Cost considerations: Weighing the costs

Oct. 31, 2012
From funding to fueling, there is plenty to consider before putting natural gas vehicles on the road

Much must go into any decision to convert to natural gas vehicles (NGVs), whether they’re powered by compressed natural gas (CNG) or liquefied natural gas (LNG). Certainly, operating costs—especially fuel—and payback on the initial purchase premium as well as the cost of on-site fueling infrastructure are critical factors for fleets considering making the switch to blue-flamed power.

The impact of NGVs on fuel costs alone for a fleet that has been running diesel engines can be staggering. Note that the cost comparison for both CNG and LNG vs. diesel is often expressed via the measure known as “diesel gallon equivalent” (DGE).

“The fleets purchasing natural gas vehicles today—and without subsidies— are doing so [because] they run an adequate number of miles and are purchasing fuel at a significant reduction from diesel,” points out Robert Carrick, vocational sales manager-natural gas for Freightliner Trucks. “And [due to the fuel-cost differential], they can expect to see payback on their acquisition cost in less than two years.”

Price differential

“The price of natural gas over the past four years has been consistently lower than diesel, in some cases by as much as $2 DGE,” advises Andy Douglas, national sales manager for specialty markets at Kenworth Truck. “It’s no wonder why natural gas has drawn increasing interest among truck and fleet operators.

“The fuel savings, coupled with the longer trade cycles that some vocational operators already experience with their trucks, can make a positive return on investment [ROI] attainable now, even without government incentives,” he continues.

To help determine if fuel savings alone can provide a high enough ROI for a given fleet, Douglas suggests accessing the Clean Cities Alternative Fuel Price Report, which provides a comparison of natural gas, diesel, gasoline and biodiesel fuels on both a straight-price comparison basis and an energy-equivalency basis. The report is updated every three months.

“Current indicators point to [the continuance of] low-cost natural gas,” says Curtis Dorwart, vocational marketing product manager at Mack Trucks. “We expect CNG to continue to be 40 to 50% the cost of diesel and LNG to be 30 to 40% the cost of diesel. Even if the price of ‘raw gas’ were to double tomorrow, the cost per diesel gallon equivalent would increase less than $1 at the fuel dispenser.”

The downside

On the other hand, Dorwart does allow that predicting the future price of fuel is always risky. “If you have a crystal ball, I am all ears. Predictions are just that—predictions. In fleet terms, the cost of fuel is huge. It is at the top of the cost ledger these days, so the promise of less expensive fuel creates a lot of interest.

“There are a number of downsides, however, to also consider,” he continues. “These include decreased range due to fuel-storage limitations of chassis frame-rail space, and you will not get the same mpg or gph as compared to diesel, so that also figures into range.”

Nonetheless, fuel cost is right now the major catalyst for most fleets to consider running natural gas vehicles. That’s more so the case due to the expiration of federal incentives to run on natural gas.

“At this time, there are no funds available from the federal government,” says Freightliner’s Carrick. “However, there are many states that offer funding, some of it sizeable. The Natural Gas Vehicles for America and the U.S. Dept. of Energy websites both provide excellent references on these.”

“The federal tax credits expired about two years ago,” notes Mack’s Dorwart, “but there are some local and regional incentives that vary greatly. My recommendation is to contact your local Clean Cities Coalition Coordinator, via the U.S. Dept. of Energy.”

Kenworth’s Douglas also suggests that fleets not overlook various state, county and municipal grant programs and financial incentives that are available.

The cost to fuel

If the potential fuel savings from converting to natural gas is compelling, the next cost consideration will be the capital expenditure for on-site fueling systems—that is unless the fleet is located near a fueling station open to the public and chooses to access it.

Fleets that opt for their own on-site fueling out of necessity or to control that function will find the initial cost sobering.

“Fueling station cost varies dramatically depending upon a number of factors, including the selection of fuel type, LNG vs. CNG; proximity of the fleet location to natural gas pipelines; how many trucks are to be filled and how fast you want to fill them,” points out Mack’s Dorwart. “Let’s say we are talking $250,000 to well over $1 million” for a single fueling site.

“A CNG time-fill solution for a single vehicle could start at around $150,000 and up to $1.5 million for a large group of vehicles,” advises Scott Perry, vice president of supply management, Ryder Fleet Management Solutions. “CNG fast-fill stations can start at $750,000 and go up to more than $2 million, based upon storage capacity and compression.

“LNG stations that are commercially configured are in the $750,000 to $1.5 million range,” he continues. “There are companies working on more basic LNG storage solutions for ‘home’ fueling, which are targeted at being more cost-effective, but none have been widely marketed or distributed yet.”

“Fuel is not included in the full-service lease, however, estimated fuel pricing models are used to assist a customer with understanding the total lease value,” observes Michelle Harry, director of marketing for Paccar Leasing Co. (PacLease). “We will advise them of all the options that may be available to them in the marketplace such as CNG vs. LNG.”

Harry says that even when the cost of an on-site fueling station is in the $1 million neighborhood, customers have stated that the savings on fuel will make the large business investment worth it.

Once the question of where and how to fuel the trucks is resolved, next up will be determining what the purchase upcharge for each truck will be compared to ordering a diesel-powered truck. And it will, by any measure, be substantial.

Acquisition cost “really depends on the engine and fuel system [spec’d],” says Charles Cook, Peterbilt’s vocational market segment manager. “It can be from $40,000 to $90,000 per vehicle.”

“The upcharge for CNG is roughly 50% higher than diesel and for LNG it is roughly 45% higher than diesel,” advises Ryder’s Perry.

Paying a premium

“With spark-ignited natural gas engines, the costs between LNG and CNG are fairly similar at the chassis level, but there is an incremental cost increase compared with a diesel chassis regardless of LNG or CNG,” relates Mack’s Dorwart.

He notes that the cost has decreased in recent years as volumes have increased. “The price of a chassis varies a lot,” Dorwart adds, “and the amount of driving range will also play a role in the price, but in round numbers [expect] somewhere around a 35% increase over diesel trucks.”

Much more specific is Freightliner’s Carrick. “An existing Freightliner Business Class M2 112 with a Cummins Westport ISL-G [8.9L] production solution carries an approximately $37,000 to $42,000 incremental cost for LNG,” he relates.

Carrick advises also that CNG power is “priced slightly higher at about $40,000 to $45,000 over a diesel with a 75-DGE fuel system. These prices do not include state and federal taxes.”

PacLease’s Harry points out that the lessor’s approach to vehicle acquisition cost is “to put the customer into the NGV with an ROI based on fuel savings alone, and to consider any government incentives as a bonus on an already favorable ROI.”

As for the differential in maintenance costs between a diesel truck and an NGV, Peterbilt’s Cook observes that, “as with acquisition cost, it really depends on the engine selected. With spark-ignited [vs. compression- ignited aka diesel-ignited] natural gas engines, you introduce spark plugs and some additional top-end maintenance items, but you eliminate DPF and SCR systems.”

Offsetting costs

Mack’s Dorwart points out that when it comes to maintenance, “there are some things to keep in mind, such as the engine oil required is different compared with diesel. And in the case of spark ignition, there are spark plugs and coils with which to deal. Also, the vehicle fuel-storage tanks need periodic inspection and at some point will need to be replaced once useful life is over.”

However, he adds that “these additional costs are offset somewhat by the elimination of DEF, the DEF dosing system, the DPF and SCR maintenance costs” with spark-ignited natural gas engines.

“A number of maintenance items can impact costs,” states Freightliner’s Carrick. “The preventive maintenance [PM] interval is 15,000 mi., so compare that cycle with the fleet’s present diesel schedules to determine any costs that need to be considered for additional PMs during the course of the year.

“On spark-ignited engines, spark plugs need to be changed at 45,000 mi.,” he continues. “Diesel fuel isn’t utilized [on spark-ignited engines], so all costs related to diesel maintenance such as DPFs, regens, or the SCR system can be deducted.”

“Maintenance for spark-ignited NGV engines is projected to be marginally higher than diesel—less than 1¢ per mile,” says Ryder’s Perry. “Maintenance of dual-fuel [diesel-ignited] engines is projected to be markedly higher than diesel by up to 21/2¢ per mile.”

Perry stresses that both these cost-per-mile figures are “very early estimates based upon OEM data and may improve as more real-world experience is attained.”

According to PacLease’s Harry, factoring in what new maintenance practices are needed for NGVs and taking out what is no longer needed—especially when spark-ignited engines are spec’d—tends to make the difference in maintenance costs “close to a wash.”

As for what a lessor can do for a fleet considering adding natural gas trucks, Ryder’s Perry advises that “leasing an NGV can insulate a fleet against unknown maintenance costs, unknown residuals, increased technician training, specialized tooling and diagnostics, and substantial costs associated with maintenance facility upgrades.”

“Full-service leasing is an excellent way for a fleet to bring in NGVs and evaluate their performance without having to be concerned with managing their costs,” suggests PacLease’s Harry.

“Shop modifications may be needed as well as specific tech training that the lessor can handle,” she continues. “And if a fleet is continuing to run diesel trucks, they will not have to worry about caring for a mixed fleet if they opt to lease their NGVs.”

Resale uncertainty

Looking ahead, the resale value of NGVs at this point in time is very much a wild card.

“It’s probably a little early to say [what trade-in values will be],” says Peterbilt’s Cook. “But as the infrastructure expands, the demand and therefore the price for used CNG and LNG vehicles will increase.”

Mack’s Dorwart remarks that resale value is “the $100,000 question” right now. “It is still too soon to tell, but if the popularity of NGVs continues to rise, I think we can expect resale values to be healthy in the future.”

“Residual values are unknown until used vehicles begin to hit the market,” contends Ryder’s Perry. “There will also be differences between NGV engine platforms as those continue to evolve and come to market.”

“Resale value is certainly still in question as the new products have not been in service long enough to run through the used market yet,” observes Freightliner’s Carrick. “There are several factors to consider. In the past two years, infrastructure has increased in North America, so the market available to sell used vehicles has also expanded greatly. That helps increase the value of natural gas vehicles.

“But diesel fuel cost will be the greatest factor in the valuation of used vehicles,” he states. “You can estimate the percentage in used value based on the cost of diesel and the resulting premium over natural gas.

“The higher the cost of diesel,” adds Carrick, “the closer the natural gas vehicle will be to the value of a diesel truck.”

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