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Economics of natural gas don’t always add up for fleets

Economics of natural gas don’t always add up for fleets thumbnail

HOUSTON — Though natural gas is abundant in the U.S., whether it can serve as a financially viable transportation fuel is a difficult question to answer.

Commercial fleet operators from across the country this week are in Houston discussing the economics of natural gas, which often is touted as a less expensive, cleaner-burning alternative to gasoline.

But industry officials at the Natural Gas Vehicles USA conference say despite their hopes for natural gas, converting fleets to run on the fuel isn’t always easy. Though the fuel has its advantages, the finances of making it work for fleets don’t always add up.

“There needs to be some changes in the cost model,” said Bill Bliem, senior vice president of fleet services at NFI Industries, a New Jersey-based logistics company. “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 struggling with fuel mileage.”

Bliem said his company has about 2,000 trailers on the road, including nearly 30 that run on compressed or liquefied natural gas. But given the huge expense of natural gas vehicle infrastructure, trucks have to put on a lot of mileage to achieve substantial savings over gasoline or diesel.

NFI trucks serving California, for example, aren’t driving enough miles to compensate for the higher cost of the vehicles. Meanwhile, the company is getting about 9 percent less fuel economy with natural gas than it initially expected when it was calculating whether to invest in the technology, Bliem said.

Indeed, natural gas experts say that while savings from compressed natural gas eventually add up, they might not happen as quickly as some might hope.

“The payback around CNG is challenging,” said Brad Hoffelt, senior vice president and general manager of products and services at GE Capital. “It’s challenging just on the vehicle infrastructure, and if you provide fueling infrastructure as well, it’s particularly challenging.”

As Hoffelt describes it, most fleet customers will only consider switching to alternative fuels if they believe they can save money by doing so. For most, the environmental benefits are “generally a small part of the discussion.”

That’s because of the big expense that comes with building a CNG fueling station. Stations that can dispense natural gas as quickly as a typical gasoline station can cost $700,000 to $1 million to build and generally need to support a fleet of at least 150 trucks in order to make financial sense, he said. Slow fill stations, which fuel trucks overnight, cost around $300,000 to build.

Those costs put fleet operators in a bind. Generally, they prefer to have their own fueling stations so they don’t pay markup on fuel. But building a private station is pricey, and it can take a long time for the investment to pay off.

“It’s not really a question of whether it will pay back,” Hoffelt said. “The CNG investment will pay back over time. But some people think two years is too long, and some people think five to seven years is adequate.”

Even companies that have embraced the technology on a wide scale concede there are challenges and the technology may not be right for everyone.

Dennis Beal, vice president of global vehicles for FedEx Express, said trucks that run of natural gas cost 50 percent to 80 percent more than their gasoline and diesel counterparts.

“If you’re an independent operator, and you’ve got to spend 50 to 80 percent more to acquire a vehicle … the return on investment isn’t quite the same as it is for a corporation,” he said.

He added that public fueling infrastructure for natural gas is lacking, forcing the shipping industry into a chicken-and-the-egg dilemma. As it stands today, there are fewer than 1,400 public and private stations dispensing natural gas nationwide, according to the U.S. Department of Energy, compared to an estimated 157,000 gas stations. He said FedEx, which mostly relies on public fueling stations for its fleet, will only utilize CNG trucks in cities where it’s identified plenty of options for fueling.

Fuel Fix

11 Comments on "Economics of natural gas don’t always add up for fleets"

  1. rockman on Sat, 14th Jun 2014 9:26 pm 

    And while they don’t put the most positive spin on CNG vehicles they still perpetuate the myth: “Though natural gas is abundant in the U.S…”. A different meaning of “abundant” than mine given the US consumes a bit more NG then it produces and is thus a net NG importer. And any corporation looking at an CNG fleet option readily understands the very volatile (and thus difficult to predict) price of NG. A 50% to 100% swing in prices over just several years during the last couple of decades is well documented.

  2. Chris Hill on Sat, 14th Jun 2014 10:16 pm 

    A town near me had the big idea of switching to natural gas for their trash trucks. This was back when it was under $3. Funny, I haven’t heard much about it lately.

  3. Makati1 on Sat, 14th Jun 2014 11:12 pm 

    Dreams of BAU are becoming nightmares…

  4. Kenz300 on Sun, 15th Jun 2014 7:02 am 

    Fuel Fix — part of the oil industry disinformation campaign……………….

  5. rockman on Sun, 15th Jun 2014 7:29 am 

    Ken – I knew if I waited long enough we would agree on something. LOL. But ‘disinformation’… really?: you’re exposing an industry for encouraging consumers to use more of its product? Who’s your next target: Pepsi? Starbucks? Microsoft? LOL.

  6. Danlxyz on Sun, 15th Jun 2014 8:03 am 

    Dennis Beal, vice president of global vehicles for FedEx Express, said trucks that run of natural gas cost 50 percent to 80 percent more than their gasoline and diesel counterparts.

    Does anyone know why? Can a different fuel tank cost that much?

  7. Davy, Hermann, MO on Sun, 15th Jun 2014 8:26 am 

    Dan, there is the economies of scale in both manufacture and maintenance that favor diesel and gas. Rock brought up a good point of the wild swings in gas prices making Natgas powered vehicles risky investment.

  8. Danlxyz on Sun, 15th Jun 2014 9:23 am 

    Davy,yes Natgas prices are volatile. They got up to $12 and then dropped to $2 and now are about $4.50. But so is oil. Since 2000 it has been as low as $20 and as high as $140. Anything you do is risky.

    I saw a survey on investments that showed most people would rather invest with the crowd rather than against it, even if that got them a higher return.

    Perhaps some competition would help lower the price.

  9. baptised on Sun, 15th Jun 2014 12:15 pm 

    Slow fill stations $300,000 to build? A $100 dollars of Chinese pipes screwed together!!!

  10. rockman on Sun, 15th Jun 2014 2:53 pm 

    B – So no meters, paved surfaces, office, lighting, etc. And someone gives you commercial property for free? Pulled up several references and the numbers run from $500k to $1.5 million. And that assume the NG supply company lays a pipeline to you for free.

    Maybe you have a reference to a cheaper startup cost you can share.

  11. Makati1 on Mon, 16th Jun 2014 2:01 am 

    Rockman, I did bid estimates for about 10 of the large convenience/gas stations in the US before I retired. Placing those huge gasdiesel tanks underground can cost $200,000.00+ EACH. If you live in the East and visit a WAWA or a Sheetz, they cost around $5 million each to build, not counting the land. The underground fuel system is very involved and requires expensive connections, valves, meters, etc., not “Chinese pipe”. And I am sure that a natural gas system would be even more expensive. Too many have no idea what it takes to go into business today.

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