bit more sophisticated trading mechanism, but natural gas, everybody does. I wouldn't say everybody does it. A lot of fleets don't. We didn't, but we could. And any fleet that wishes to, it's really a phone call.

And you highlighted it already, but the new Cummins motor is coming. You showed us the base cases. How do you close to the kind of the industry see that unfolding?

Yes. And then I'm going to David and how we're getting ready for it. But yes, it's certainly -- we've been waiting for this to happen for a while. It opens up, not to get too technical, but today's 12-liter caps at about 400-horsepower. When you get into those other 230,000 Class 8 vehicles, those are the big American sleeper cabs, they require 430- to 500-horsepower to do their job efficiently. It is now exposed that entire market to natural gas solutions. So as we look at that ramp up in growth, we're excited for it. The industry is excited for it. But because of the infrastructure that's in place there and the dealer network that's already well developed, that side of it is very good. I don't know if you want to comment on our operation and readiness?

Sure. Well, we've been actually on a rolling program of expansion in Agility since 2019 when we took over Agility 100%. And I'm proud to say that we've already, you can say, forward movers in that. We've sunk a lot of investment already. And I would say, point to two major expansion programs. So one fully sunk, and that was to transfer heavy-duty cylinder production to Europe, European footprint. What that does is then free up a lot of capacity in the U.S. And then combined with actually additional capacity investment. This is the cylinder capacity now in North Carolina to complement our factory production in Lincoln. Together, combined, those effects will be at least 80% increase. And the good thing is part of that U.S. deployment is also a footprint. So the marginal cost of further investment beyond 2025 is quite small because then we have the footprint, and it's a question of just deploying a few winders whenever we need. So it's quite scalable, very well prepared.

I think we can now open up for some questions from the audience and also remind that questions can be asked online. Are there any initial questions? Okay. I think I can ask a follow-up question then. On the increasing volatility seen in natural gas prices, I mean we talked about the positive size of demand, but obviously, in Europe, prices have been very, very fluctuating. Do you see any kind of reduction in demand due to that? Or is it decoupled from kind of RNG, CNG?

Well, there certainly, in 2021, in the first part of 2022, we did see a reduction in natural gas vehicle purchases, almost to the point of zero in the marketplace. That's bouncing back significantly now as we see it coming back down. And the one thing that hasn't really been effective -- affected is the production of biomethane. So renewable natural gas, that's actually stable. It's not dependent upon foreign supply. It now needs to be accelerated and accessed more. So that's been stable. And it's made it actually quite more attractive as the price of brought in or imported natural gas is higher now. So that's one bright spot from a renewable standpoint in levelizing the Plainfield bid.

I can add. We were pleasantly surprised because we're a little bit concerned on the '22, especially going into there. But where it was a $35 million revenue book in '21. We actually closed around $32 million. So it's actually been fairly very robust. So just to add that.

Yes. And if you look across your portfolio, you're focusing on energy storage, primarily through gas, not only. What's the rationale behind that?

Yes. So if you go back to the DNA of Agility and Hexagon, it's been containing energy whether today, as we stand agnostically, containing energy could be a battery pack. It could be a gaseous form, whether it be hydrogen or compressed natural gas, continuing at a very compact, lightweight, cost-efficient package and delivering that energy to a method of propulsion. It could be a compressed natural gas engine, it could be electric drivetrain, could be a fuel cell. So our DNA has been packaging the energy, working very closely with OEMs so that we can integrate the technology very easily versus commoditizing our product and giving pricing away and allowing the OEM to be dependent upon their own engineering resources. So we've been very active in integrating with OEMs. We've been very active working with fleets. Before we've been work with the OEM to make sure that we understand, okay, what is your usage pattern, will this work? And then the fleets such as UPS have been very helpful in pulling our technology through the OEMs. The packaging of the energy, get fleet validation, that validation work allows us to have credibility with OEM and the OEM factory installs the product.

Very good credibility, I would say, as we have the full clean portfolio. So I think UPS is probably a perfect example of that. So we started in Hexagon, as you know, from a cylinder technology perspective with agility and other streams, we're a systems and full solutions provider. And then also why we're a little bit unique is that we also have the digital platforms coming through. So Hexagon Digital Wave will provide also in the automotive space and the distribution space, an additional reason why you should come to Eric for your solution.

And not to mention the Mobile Pipeline storage of energy getting stranded gas, which is really popular right now, getting that to a pipeline somewhere. So certainly seeing a lot of growth in that as well.

Yes. We've got any question here on the expectations of bio LNG prices for the transport sector going forward. Will it be or remain cost competitive with diesel?

Well, I wish I had -- going back to Harmen's words. I wish I had that crystal ball. It's hard to say. I mean to prognosticate where it would be in the future. Like I said, the one interesting dynamic we're seeing in the European market is the biomethane production cost hasn't gone up. It's the same. It's just that it's now much closer to the available natural gas price because a lot of that's now LNG. I'm going to stop short of trying to project what the future would be on pump price and LNG. But I will say this, we're very surprised at two things. Number one, the amount of CNG transit business that has been maintained in the forward-looking order book that looks strong. So there hasn't been a shy away of saying, okay, we're going to move away from diesel and continue to order compressed natural gas. And then we'll once again, how it came down very quickly.

Again, I think you heard the comments earlier, well to wheel as well versus tail pipe. So a good credit system will go a long way as well.

Thank you. Excuse my ignorance, but I don't know much about the American trucking market. And -- but watching TV, I understand that there are a lot of independent truck owners or tractor owners. So in that, could you just try to share how that market works? Because I presume that a pretty decent fraction of those 300,000 trucks a year are owned by, say, single truck owners or very small fleets. Is that an addressable market? Or should we think about some adjustments here in terms of what the actual addressable market really long term could be? Any color will be appreciated.

Yes, yes, that's a good question. Mike, maybe you know better the split, I'll kick it to you for the second half of the answer to the question, but that is a market that is very much not being addressed by compressed natural gas today. It's typically that long-haul sleeper. They've got a house on the back of the truck, and they're literally driving from New York to L.A. Very long. So the technology available with today's 12-liter and yesterday's 12-liter, will now be solved with the 15-liter one. So now we have a chance of going after that portion of the marketplace. And it's very cost sensitive, right? They're looking at ROI, they're looking at price, they're looking at trying to be competitive with the large fleets. So we're very confident that the value proposition will resonate very much with what we call the small moms-and-pop fleets that are really struggling to go to the big guys like -- I won't mention, Mike, but it is certainly a market that we're not serving today whatsoever. So the 15-liter solves that. Mike, any comments on the mix of the independent truck park in the United States and fleets versus the LTLs and the couriers and what you think the uptake would be?

Yes. It's a more difficult market to address. The fleets -- we were able to do this in -- to a large degree because we have such good control essentially over what our operations are doing. So the 15-liter is going to make a difference. So the 12-liter worked for us. We don't typically carry 80,000 pounds. So we didn't really have any trouble with the power of the 12-liter. The 15-liter will be even better, but it will address a lot of these use cases, truckload, and the less-than-truckload carriers that do need that 15-liter. That's where the opportunity is first. I think that will prompt though some of the smaller fleets and owner operators to bring them closer to adoption because the more people that do this, the more infrastructure is going to be created and it gets easier for everybody. So I don't think it's the first market that's going to be addressed, but I don't see a problem with it because at some point, they're going to have to make a choice. And there's something we haven't talked about, at the risk of getting off script a little bit here. That 15-liter is also going to be a very -- they'd refer to it as a near zero emission engine. It's a 0.02 NOx emissions. And the EPA and CARB are coming out with a diesel requirement to meet that spec and -- in the next couple of years, and it's going to be very difficult for a diesel engine to hit that. And natural gas is already doing it. The 12-liter actually does, has been doing it since 2018. So it's another factor that's going to be coming into this where fleets are going to have to -- I mean, it's either -- you're either going to spend a lot more money on the diesel engine to be at 0.02 spec, or you can go to something that already exists. So it's just another opportunity.

Yes. That's a great point, Mike. I appreciate you bringing. If anyone wants more information on that 0.02 NOx EPA spec, that truly is a potential game changer.

And maybe looking at the bigger fleets, besides UPS, who have been kind of the most forward-leaning on the CNG RNG space?

Yes. I mean at the end of the day, if you look at a lot of the comments of the big fleets, they've been waiting for the EV solution. They've been waiting for a Tesla truck for quite a while. Now Tesla trucks are starting to hit the marketplace. We think that's a good thing to see the EVs, the trucks getting out there. So there's been this pause of waiting for a technology to show up. It's being pushed quite aggressively, but they're running out of time. Certainly, the California market and the EPA restriction on NOx is going to force fleets either to continue with very expensive diesel or to make a pivot to CNG and leverage something that's available. So they're running out of daylight.

Do you think coming from any fleets that you haven't been working with before? David?

To me?

Yes.

That's probably a better question for Eric, to be fair.

We've had -- we've got a lot of trials going on right now. So typically, how our fleet will do it, and Mike shared a bit on the trial pattern. They'll trial a new technology for a period of time. As soon as they can validate quality, they can validate fit-for-use in their operation than they do. There's a lot of pilot work going on right now and trialing going on in the United States and certainly the 15-liter but also some in the 12-liter getting ready for the 15-liter launch next year. I won't share the names.

Any follow-ups? Come on. You?

You showed the chart on the expected RNG uptake in U.S. and the EU. I think in the base case there, it ended at like 10% or something in 2030. Do you consider that like a steady-state situation? Or do you think uptake will continue increasing? Because -- one question. And then the second one, I think there was a slight downtick in expected uptake in 2023. Is there any specific reason for that?

Yes, a little bit of conservatism on how EU recovers. Natural gas price went significantly high in 2022. So from a 2023 standpoint, the expectation is there will be a bit of a pause. Now will it be a pause downward or upward? We're seeing pretty good order book right now, but we have to let the year play out. In North America, there's a massive backlog on heavy-duty trucks. The order book right now is out until early -- late 2023 or early 2024. So getting more, what they call, build slots for trucks in this calendar year, is pretty challenging. The supply chain [ woes ] that carried over from '22 to '23. We're seeing resolution on that right now, but there is certainly a delay. But once again, the order book in North America is maybe a bit more robust than what we expected. Still a little too early to project what Q3, Q4 will be. But that was the expectation going into the year, slight downward pause to 2023 and then 2024, you see significant scale-up.

And for the 2030 scenario, was that -- do you expect that to be like a steady-state situation, the 2030 uptake of like 10%-ish?

So would it peak and flatten out there or continued growth?

We expect it to continue to grow. Yes, absolutely. And once again, if you look at everything above that curve, so there's 90% above that 10% curve, it's going to be taken by more CNG. It's going to be taken by hydrogen. It's going to be taken by EV, hopefully, by that point. And yes, there'll still be diesel in there as well. There's just too many trucks on the road in -- 7 million in Europe. 13 million plus in North America, all of them with significantly longer life cycles in North America. That's going to take a long time for that new technology to purge. So it's really shocking that Europe went backwards from 96.4% to upper -- almost 97% from '21 to '22, and we're that close to the 2030 target. So we expect the only solution that's available today, as we've said, is renewable natural gas to make any inroad in that.

We've spoken about the viability of bio LNG in Europe, 630-something stations in Europe, enough to support the fleet today. Will it be enough when growth comes here?

Yes, they haven't. As Ashley said, they haven't removed the restriction on the desire to have, I think it's 400 kilometers between LNG filling stations, and the build-out has been fantastic. The best we've seen in the Western world. I wish United States had that build-out, significant growth. I think it was 200% over the last 2 years. So yes, that will -- because of the range of LNG in Europe, 400-kilometer range will be -- or distance between filling stations should be sufficient on the major routes on the 10p corridor.

Perfect. I think we'll round off the Q&A session.

I just like to thank everybody, all of our presenters who have spent time here with us today and shared their knowledge and also for the audience for participating. And if you'd like to continue to follow Hexagon on their journey on the energy transition, you can sign up by going to hexagongroup.com and under the Investor tab actually clicking on the newsletter, and we'll keep you updated on what our activities are. So thank you very much, and I look forward to seeing you all again. Thank you.