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Natural Gas for Transportation Part II

April 19, 2011

The cost of natural gas is less than the cost of diesel fuel and gasoline. The savings when using LNG is approximately $1.30 per diesel gallon equivalent (DGE). The savings when using CNG is about $1.15 per gasoline gallon equivalent (GGE).

The actual savings vary widely around the country and also vary greatly depending on the price of oil, and, therefore, the price of gasoline and diesel fuel. The above savings reflect oil at $95 / barrel.

Recently the price of natural gas has been fairly consistent, while the price of oil has increased substantially over the past year.

These approximations, and the others used in Part I, can allow for making general conclusions.

The premium paid for a LNG heavy truck is about $70,000, while it is about $6,000 for a light vehicle. (See Table II of Part I).

Heavy-duty, trucks average around 6 miles per gallon of diesel fuel. A truck driving 65,000 miles/year will use approximately 11,000 gallons of diesel fuel. Switching to LNG results in a savings of around $14,000 per year (when DGE savings are $1.30) — or 5 years to recover the added $70,000 investment.

Recovering the added $6,000 investment for a CNG light vehicle would take approximately 9 years if the GGE savings are only $1.15.

Detailed studies of fleet vehicles, including heavy-duty and medium duty-trucks, and transit buses, show paybacks of around three years for sufficiently large fleets (approximately 50 or more units) when making investments in both vehicles and fueling stations. School buses travel shorter distances during the year which results in longer payback periods.

While the data in Parts I and II are averages and do not reflect the volatility in oil prices, it’s possible to reach some conclusions.

  • Owners of heavy-duty trucks can recover their incremental cost in 5 years, which is a slow payback, but still within the realm of being a good business decision.
  • Owners of heavy-duty long distance trucks cannot invest in LNG trucks, even when the payback would be sound, because the LNG fueling infrastructure, along major transportation routes doesn’t exist.
  • There is no incentive to invest millions of dollars in LNG fueling stations along interstate highways when there is no existing demand. (HD long distance truck owners won’t invest in LNG powered HD trucks when it’s not possible to fuel their trucks.)
  • The payback for light vehicles is too great for individuals to buy CNG vehicles based strictly on cost.
  • Many owners of fleets with 50 or more vehicles can recover their added investment in approximately 3 years – 2 years for fleets of 100 or more vehicles.

While market forces should nearly always be the arbiter of investment decisions, we face a situation today where there are huge existing subsidies for other transportation fuels and vehicles.

Congress has not yet acted on subsidies for natural gas powered vehicles. Proposed legislation calls for a $0.50 per gallon credit for GGE and DGE and a $100,000 credit for investing in fueling stations.

While the $0.50 credit could tip the scales for investing in vehicles, and the $100,000 credit could also tip the scales for fleets to invest in fueling stations, the $100,000 credit will have little effect on investing in LNG interstate fueling stations. A $100,000 credit on a $2 million investment when there is currently virtually no demand will have little effect on the payback period – or on motivating companies to invest in interstate fueling stations.

In the near term, motivating fleets to switch to natural gas would be beneficial. Payback periods seem short enough to make economic sense and using natural gas would reduce our use of foreign oil.

The $0.50 fuel credit would cut the payback period for investing in CNG light vehicles to 6 years.

Here is a proposal that I believe makes sense, since subsidies already exist for transportation fuels and vehicles.

  1. Have natural gas vehicles included in the legislation that already provides subsidies for transportation fuels and vehicles. Include the $0.50 per DGE/GGE and increase the proposed credit for LNG fueling stations to $200,000 which is $800 million for 4,000 LNG fueling stations.
  2. Freeze existing ethanol subsidies and requirements for using ethanol in gasoline at today’s levels, and begin to decrease them in three years.

By freezing ethanol subsidies and requirements at today’s levels, farmers who have bought into the ethanol program won’t be hurt. They will have time to adjust to lower subsidies and reduced ethanol usage in the future.

Reducing ethanol subsidies and payment for ethanol production will provide the funds for natural gas subsidies and eventually save billions of dollars when ethanol subsidies and requirements are eliminated.

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7 Comments leave one →
  1. April 19, 2011 5:29 pm

    If you look at the prices posted daily on CNBC, you will note that the wholesale price of gasoline is about $3.20 per gallon(or $25.00 per million Btu)and natural gas is about $4.20 per million Btu. This means the wholesale price of natural gas if we put it on a GGE basis is about $0.53 per gallon.

    The retail price for consumers for gasoline is about $0.60 above the wholesale price. About $0.45 of that markup is due to state and federal taxes. The retail price for CNG is about $1.80 per gallon above the wholesale price. I assume the same taxes apply to both products. CNG has a far greater markup, most likely due to problems with marketing. There should be a way to bring CNG down to $1.50 per gallon and keep it at that price no matter what happens to the price of oil per barrel.

    I still have not seen any comments about the range of CNG cars. I would like it to be at least 200 miles.

    James H.Rust

    • April 19, 2011 7:10 pm

      The range of the Civic GS is said to be 225 miles.

  2. May 3, 2011 5:58 pm

    The single largest subsidy is the 45 per gallon excise tax credit for ethanol. But in addition to this credit there are production and investment tax credits for renewable electricity production for clean-fuel burning vehicles as well as credits and subsidies for energy efficiency investments in homes and workplaces.

  3. April 6, 2012 9:23 pm

    LNG as a transportion fuel is the way of the future. Great post.



  4. May 4, 2012 11:03 pm

    Donn….what if we went to auto-H2…liquid hydrogen? Using natgas as feedstock,
    make hydrogen, store as a liquid at a large central plant, deliver to many stations via
    tank-truck. UCDavis has done a study on this. (Another way to use natgas)
    Do you think this could compete with LNG?

  5. May 5, 2012 9:32 am

    Thanks for the question.
    I published an article on August 12, 2010 on this subject.
    Yes, this is a possibility.
    Refineries make hydrogen from natural gas for use in their processes and this method could be a source of hydrogen for transportation.
    There are four reasons why this is a difficult option.
    1. The cost of fuel cells is several times higher than the cost of internal combustion engines.
    2. Storage on the vehicle (i.e., cars) currently would have to be in cylinders under high pressure, probably 10,000 psi. This makes designing the vehicle difficult.
    3. Distributing the hydrogen from a central production location results in losses when transported in cryogenic trucks. Or a new system of pipelines would have to be built. Or hydrolysis could be used to produce hydrogen at the point of sale – and this has drawbacks.
    4. A system of fueling stations would have to be developed.

    You may want to look at the article as it goes into greater detail.

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