Fuel of the Future? The Growing Allure of Natural Gas

Many U.S. businesses took a “never again” attitude when diesel prices topped the $4.50 per gallon mark in the summer of 2008.  Managers looked askance as the price climbed, and wondered how high it could go, and vowed to find cheaper alternatives.  For some, that alternative has arrived – in the form of natural gas powered vehicles.  And the timing couldn’t better.

Natural gas has been an energy success story for the U.S., as innovative drilling and exploration techniques have enabled manufacturers to excavate the gas from newly discovered shale rock formations.  The result?  Natural gas is plentiful and far less expensive than diesel.  In fact, the price of natural gas has dropped by about 45 percent over the past year.  As of April 2013, the cost of a gallon of diesel was about $4.15 per gallon, while the cost of a diesel gallon equivalent of liquefied natural gas (LNG) averaged $2.90  — about a third less.  Even more appealing is the estimated 20 percent reduction in greenhouse gas emissions achieved by switching to natural gas.

Several U.S. fleet operators have introduced LNG powered vehicles and are testing them in various capacities.  The Wall Street Journal reports that Texas-based Waste Management, Inc., which was forced to pass along $169 million in fuel surcharges to customers last year, will commit 80 percent of truck purchases over the next five years to building a LNG fleet.  By 2017, the company’s fleet will be predominantly fueled by natural gas.  Other companies jumping – perhaps “wading” is a better term — into natural gas options include Ryder, AT&T, UPS, Procter&Gamble, Coca-Cola, Owens Corning, and the nation’s largest retailer, Wal-mart.

The term “wading” applies, because businesses are taking a very slow approach toward LNG vehicles.  This is primarily because of their high cost, and a lack of sufficient numbers of fueling stations.  The cost of a liquefied natural gas truck averages $40,000-$80,000 more than a diesel-powered truck.  And considering that the starting point for a heavy-duty diesel truck is around $100,000, the cost of the LNG models are prohibitive for many companies.  This is despite the likelihood that costs that will be recouped via lower fuel costs.  “We can’t make the economics work,” Randy Mullett of Con-way Inc. told Reuters.  “The upfront cost is too high.”

Fortunately, help is on the way.  For one thing, Cummins Westport is working on a 12-liter natural gas engine that has been described as a “game changer.”  The new engine is expected to be a catalyst in spurring the development of cost efficient natural gas alternatives.  And a new leasing program introduced earlier this year by truck maker Navistar and Clean Energy, allows fleet customers to avoid paying huge up-front purchase costs.  A third option is the availability of state incentives to help defray costs.

As far as alleviating the shortage of fueling stations, there is good news on that front as well.  National Geographic reports that oil and gas investor T. Boone Pickens is leading the charge to build a network of natural gas filling stations across the nation to service long-haul trucks.  And, investment by China’s ENN Group will reportedly result in construction of 50 natural gas filing stations in this country during 2013.

While no one is predicting that natural gas will replace diesel as a primary fuel source anytime soon, the trend definitely seems to favor integration of more LNG into the supply chain.  The Wall Street Journal cites an informal survey which found that “eight in 10 respondents said natural gas in its densest form, as LNG, has potential for highway use.”  Nearly a third said they were researching natural gas for possible use in their own businesses but not surprisingly, many expressed concern about upfront costs and a lack of fueling stations.

This entry was posted in Supply Chain Management, Transportation Costs and tagged , , , , , , . Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *