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Wednesday, April 14, 2021

CNG Viable Fuel Option

The past two years have been a wild ride of plunging oil prices and, therefore, the plunging of diesel fuel prices for commercial vehicles in North America. The most talked about alternative fuel three years ago, liquefied natural gas, has become uncompetitive on a three-year payback basis at the $70-80/bbl. oil price range and therefore became radically uncompetitive as oil prices eventually bottomed out under $30/bbl. oil.

Now that the price of oil has spent some time bouncing around in the high $20s and low $30s per barrel and is trading at about $40/bbl. recently, the widely held consensus is that the lowest oil and fuel prices are behind us. It is also generally believed that in order for enough oil to be produced to match demand going forward, the price will need to return to the $60-80/bbl. range.

The open question is how long or short the time frame will be before the price resettles in that range. Indeed, the longer prices stay below that range, the less new drilling will take place in the interim and the higher prices are likely to go in the future when shortages develop due to insufficient new drilling now.

But the unsung opportunity all along has been compressed natural gas. Two of the three means of using CNG have remained competitive the entire time:

Self-compressed CNG for any fleet whose operations enable it to do centralized refuelling with their own compressors from their own natural gas utility pipe connection.
Bio-gas, for those with their own source for it, such as waste collection landfill sector, municipalities sewage systems and agricultural animal waste operations.

Only retail CNG at truck stops become uncompetitive at the lowest oil and diesel prices. And that will also return to competitiveness the soonest, at the lower oil/diesel; prices than for most other alternative fuels.

According to in-depth analysis in a just-released report by BCC Research, depending upon a wide range of variables, such as annual driving distances of 50,000-150,000 miles per year, and all the additional initial vehicle costs to outfit for on-board CNG fuel storage and engine use of natural gas, the added cost per diesel gallon equivalent of CNG fuel is $0.36-0.48/DGE for a three-year payback. So conservatively, any time that one can fuel a commercial vehicle with CNG for at least 50 cents per DGE less than with diesel fuel, then one will have at least a three-year or shorter payback by having equipped for CNG instead of diesel.

Currently the price of oil is trading at about $40 per barrel. And the United States’ national retail price of diesel fuel according to the Energy Information Administration was $2.12/gallon in the week of March 21, 2016. So if one can refuel one’s vehicles for $1.62 or less per DGE of CNG, then one will have a payback of three years or better.

The most recent U.S. national average natural gas prices from EIA are from December 2015, but they had been flat to declining slightly in recent months before then and are unlikely to be meaningfully higher today since the price of natural gas varies far less than the price of oil. Industrial natural gas pricing in December 2015 was at $3.38/MCF, which converts to $0.45/DGE, or a savings of $1.17/DGE as a bonus to what is required for a three-year payback. And even the higher-priced commercial natural gas price of $7.21/MCF, which converts to $0.96/DGE, generates a bonus savings of $0.66/gallon.

Thus, even at $40/bbl. oil, with diesel at $2.12/gallon, self-compressed utility pipe natural gas provides a major fuel cost savings versus diesel. But suppose that half of the time, the vehicles need to be refueled at truck stops farm from any of your central sites. The estimated natural average truck stop price for CNG is about $2.21/DGE. That is a flat-out cost penalty of about $0.09/DGE CNG and a failure to recover any of the conservative 50 cents per DGE to cover the added investment to equip the vehicle for CNG, so the total cost penalty when refueling remotely would be $0.59/DGE of CNG.

So, in the self-compressed industrial priced natural gas scenario, even with 50 percent of refuels performed at truck stops, one will save a net average $0.29/DGE of CNG in bonuses in addition to fully recovering all of your additional investment with a three-year payback. In fact, you could purchase about two-thirds of the total CNG fuel at truck stops and still achieve the three-year payback.

At commercially priced natural gas price for 50 percent of the fuel and 50 percent at truck stop prices, you would incur a $0.04 average savings more than required for a three-year payback. In other words, you still achieve your three-year payback completely.
In summary, even at the current low oil and diesel prices:
Self-compressed CNG provides significant savings for commercial fleets.

Even if one must purchase half of the annual CNG usage remotely at truck stop prices for CNG, one will still achieve a three-year payback.

Biogas is probably always a favourable proposition, no matter how cheap diesel prices are.