We operate today in a competitive market where, at present, oil prices are low and greenhouse gas regulations for vehicles are limited. However, this will change soon, so savvy fleet owners should be taking a serious look at what natural gas vehicles have to offer now. Here’s why.
To date, the economic argument for NGVs has been fundamentally tied to the price of oil. When conventional fuel prices are high, switching to stable, low-cost natural gas is very compelling. But when the cost of conventional fuels is low, this immediate economic argument fades.
Fleet owners who are only looking at the short-term economics forget that the oil market is highly volatile and prone to sudden price shifts.
Even now we are seeing oil prices starting to rise off their recent lows. Experts believe this trend will continue. In a recent Wall Street Journal survey, investment banks raised their future oil price estimates to $55 a barrel in 2017 — the third consecutive monthly increase. The U.S. Energy Information Administration’s recent Annual Energy Outlook foresees crude oil nearing $85 in 2020 and topping $100 in 2023.
That’s why running an average fuel price differential between conventional fuels and natural gas at current prices will underestimate the cost benefit of natural gas over the life of the vehicle, potentially significantly.
The long-term view is behind the decision by shipping giant UPS to invest in 12 additional compressed natural gas fueling stations and 380 CNG heavy-duty trucks.
“We own our fleet and our infrastructure. That allows us to invest for the long-term, rather than planning around near-term fluctuations in fuel pricing,” UPS explained when announcing its investment earlier this year.
When major shipping companies such as UPS switch significant portions of their fleets to alternative fuel vehicles, those who don’t will miss the savings and fall behind their competition. From 2011 through 2014, fleets averaged a $2-per-gallon savings with natural gas compared with diesel fuel. For a heavy-duty pickup truck consuming 2,000 gallons per year, this equated to a $4,000 savings. For a Class 8 weight segment, or heavy-duty truck, consuming 20,000 gallons, the savings reached $40,000.
There’s more to this than just the fuel-cost savings. The 2016 Paris Agreement on climate change and the Environmental Protection Agency’s proposed Phase 2 GHG Standards for medium- and heavy-duty vehicles will force the trucking industry to reduce carbon emissions. Vehicles will need to change in order to comply, and NGVs will have an advantage.
We saw this in 2010 when regulations limiting emissions of particulate matter and oxides of nitrogen were introduced for medium- and heavy-duty trucks. Manufacturers were forced to add expensive exhaust after-treatments to diesel engines, but there were no changes for NGVs because they were cleaner.
As regulations become more stringent, the engine technology offering the lowest possible carbon emissions at the lowest possible price will ultimately win.
The technology to meet the proposed EPA Phase 2 GHG regulations already exists for natural gas engines and can offer long-term benefits across a broad range of heavy-duty vehicles. The new ISL G Near Zero 8.9-liter natural gas engine from Cummins-Westport — a joint venture between Westport and engine manufacturer Cummins — already meets these proposed standards through 2027. Moreover, the technology can exploit the ultra-high octane properties of natural gas to create advanced, high-efficiency powertrains that match, or even exceed, diesel engine performance.
The cost advantage of natural gas will increase. According to industry estimates, full compliance with the proposed EPA regulations will add several thousand dollars to the cost of vehicles running on conventional fuels — as much as $11,000 extra for a tractor trailer in 2024. As GHG rules tighten, NGVs will cost less than compliant conventional fuel vehicles, creating a compelling economic argument even without factoring in fuel savings. Fleet owners should focus on the environmental benefits of NGVs now and reap the economic benefits in the future.
Federal and state governments are on board with NGVs and are offering the trucking industry incentives to adopt natural gas in recognition of the environmental benefits. In December, Congress passed the Fixing America’s Surface Transportation Act, which offers weight exemptions to heavy-duty natural gas trucks. The California Air Resources Board also plans to make it easier for fleets to adopt more sustainable solutions. Its 2016-17 Low Carbon Transportation and Fuels Investments budget proposes allocating $175 million for zero- and near-zero-emission heavy-duty vehicle projects, including incentives for new low-NOx natural gas trucks.
With the real long-term cost differentials, inherently low carbon emissions and technology that complies with upcoming GHG regulations, NGVs are a smart choice. The trucking industry needs to look to the future — which is really just around the corner — and decide where it wants to be. Heavy-duty fleet owners have a choice: They can either start planning for a move to alternative fuels now or face a costly future when the inevitable happens.
Article originally appears in Trucks.com