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By Robert Rapier on Sep 25, 2009 with no responses

CNG in Your Beer

Tags: CNG, natural gas

Thanks to a reader for this story:

Cheap Natural Gas Drives Truck Alternatives

NEW YORK (Dow Jones) – If you order a beer in New York, the odds are growing that it was delivered by a truck running on natural gas.

Beer distributors are among a growing vanguard of private trucking fleets encouraged by cheap natural gas and new government funding to adopt compressed natural gas, known as CNG, as a cleaner alternative to diesel.

As I have argued before, I think it makes a lot of sense for fleet vehicles to migrate to compressed natural gas (CNG). Natural gas is historically a lot cheaper fuel than liquid fuels such as diesel or gasoline. A quick check of prices today shows natural gas for October delivery at $3.78 per million BTUs (MMBTU). By contrast, gasoline is currently trading at $1.62/gallon (spot market, no taxes included) which works out to be $14 per MMBTU. Ethanol is trading on the CBOT at $1.66/gal for October delivery, which works out to be $21.84 per MMBTU. (In 2006, Popular Mechanics put together a graphic comparing different fuel options. See The Great Alt-Fuel Rally).

But more importantly than where prices are today is where prices are going. Natural gas will have a lot of resistance trying to sustainbly break through the $7-$8/MMBTU range because shale gas starts to become economical in that range – and we have a lot of shale gas resources. So if you are planning for the future, the odds are with you over the next few years if you are betting on moderate natural gas prices. Oil prices, on the other hand, are far more uncertain in my opinion.

The caveat of course is that the conversion can be quite expensive (the reasons for that were explained in a previous essay). The article explains that lawmakers are tackling that issue as well:

Paying for CNG conversions is still a problem. Federal funds are available to cover up to $32,000, or roughly two-thirds, of the additional costs associated with purchasing a CNG truck as opposed to a diesel one.

A company that gets the full $32,000 in federal funds should be able to make back its investment in less than three years, according to Natural Gas Vehicles for America.

Lawmakers in Congress are trying to shorten the time it takes to recoup costs on a CNG vehicle. Senate Majority Leader Harry Reid, D-Nev., is among legislators backing a bill, dubbed the NAT GAS Act, that would cover 80% of the incremental cost of a natural gas vehicle and give a $100,000 property tax credit to any company that builds a CNG fueling station. The bill has yet to come up for a vote.

The price differential between CNG and diesel/gasoline/ethanol-powered vehicles is quite large (around $10K for an individual vehicle), which is why natural gas may not make sense for individuals unless they drive a great number of miles. But that’s what fleets do, so it may make more sense to convert fleets over (and the localized nature of fleets also improves the economics of putting in CNG refueling stations). It all boils down to how many miles a year you drive and your expectation for the price differential between natural gas and gasoline/diesel/ethanol over the time you will drive the vehicle.

Finally, in the spirit of my previous post, fleet conversions are one more way to reduce our dependence on imported petroleum.