Natural gas is a cleaner fuel for trucks than diesel, but is it a more cost effective alternative?
The cost issue was explored at the American Trucking Association Natural Gas Summit in Washington D.C., on November 28th, 2012. The operational case for natural gas was also explored at the conference, and I’ll be discussing this in an upcoming Logistics Viewpoints guest post titled Making Operational Sense of Natural Gas.
Diesel quantity is measured in gallons, while natural gas is typically measured in cubic feet. A commonly used equivalent is 145 cubic feet of compressed natural gas (CNG) or 1.7 gallons of liquid natural gas (LNG) per gallon of diesel. These are routinely referred to as Diesel Gallon Equivalents.
In order to compare the cost of each fuel, it is necessary to take account of market prices and their respective energy yields. Based on a recent price of $3.60 per MMBtu (million British thermal units or BTUs) for natural gas, the price equivalent for CNG in terms of a gallon of diesel is $0.50. Even after adding roughly $1-1.5 dollars for the cost of pipelines, conditioning the gas, and taxes, CNG is significantly cheaper than the fossil fuel. There is less of a price differential with LNG because the cost of bringing this fuel down to a temperature of -260 F has to be included, but diesel is still significantly more expensive. LNG is currently priced at around $15.00 per MMBtu or the equivalent of $2.00 – $2.75 per gallon of diesel equivalent.
The cost of natural gas-powered equipment must also be taken into account when making the comparison with diesel. As a rule of thumb, a CNG engine costs about $35,000 more than a diesel unit for a new vehicle.
Assuming that the CNG vehicle cuts fuel costs by $2.00 per gallon, the investment in such a unit is recouped after consuming an estimated 17,500 gallons of fuel or driving about 100, 000 miles. Many delegates at the ATA conference maintained that a CNG truck pays for itself in approximately one year.
But perhaps the biggest variable is the future cost of CNG. Natural gas prices have come down dramatically over the last four years, in contrast to diesel where prices at the pump have generally increased (see Figures 1 and 2).
It’s impossible to know for sure how prices will move over the next four years. A major goal of the natural gas industry is to persuade current and potential users that CNG prices will remain low in the foreseeable future.
Each carrier will have to decide whether natural gas makes more economic sense than diesel for their business model.