The price of crude oil, and by extension gasoline and diesel, dipped lower and lower before just recently starting to climb again. And the whole time, fleets using natural gas could save money — if they were getting their fuel a certain way.
So argues researcher Jon Gabrielsen in an examination and analysis of the alternative fuels market across the globe. In the United States, with oil around $40/barrel of crude, just one alternative fuel remained cost-competitive, the analysis finds: compressed natural gas, or CNG.
"I wanted the answer to be anything but a gas," Gabrielsen tells Fleet Owner. Instead, he says he'd hoped to find the most cost-effective alt fuel was maybe a liquid at ambient temperature and pressure — more convenient — rather than something like CNG, which has to be pressurized and takes more room to store enough on a heavy truck to cover long ranges.
After months of research and calculation, however, "I had to give CNG its due," Gabrielsen says.
"I had to concede that despite the challenges to equip for CNG and the costs to upfit the vehicle, the savings are even larger, making it the lowest break-even proposition against diesel," he surmises.
Doing the math
The report, "Alternatively Powered Commercial Vehicles: Global Markets," arrives at a basic calculation. Depending on a range of variables for a fleet such as driving distances for trucks between 50,000-150,000 mi. and initial costs to upfit them for CNG, "the added cost per diesel gallon equivalent (DGE) of CNG fuel is $0.36-0.48 for a 3-year payback," according to the BCC analysis.
"So conservatively, any time that one can fuel a commercial vehicle with CNG for at least fifty cents per DGE less than with diesel fuel," the report states, "then one will have at least a 3-year or shorter payback by having equipped for CNG instead of diesel."
Thus the analysis delivers some easy math: All things considered, if a fleet wants to see a return on its investment in CNG within three years, rule of thumb is it'll need to get CNG $0.50 cheaper than an equivalent gallon of diesel costs.
Anything beyond that, of course, will get a fleet there sooner. The good news for trucking is that CNG — if delivered to a fleet two out of three ways — has had that margin and then some, Gabrielsen points out.
According to the BCC report, those are:
• Self-compressed CNG "for any fleet whose operations enable it to do centralized refueling with its own compressors from its own natural gas utility pipe connection."
• Biogas "for those with their own source for it, such as the waste collection landfill sector, municipalities' sewage systems and agricultural animal waste operations."
Only CNG bought at truck stops reached a point of being uncompetitive "at the lowest oil and diesel prices," the report finds. And as oil prices climb, it notes that retail CNG becomes the next-soonest alt fuel proposition to become competitive again with diesel for that 3-year "break-even" point or sooner for fleets to see a return on their investment.
Pricing natural gas
"The price of natural gas varies far less than the price of oil," the BCC report notes. According to the U.S. Energy Information Agency, the industrial price of natural gas as of February was $3.54 per thousand cubic feet, which works out to $0.47/DGE. Nationally, diesel is now averaging about $2.36/gal.
That means CNG at industrial prices and on an equivalent per-gallon basis would deliver average savings of $1.89, which is $1.39 beyond the conservative $0.50/DGE savings needed to see a return on investment within 3 years. The break-even point could thereby come much sooner.
Fleets might not be able to get that industrial pricing for CNG. The commercial price of CNG — which is higher — was $6.82 per thousand cubic feet as of February, which translates to $0.91/DGE. Even though that's about twice as high as the industrial price, it'll still provide $1.45 savings on an equivalent per-gallon basis vs. diesel, or $0.95 more than the rule-of-thumb $0.50/DGE savings needed to reach the 3-year break-even point.
The report points out that the over-and-above savings at those prices would allow a fleet flexibility to fuel trucks at a mix of its own CNG pipelines and retail truck stops and still hit that break-even point on a CNG investment within 3 years. It estimates the average price of CNG purchased at truck stops at about $2.21/DGE, which is now less than diesel.
That's not quite enough for a fleet fueling 100% by truck-stop CNG "to justify the added costs of the trucks to be equipped with CNG, but if you did 50/50 self-compressed and retail you'd be competitive," Gabrielsen calculates. It's actually even more than that, he notes: a fleet tanking up with about two-thirds retail truck stop CNG and one-third self-compressed CNG could still achieve a 3-year ROI.
"And by $60/bbl [of crude oil], retail CNG is likely to be a winner again" even if that's all a fleet uses, he adds.
What about oil?
Gabrielsen also has some thoughts on oil prices. He's got a "gentlemen's bet" with a colleague, he says, that oil — which is now hovering just under $50/bbl of crude — will hit that $50/bbl point by June.
That's five more days. That would put diesel on a trajectory of about $2.55-2.75/gal., he points out, which will further raise the stakes for savings potential with CNG and other alternative fuels as diesel climbs. While it's difficult to make long-term predictions, the general consensus among industry forecasts is that the lowest oil prices "are behind us," the report notes.
And there's something else to keep in mind: While low diesel and gas prices might make fleets and consumers happier at the pump for now, the longer oil stays below the $60-80/bbl range could mean a bigger spike in fuel prices to come.
"It is generally believed that in order for oil to be produced to match demand going forward that the price will need to return to the $60-80/bbl range," the report states. "Indeed, the longer prices stay below that range, the less new drilling will take place in the interim, and therefore the higher prices are likely to go in the future when shortages develop due to insufficient drilling now."
The report offers extensive further analysis of not only CNG but the break-even points for fleets to see a return on their investment with the range of alternative fuels including liquefied natural gas (LNG), liquefied propane gas (LPG), biodiesel and liquefied or compressed hydrogen. It also includes a breakdown of what fleets should consider when choosing an alternative fuel based on their individual needs.