Natural Gas Vehicles 2014: Caution, not Government Subsidies

(Before It's News)

“It was somewhat disconcerting to hear about the economic challenges from NGV fleet operators. In an interview [one fleet owner] was quoted as saying, ‘Right now, we’re doing it solely for sustainability. We’re not saving any money. I’m glad to hear we’re not the only one to struggle with fuel mileage’.”

Several weeks ago, the Natural Gas Vehicle USA Conference was held in Houston. The state of the industry and future promise were discussed in the context of the economic challenge facing the fuel’s acceptance in the transportation business.

There are a handful of vehicles in Houston powered by compressed natural gas. Their owners, many of whom are affiliated with the natural gas or energy industries, talk about the benefits of their cars. However, they are often forced to acknowledge the challenges that come with owning a natural gas vehicle (NGV), which includes the loss of significant storage space in the vehicle due to the need for a large fuel tank. Another challenge is finding a fueling station unless you are fortunate enough to work at a location with refueling capabilities, or you have access to a pump in your own garage.

Proponents of increased use of natural gas have targeted the over-the-road trucking industry as the most logical adopter. Plans are to build NGV refueling stations along the interstate highway network to supplement local refueling stations, but this effort is slow in progressing. The effort falls into the chicken-and-egg problem – to get more NGVs there needs to be more such refueling stations, but they are guaranteed to be lonely outposts until there are more natural gas vehicles in the fleet. Who moves first?

Fuel Economy Shortfall

It was somewhat disconcerting to hear about the economic challenges from NGV fleet operators. In an interview, Bill Bliem, senior vice president of fleet services at NFI Industries, a New Jersey-based logistics company was quoted as saying, “Right now, we’re doing it solely for sustainability.  We’re not saving any money.  I’m glad to hear we’re not the only one to struggle with fuel mileage.”

He was referencing the fact his company’s trucks are getting about 9% less fuel-economy using natural gas than it initially expected when it calculated whether or not to invest in compressed natural gas technology.  We guess that had management known about this discrepancy in fuel performance it might have elected to wait for someone else to test the technology and prove up the economics.

Refueling Stations: Expensive

Here is a big part of the problem. It costs between $700,000 and $1 million to construct a refueling station that competes time-wise with a gasoline station. A slow refueling station’s cost is about $300,000–but this is not a real option for commercial operations unless their vehicles can function with overnight refueling. Operators desire to own their own fueling stations to avoid paying the mark-up in buying the fuel.

In addition to the significant station cost, a CNG-equipped truck will cost 50% to 80% more than a gasoline-powered equivalent unit, adding to the economic decision hurdle. For trucks, there is the additional factor of the reduced carrying capacity due to the large fuel supply tanks needed, meaning that revenue may be hurt. 

As Mr. Bliem pointed out in his interview, his company only has a few CNG-equipped units (30 out of 1,000). But in California, where they operate, the trucks are not attaining sufficient mileage to begin to justify the unit’s additional cost.

These economic disadvantages are why T. Boone Pickens floated a plan several years ago for 18-wheelers to receive a federal tax break of up to $64,000 per truck for converting to natural gas. But even then, there are only about 1,400 CNG refueling stations nationwide versus 157,000 gasoline and diesel outlets (less than 1%). Refueling flexibility is certainly a consideration even if cost savings was otherwise present.

Conclusion

Introducing natural gas into the nation’s transportation-fuel mix reduces emissions compared to oil-based fuels. The current price of gas is attractive due to the bountiful gas supply situation at present. The problem is that the economics of operating CNG-powered trucks still represent a formidable hurdle that companies need to get over in order to justify the necessary investment.

I expect NGV’s will gain some market share in the transportation sector, but probably not as much as its proponents are hoping. There is also the risk that natural gas prices could jump higher, which would erode the current advantage that cheap natural gas has over higher-priced gasoline and diesel fuel.  The current regulatory push to substitute gas for coal in power generation could cause just this.

Stay tuned – the economics and technology of NGVs within the transportation sector is far from not settled.

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G. Allen Brooks, a leading consultant to industry on the energy economics and politics, is author of Energy Musings.

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