Guest Commentary: Making Operational Sense of Natural Gas

As a major burner of fossil fuels, the trucking industry appears to be a good candidate for adopting cleaner, more cost-effective natural gas as a fuel. However, while the case for conversion is strong, it is not clear cut.

The pros and cons were discussed at the American Trucking Association Natural Gas Summit in Washington D.C., on November 28th, 2012.

The strong economic arguments in favor of natural gas were laid out in the conference, and these are described in my recent TMC blog post The Cost of Natural Gas. In short, the price of compressed natural gas (CNG) is equivalent to a diesel price at the pump of $1.50 to $2.00 per gallon. Liquid Natural Gas (LNG) comes in at an equivalent of around $2.00 to $3.00 per gallon of diesel at the pump.

Of course these comparisons will change if fuel costs go up or down, and the extent to which natural gas will maintain its current price advantage over the next few years is an open question.

The operational case for CNG/LNG is a little more complex.

“Return to home” fleets such as garbage trucks, school buses, and even LTL service providers are adopting natural gas much more quickly than over-the-road, long haul carriers. One reason for the disparity is that it takes longer to fill a truck tank with CNG than with diesel. For example, it would take 5 to 8 hours to refuel a truck with CNG using the same filling system and pressure that utilities use to stock up household natural gas tanks. This is the cheapest and most efficient method. There is a “fast fill” option for compressed natural gas, but this still takes longer than conventional diesel pumps and there is a loss of capacity; about 30 percent of the tank remains empty after fueling. LNG does not have this drawback, but the fuel is more expensive than CNG.

These limitations – along with power and range restrictions – make CNG less attractive on long-haul routes where trucks are unable to visit a refueling point every night to replenish their tanks.

More filling stations at truck stops would help to solve this problem. However, CNG companies have to decide whether to build refueling capacity now in anticipation of rising demand, or wait until more carriers make the switch to natural gas.

Some companies have decided to take the plunge. At the ATA conference, the CEO’s of three truck stop organizations — Love’s, Travel Centers of America (TA), and Pilot/Flying J — outlined their market strategies. Pilot/Flying J has partnered with the fuel company Clean Energy and is aggressively installing LNG capacity at all its stations. The partnership expects to have more than 150 LNG-capable fueling facilities in operation by the end of 2013. TA has partnered with Shell, and aims to have about 30 fueling stations with LNG capacity by the end of 2013 in the U.S. Midwest and Southeast. Love’s is focusing on integrating CNG into its existing diesel lanes.

An interim option for carriers that want to convert now is to fit dual-fuel aftermarket kits that enable diesel-powered vehicles to burn CNG as a supplementary fuel. In a typical configuration, an extra tank for CNG is installed in the vehicle’s roof faring. It is estimated that carriers can recoup their investment in a kit in approximately one to two years, depending on the quantity of CNG burned and the number of miles driven.

An intriguing question is what impact, if any, CNG-powered trucks will have on fuel surcharge programs. To a large extent this depends on how many carriers switch to the cleaner fuel. A thorough research paper from ACT Research, the publisher of commercial vehicle industry data, projects that about 10 percent of large long haul carriers and 2 percent of small operators in this market will have adopted some type of natural gas equipment by 2017. Since the ACT estimates appear to be realistic, we do not anticipate any structural pricing changes over the next three to five years in the long haul segment, and hence no significant shift in fuel surcharge practices following the introduction of natural gas.

Also, in specific short haul, round trip, heavy volume, or dedicated lanes, fuel surcharges may not be necessary if a carrier is confident that CNG and LNG prices will be stable, and it’s possible to accurately predict fuel costs six to 12 months hence. In these cases a flat rate may satisfy a carrier’s risk of widely fluctuating costs versus the shippers desire to establish stable rates.

However, price shifts and technological advances can change this picture. We will continue to monitor developments and keep you posted.

Jason Craig is Manager, Government Affairs at C.H. Robinson Worldwide. Jason has over 15 years of industry experience and a deep understanding of government policies. He monitors regulatory and legislative affairs impacting the transportation and produce industries for C.H. Robinson. In addition, he is a frequent contributor to Transportfolio and the TMC Blog Jason is a graduate of Carleton College and serves as an election judge in the City of Minneapolis.