LNG: The crude factor

If you’re a fleet owner who wants to “feel really good about [switching to trucks powered by] LNG, you’ll want crude oil to remain at $100 [bbl] or above,” contends Jon T. Gabrielsen, president & CEO of J.T. Gabrielsen Consulting, in a recent white paper.

Gabrielsen argues that the answer to the “key question of future LNG competitiveness for transportation” lies in where crude oil prices will trend. The upshot of nearly 20 pages of research and analysis put together by Gabrielsen is that just how competitive a fuel LNG will be for over-the-road trucks vs. diesel will depend on what the future price will be for crude oil:

- If crude will be predominately above $100/bbl and thus diesel will be at $3.99/gal, “then you will at least break even at a three-year simple payback, even if no improvements/ reductions in incremental initial investment and liquefaction and logistics [costs] can be made.”

- If crude at times goes as low as $75/bbl putting diesel at $3/gal, “then you will only break even on a three-year simple payback if it is possible for very significant improvements/ reductions in incremental initial investment and liquefaction and logistics costs to be made. These may or may not be possible, in which case LNG would be a net loser at those crude oil/diesel prices.”

- If crude returns to levels prior to three to four years ago, “when there was 25 years in the $25/bbl. [$1.20/gal diesel] range or even just to half of today but double the past 25 years at $50/bbl [$2.10/gal diesel], then converting to LNG could not possibly generate economic benefits.”

Gabrielsen says the upshot of his evaluation of LNG’s viability “appears to be a perfect example” of why a fleet should “try out the LNG technologies, continuously keep a small portion of the fleet LNG to develop experience, and perfect/optimize the use of the technology, all while closely watching the crude-oil pricing environment to determine whether or not to embrace LNG in a big way.”

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