Let Markets Decide Natural Gas’ Role in Transportation

Let Markets Decide Natural Gas’ Role in Transportation

With abundant natural gas certain to become more plentiful, many wonder whether it could replace gasoline and diesel as a transportation fuel. Some even think the government should subsidize such a conversion.

However, the market appears to be answering the question without massive subsidies of the kind that led to Solyndra-style debacles in solar energy.

Consider the contrasting experiences of Cabot Oil & Gas, a major developer of Pennsylvania’s Marcellus Shale region, and Petroleum Products Corp., an operator of pipelines and storage facilities for gasoline and diesel in the same state.

With a $1 million compressed natural gas (CNG) fueling station, Cabot supplies 60 company vehicles and hauls CNG in two truck trailers equipped with tanks from the station to fuel equipment at drilling sites.

The station’s CNG costs the equivalent of $1.25 a gallon of diesel, reports Bill des Rosiers, a company spokesman, who notes that the retail price at a public station would be higher, though still cheap, because of taxes and marketing and transportation costs. Cabot expects to build more stations for its growing fleet in the coming years.

On the other hand, Petroleum Products points to a hauler of petroleum and other liquids that decided against CNG and liquid natural gas (LNG) as a fuel for reasons of safety and economics. Some of the factors listed for the decision include:

  • A cost of up to $100,000 per truck bay to “explosion-proof” maintenance areas.
  • Smaller payloads resulting from the additional weight of fuel tanks for natural gas-powered vehicles.
  • Concern that the price of natural gas will rise from its current historic lows.
  • Higher purchase price of natural gas vehicles.

While the divergent views of Cabot and Petroleum Products align with their core business interests, the perspectives of perhaps more disinterested parties differ as well.

Reuters reports on two freight haulers with mixed results from using natural gas:

“We can’t make the economics work,” said Randy Mullett, a vice president at Conway Inc, one of the country’s largest trucking companies. “The upfront cost is too high.”

Con-way is testing two compressed natural gas trucks in the Chicago area and plans to add three or four liquefied natural gas (LNG) trucks in Texas, where state incentives will help offset the added costs. But Mullett said fueling big rigs with natural gas is “not the slam dunk that it’s presented to be.”

C.R. England, a family-owned truck company based in Salt Lake City, Utah, has been running five LNG trucks between Ontario, California and Las Vegas since late 2011 but has yet to make back the close to $80,000 premium it spent per vehicle.

The company is hoping it will win a grant from Pennsylvania to help it add five CNG trucks to serve Hershey Co. The state is awarding grants of up to $25,000 per vehicle to cover up to half of the added cost of a natural gas truck.

C.R. England would probably not seek to buy any more natural gas trucks without such an incentive, said Allen Nielsen, director of fuel for the company.

Seemingly more sanguine about gas’s prospects is Atlanta-based UPS, who announced in October a $50 million investment to build nine liquefied natural gas stations, bringing its total number of stations to 13.  All are expected to be operational by the end of 2014.

UPS’s fueling infrastructure will support approximately 1,000 company LNG truck tractors, according to Susan Rosenberg, a UPS spokeswoman.

The $54 billion logistics company currently operates approximately 1,000 compressed natural gas vehicles and will begin a pilot program testing CNG tractors in early 2014.

“The natural gas industry needs companies to commit to using natural gas to help establish a reliable alternative to traditional fuel, and that is just what UPS is doing,” said David Abney, UPS chief operating officer. “The UPS strategy is both environmentally friendly and economically viable. LNG is becoming more readily available, plus it’s more insulated from market volatilities than diesel fuel.”

However, even with UPS’s large investment, only a small fraction of its 100,000 vehicles will be running on natural gas in the immediate future.

Ms. Rosenberg says no one fuel is the right one for everything. UPS’s LNG-fueled trucks will travel a maximum of 150 miles from their LNG station. Other vehicles will continue to use gasoline, diesel and other alternative energy sources.

“We take a rolling laboratory approach so that we are always testing different sources of energy for our vehicles,” she said.

While UPS will take advantage of government incentives where they exist, says Ms. Rosenberg, the long-term economics have to make sense.

Yet there are those bent on doling out public money.  The Progressive Policy Institute has a sizable list of recommendations for Congress to advance natural gas as a transportation fuel. In Pennsylvania, legislation has been proposed for the state to subsidize natural gas conversions.

Instead of diverting public funds from things government should be doing — or taking more from taxpayers — why not let private companies risk their own money figuring out what fuel is best for them? They seem to be doing a good job of it so far.

Gordon Tomb is a senior fellow with the Commonwealth Foundation, a Pennsylvania-based group that advances free-market approaches to public policy. gwtomb@gmail.com

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