(by Rebecca Smith, The Wall Street Journal, WSJ.com) – Rising diesel costs last year forced Waste Management Inc. to charge customers an extra $169 million, just to keep its garbage trucks fueled. This year, the nation’s biggest trash hauler has a new defensive strategy: it is buying trucks that will run on cheaper natural gas.
In fact, the company says 80% of the trucks it purchases during the next five years will be fueled by natural gas. Though the vehicles cost about $30,000 more than conventional diesel models, each will save $27,000-a-year or more in fuel, says Eric Woods, head of fleet logistics for Waste Management. By 2017, the company expects to burn more natural gas than diesel.
“The economics favoring natural gas are overwhelming,” says Scott Perry, a vice president at Ryder Systems Inc., one of the nation’s largest truck-leasing companies and a transporter for the grocery, automotive, electronics and retail industries.
The shale gas revolution, which cut the price of natural gas by about 45% over the past year, already has triggered a shift by the utility industry to natural gas from coal. Vast amounts of natural gas in shale rock formations have been unlocked by improved drilling techniques, making the fuel cheap and plentiful across the U.S.
Now the shale-gas boom is rippling through transportation. Never before has the price gap between natural gas and diesel been so large, suddenly making natural-gas-powered trucks an alluring option for company fleets, rather than an impractical idea pushed mainly by natural-gas boosters like T. Boone Pickens, the Texas oilman. Railroad operators also are being affected as coal shipments decline.
Many fleet operators, particularly long-haul truckers, remain concerned about a scarcity of refueling stations. Other challenges include the bulky tanks for compressed gas and the hazards of handling liquefied gas. In the past, the volatility of natural-gas prices also hampered wider use.
For years, a barrel of oil cost about as much as six units of natural gas and their prices moved in tandem, notes Don Mason, a gas-industry consultant in Ohio. Today, a barrel of West Texas Intermediate crude costs more than 33 times as much as a unit of natural gas in the U.S. At the pump, a gallon of diesel often costs more than twice as much as CNG, on a diesel-gallon-equivalent basis.
“I think we’re at a turning point, even if it’s a slow, wide turn,” Mr. Mason says.
Although the U.S. has loads of natural gas, adoption of natural gas vehicles has been spotty. Less than 0.1% of vehicles on American roads burn the fuel today and the percentage sagged slightly from 2005 to 2010, when federal policies encouraging their use waned. The number began edging up last year, lifted by market forces. …
Many people are trying to figure out whether natural gas really has legs as a transportation fuel. Greg Burns, chairman and chief executive of PLS Logistics Services Inc. in Pittsburgh decided this year to ask 100 trucking company executives. The result: eight in 10 respondents said natural gas in its densest form, as LNG, has potential for highway use. Nearly a third said they were actively researching it for their own companies. But 54% said current infrastructure is inadequate and 23% worried about the higher cost of the trucks.
Mr. Burns’ conclusion: “If you have a long-enough time frame, it’s a pretty bullish picture.” [bullish is defined as: optimistic about something’s or someone’s prospects]
Some truckers soon will have the ability to hedge their bets [protect from losses by having an alternative]. That is because the Environmental Protection Agency [EPA] recently approved retrofit technology for big rigs that lets them burn LNG and diesel. Kathryn Clay, executive director of the Drive Natural Gas initiative of the American Gas Association, says “the new technology is really game changing because the trucker can run on either fuel, eliminating refueling anxiety.”
The potential market is enormous. The 3.2 million big rigs on U.S. roads today burn some 25 billion gallons of diesel annually. Almost 7 million single-unit trucks, such as UPS or FedEx Corp. trucks, consume another 10 billion gallons of diesel.
Converting even a modest number of these trucks, which often get 5 to 8 miles a gallon, to natural gas could save significant amounts of money. Tailpipe emissions also would drop, since natural gas burns cleaner than diesel or gasoline.
If large numbers of fleet operators decided to embrace natural gas, it could rev up [speed up; increase] truck manufacturing, which slowed dramatically during the recession. North American heavy duty truck sales peaked in 2006 with 360,000 units, just ahead of tighter emission standards [implemented by the EPA], and plunged to 110,000 units in 2009.
Noel Perry, principal at Transport Fundamentals Inc., a trucking research company in Lebanon, Penn., says one disadvantage of natural gas is that it isn’t as dense as diesel. CNG is only 25% as dense and LNG is 60% as dense. That means trucks need more tanks or bigger tanks to go as far, or they must refuel more often. That’s not a big deal for city buses or delivery trucks that go back to home base each night, where they can refuel. But it’s a problem for trucks that drive unpredictable routes or venture out into the hinterland.
Ann Duignan, managing director at J.P. Morgan Equity Research, says “there’s huge excitement” about natural gas but infrastructure immaturity will depress truck sales. She expects fastest adoption among fleets that can run on CNG and return home each night but is skeptical about long-haul trucking. “It will be slow, steady, one-fleet-at-a-time type growth,” she says.
Write to Rebecca Smith at firstname.lastname@example.org.
Copyright 2012 Dow Jones & Company, Inc. All Rights Reserved. Reprinted here for educational purposes only. Visit the website at wsj.com.
1. What factors are contributing to some trucking companies’ decision to switch to natural gas powered trucks? (see para. 1, 4-5, 7)
2. How has the rising price of diesel fuel used by trucks affected consumers?
3. What concerns do long-haul truckers have with switching to natural gas?
4. How is one of these concerns addressed by a recent EPA ruling?
5. a) How does the density of natural gas negatively affect its use by long-haul truckers?
b) Will the EPA ruling affect this drawback? Explain your answer.
6. What percent of vehicles on U.S. roads are powered by natural gas today?
7. Consider the pros and cons of switching to natural gas fuel vehicles. Also, re-read paragraph 10. Do you think switching to natural gas is a good idea for long-haul truckers? and/or other vehicles that are used in cities or for local driving? Explain your answer.
NOTE: “Answers by Email” has ended for the summer–daily news postings will end June 8th — have a great summer!
On government subsidies for alternative-fueled vehicles:
President Obama, speaking at a Daimler Truck manufacturing plant in North Carolina on March 7, 2012, claimed that oil is “the fuel of the past”. Besides wanting an ‘all the above’ energy policy that omits coal, our most abundant fuel, the president wants to convert all of our vehicles to natural gas and electric hybrid. Whether that makes economic sense or not seems immaterial to the president. His goal is to make both coal and oil “fuels of the past.”
The public cannot afford the cost of [subsidizing] alternative-fueled vehicles and would find the lack of refueling stations a major obstacle. If natural gas prices remain low and manufacturers can reduce the price of natural gas vehicles to make them competitive with gasoline-fueled vehicles, the natural gas fueling infrastructure and vehicles will expand without the need for government subsidies.
Also from instituteforenergyresearch.org:
In actuality, there is no reason for the government to dictate terms for the expansion of natural gas as a transportation fuel; free markets are already doing so. Recently, Chrysler and GM announced the addition to their truck lines of dual-fuel vehicles which can run on either gasoline or compressed natural gas. They are doing so because of perceived consumer demand, rather than political demands and directed industrial or transportation policies. With natural gas currently at the equivalent of about $12 per barrel, consumers will pursue their own best interests as they perceive them, rather than await the centralized energy planning currently in vogue in Washington.
From the article:
On the lack of natural gas filling stations: (from online.wsj.com/article/SB10001424052702304707604577422252404819664.html)