Natural Gas for Transportation Part II

The cost of natural gas is less than the cost of diesel fuel and gasoline. The savings when using LNG is approximately $1.30 per diesel gallon equivalent (DGE). The savings when using CNG is about $1.15 per gasoline gallon equivalent (GGE).

The actual savings vary widely around the country and also vary greatly depending on the price of oil, and, therefore, the price of gasoline and diesel fuel. The above savings reflect oil at $95 / barrel.

Recently the price of natural gas has been fairly consistent, while the price of oil has increased substantially over the past year.

These approximations, and the others used in Part I, can allow for making general conclusions.

The premium paid for a LNG heavy truck is about $70,000, while it is about $6,000 for a light vehicle. (See Table II of Part I).

Heavy-duty, trucks average around 6 miles per gallon of diesel fuel. A truck driving 65,000 miles/year will use approximately 11,000 gallons of diesel fuel. Switching to LNG results in a savings of around $14,000 per year (when DGE savings are $1.30) — or 5 years to recover the added $70,000 investment.

Recovering the added $6,000 investment for a CNG light vehicle would take approximately 9 years if the GGE savings are only $1.15.

Detailed studies of fleet vehicles, including heavy-duty and medium duty-trucks, and transit buses, show paybacks of around three years for sufficiently large fleets (approximately 50 or more units) when making investments in both vehicles and fueling stations. School buses travel shorter distances during the year which results in longer payback periods.

While the data in Parts I and II are averages and do not reflect the volatility in oil prices, it’s possible to reach some conclusions.

  • Owners of heavy-duty trucks can recover their incremental cost in 5 years, which is a slow payback, but still within the realm of being a good business decision.
  • Owners of heavy-duty long distance trucks cannot invest in LNG trucks, even when the payback would be sound, because the LNG fueling infrastructure, along major transportation routes doesn’t exist.
  • There is no incentive to invest millions of dollars in LNG fueling stations along interstate highways when there is no existing demand. (HD long distance truck owners won’t invest in LNG powered HD trucks when it’s not possible to fuel their trucks.)
  • The payback for light vehicles is too great for individuals to buy CNG vehicles based strictly on cost.
  • Many owners of fleets with 50 or more vehicles can recover their added investment in approximately 3 years – 2 years for fleets of 100 or more vehicles.

While market forces should nearly always be the arbiter of investment decisions, we face a situation today where there are huge existing subsidies for other transportation fuels and vehicles.

Congress has not yet acted on subsidies for natural gas powered vehicles. Proposed legislation calls for a $0.50 per gallon credit for GGE and DGE and a $100,000 credit for investing in fueling stations.

While the $0.50 credit could tip the scales for investing in vehicles, and the $100,000 credit could also tip the scales for fleets to invest in fueling stations, the $100,000 credit will have little effect on investing in LNG interstate fueling stations. A $100,000 credit on a $2 million investment when there is currently virtually no demand will have little effect on the payback period – or on motivating companies to invest in interstate fueling stations.

In the near term, motivating fleets to switch to natural gas would be beneficial. Payback periods seem short enough to make economic sense and using natural gas would reduce our use of foreign oil.

The $0.50 fuel credit would cut the payback period for investing in CNG light vehicles to 6 years.

Here is a proposal that I believe makes sense, since subsidies already exist for transportation fuels and vehicles.

  1. Have natural gas vehicles included in the legislation that already provides subsidies for transportation fuels and vehicles. Include the $0.50 per DGE/GGE and increase the proposed credit for LNG fueling stations to $200,000 which is $800 million for 4,000 LNG fueling stations.
  2. Freeze existing ethanol subsidies and requirements for using ethanol in gasoline at today’s levels, and begin to decrease them in three years.

By freezing ethanol subsidies and requirements at today’s levels, farmers who have bought into the ethanol program won’t be hurt. They will have time to adjust to lower subsidies and reduced ethanol usage in the future.

Reducing ethanol subsidies and payment for ethanol production will provide the funds for natural gas subsidies and eventually save billions of dollars when ethanol subsidies and requirements are eliminated.

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