If North American natural gas prices continue to remain at today’s historically cheap level compared to oil prices, and if compressed natural gas (CNG) and liquefied natural gas (LNG) refueling is conveniently available, then diesel truck fleets could indeed save money by switching to CNG or LNG, according to a Conference Board of Canada study released April 24.
While a gas-powered truck costs about US$80,000 more than an equivalent diesel truck, the fuel savings on CNG or LNG would total about $150,000 over 10 years – even after paying the extra $80,000 for the CNG or LNG truck, according to study author Vijay Gill.
“Our models indicate that while the capital costs are high, the savings from lower fuel costs make natural gas an economically viable fuel for the trucking sector,” as long as convenient CNG/LNG infrastructure is available and assuming gas prices stay relatively cheap, Gill said.
In an April 25 interview with Hart Energy, Gill told us that for his study, he assumed a 15% discount rate on the CNG/LNG truck investment, and also assumed that the buyer would be a fleet operator buying multiple units, rather than an individual truck owner buying one truck. He also assumed greater tax write-offs because of the higher initial costs of CNG or LNG trucks.
Given that today’s Henry Hub spot natural gas prices (the marker for North America) are historically low – “unsustainably low” according to industry experts quoted this month in Hart’s Unconventional Oil & Gas newsletter – Gill assumes that North American natural gas prices will start to rebound, closing today’s huge gap with oil prices.
Even so, over the 10-year horizon assumed in the study, natural gas prices would still be considerably cheaper than oil prices, Gill told us.
“Historically, natural gas has traded about half the price of crude oil per unit of energy. That gap has steadily widened and continues to grow, which leaves room to cover the additional costs of compressing or liquefying gas for transportation fuel,” according to the study.
“Other than the additional cost of the trucks themselves, potential hurdles to the wholesale adoption of natural gas as a transportation fuel include tax policy and refueling infrastructure. Nearly half of the estimated savings from natural gas vehicles are in the form of fuel tax savings, as natural gas is currently exempt from the equivalent of a road diesel excise tax.
“Uncertainty over whether natural gas could lose its tax exemption compounds the disincentive created by the high capital cost of converting to natural gas engines.”
What’s more, “trucking carriers are typically quite conservative and look for shorter payback periods of two to three years,” rather than the 10 years assumed in the study, Gill pointed out to us.
Additionally, “there’s no guarantee that the gap in prices that we see today between natural gas and crude oil will persist into the future. And carriers need someone to supply them with the refueling infrastructure (such as a gas distributor) so even if they’re interested, it takes time to develop this,” he said.
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