Hype over, alternatively fueled vehicles fight for market share as price of diesel dips to two-year

A couple of years ago, the rush to alternatively fueled vehicles was on. Diesel prices had surged past $4, the American Trucking Associations hosted an overflow crowd at its alternative fuels “summit” for trucking executives and energy tycoon T. Boone Pickens offered what might have been the ultimate assessment of where fuel prices were headed.
 
“I mean we have so much natural gas,” said the man with a net worth just south of $1 billion, “we are going to see $5-a-gallon diesel before we’ll see $3 natural gas.”
  
Pickens may still be right, but currently the global oil markets are awash in crude. Diesel prices are hovering at a two-year low, around $3.80 a gallon at press time. Meanwhile, compressed natural gas (CNG) is about $2.11 nationwide, although it is cheaper in some areas of the country.
  
But what trucking executives say is hindering greater use of CNG, and its liquefied cousin LNG, are two huge hurdles halting expanded use of alternatively fueled vehicles:
-additional upfront costs of as much as $50,000 for a $150,000 CNG-powered tractor. Running 125,000 miles a year, it would take about four years under today’s energy prices for that vehicle to pay for the increased upfront costs. Many heavy truck fleets turn over their fleets every three to four years; and
-lack of a saturated CNG or LNG nationwide network of truck refueling stations, although more are being built every year.

This year, about 11,000 heavy-duty trucks will be sold that run on natural gas, a 20 percent rise from 2013. That is out of a total North American Class 8 sales estimate of about 297,000 for 2014, a 21 percent surge over last year’s sales.
       
“There are a fair amount of alternate fuel vehicles being sold,” Chuck Hammel, president of Pitt Ohio, the nation’s 17th-largest LTL company, told LM. “The problem with natural gas trucks is not so much infrastructure but cost of the vehicle and the unknown on what the resale value will be at time of trade in.”
  
Hammel says with diesel trucks, he can tell exactly “how much we will get on trade in three years from now. But with CNG that is an unknown since the technology is changing so rapidly. “

“So far with the trucks we are testing the technology looks promising. We are getting good fuel efficiency and the power is adequate.”
  
But Hammel says “the price is a killer” so for the most part the trucking industry would need subsidies to justify the cost. “By our calculations it will take three years to recoup the cost difference, which makes it a pretty bad investment,” he says. 

And he noted that once Class 8 alternatively fueled trucks are able to be mass-produced by many heavy truck manufacturers, the cost will come down and they become a better option.
That may take a while. Indiana-based Cummins has delayed indefinitely development of its heavy duty 15-liter natural gas-powered engine. And a joint venture between Cummins and Vancouver-based Westport Innovations on production of a similar 15-liter engine ceased production a year ago.
 
There are still small success stories in use of alternatively fueled vehicles in trucking:
UPS, the world’s largest transportation company, has bought 1,000 natural gas vehicles in the past two years. Still, only about 2 percent of UPS’s overall fleet of 100,000 trucks worldwide run on CNG or LNG.

Saddle Creek Logistics, a Lakeland, Fla.-based 3PL, operates about 175 natural gas vehicles out of its total fleet of 550.

FedEx has 330 hybrid-electric delivery vehicles, including an all-hybrid station in New York City. It also perates 58 trucks fueled by CNG, LNG and LPG (liquefied petroleum gas), in Europe, the Asia Pacific and Latin America. FedEx has more than 320 LPG and electric-powered ground support equipment in use at a hub in Paris and other operational facilities across Europe, with another 55 on order. 

Shippers continue to apply pressure. Procter & Gamble, Lowe’s, Wal-Mart and Staples are among major trucking companies applying pressure on their carriers to increase use of alternatively fueled vehicles.

Clean Energy Fuels Corp., a key contributor to the natural gas vehicle fuel growth in Texas, says a recent Railroad Commission of Texas report shows CNG and LNG sales in Texas through July 31, 2014 were 220 percent above the fiscal year 2014 estimate.  An estimated 14.5 million gallon-equivalents of natural gas have been sold through this period, compared to the forecasted 6.6 million gallon-equivalents, Clean Energy Fuels said.

Patric Rayburn, spokesman for Clean Energy Fuels, a California-based company that builds and operates compressed natural gas (CNG) and liquefied natural gas (LNG) fueling stations and manufactures CNG and LNG equipment and technologies for itself and others, said he is seeing a “broad adoption” of natural gas-powered fleets across the refuse, bus transit and trucking markets. Texas, Pennsylvania and California are taking the lead in encouraging various trucking fleets to try natural gas vehicles.
  
Rayburn called the heavy duty long-haul trucking market as being “a testing phase.” A 12-liter engine was introduced to the market late last year, more and more fleets regularly power units to the test to see. Typically, trucking companies like to test new vehicles for at least two years, or maybe as many as 250,000 miles, to see how it performs in the long haul.
 
“That particular market is at a different place than the refuse market,” Rayburn said.
 
The lack of refueling infrastructure is “not a significant hurdle,” he said. According to the Department of Energy alternatively fueled data center, there are more than 550 natural gas fueling centers nationwide, with more than over 100 stations built in the past year.
“The market is responding to the needs of the trucking market,” he said. “The infrastructure is there.”
 
There are also financial carrots. GE Capital, a major lending source for truckers, is offering a discount on truck leases for natural gas-powered vehicles.
 
To take advantage of this opportunity, truck fleet operators must first work with Clean Energy to develop natural gas fueling contracts, and will then apply for loans and leases, including fair market value leases, from GE Capital to acquire natural gas-powered trucks. Clean Energy will then help offset the monthly cost of newly-acquired NGVs to make it consistent with the cost of a diesel truck, if the customer makes a fuel commitment.
 
“We think this alliance will help to open up the natural gas market for long-haul operators,” said Dan Clark, president and general manager of GE Capital’s Transportation Finance unit. “The alliance will support the parties’ mutual goal of reducing the financial impact of transitioning to natural gas and lowering the industry’s environmental footprint.”
 
One of natural gas’s inherent advantages is that over 98 percent of natural gas produced is in North America. “In terms of energy security, natural gas as an unbelievable advantage over foreign oil,” Rayburn said. “We have natural gas coming out of our ears. And the horizon for for stable natural gas prices is exceptionally long.”