Carpe Diem

Natural gas is 80% cheaper than oil on an energy-equivalent basis, and can save commercial truck fleets a bundle

oilgasThe chart above is an update of one I’ve featured before showing the percentage price difference between natural gas on an energy equivalent basis from January 1994 to February 2013. To compare oil (priced in dollars per barrel) and natural gas (priced in dollars per million BTUs) on an energy equivalent basis, natural gas prices have to be increased by a factor of 5.8, because one barrel of oil produces 5.8 million BTUs of energy. Relative to the price of oil, natural gas prices have been falling steadily since early 2006, and are now almost 80% cheaper than oil on an energy-equivalent basis. In February oil was selling for an average of $95.32 per barrel, and natural gas was selling for $3.34 per million BTUs. At a multiple of 5.8 times to equal the same amount of energy produced by a barrel of oil, natural gas was selling for the equivalent of only $19.38 per barrel. That’s a real game-changer and is providing huge cost-saving incentives to switch from gasoline to natural gas and its derivatives to power vehicles, especially the commercial variety.

For example, consider this report from AutoBlog today:

Thanks to the precipitous drop in prices for compressed natural gas (CNG) and liquid propane (LPG), fleets can save a fortune by switching over to these fuels. OEMs such as Freightliner and Thomas Built Bus have jumped into the market. International now offers the Transtar Class 8 semi (above) that runs on CNG. A cost calculator on the truck maker’s website shows that a fleet can save well over $150,000 in fuel costs over the six-year life of a truck. For fleets that run their per-mile operating costs to the penny, this is a financial windfall.

Ford, General Motors and Chrysler now offer commercial trucks that can run on these fuels. Ford is the most bullish, offering 10 different models. It charges $325 to add harder valves and valve seats so a truck engine can accommodate CNG or LPG, but a customer must spend an additional $10,000 or so to add the tanks and fuel system. Even so, for many fleets, which can easily put 100,000 miles on the odometer a year, the payback only takes two years. Ford says its sales of these vehicles, while still small, have shot up 350 percent since 2009.

MP: With an 80% cost advantage over oil, we can expect a future with a lot more vehicles powered by CNG and LPG, because as the article points out, the “savings are simply too big to ignore.”

HT: hitssquad

25 thoughts on “Natural gas is 80% cheaper than oil on an energy-equivalent basis, and can save commercial truck fleets a bundle

  1. not only 10K per vehicle but billions in fuel dispensing facilities which until built-out enough will limit the value of the 10K conversions to only vehicles that can dependably get refueled.

    That’s going to be “tethered” fleets like transit buses and UPS/Fed Ex delivery, and/or fixed-route OTR.

      • Agreed if you are talking trucks its not all stations that need the fueling facilities just the major truck stops along major routes (interstates and major highways). For example if you drive an interstate into a major city you see truck stops on the outskirts of the town perhaps 3 or 4 of them on one side of town. Once one of these has natural gas fueling facilities the intercity truck fueling situation is solved. There is absolutely no need for every local station to have the natural gas fueling facilities. The big rig truckers find the truck stops much more usable as they are designed to allow big rigs easy access. In addition you put the facilities at the depots as well, and most intercity and delivery fleet trucks can be handled.

  2. There are a number of issues that make CNG not that cost effective.

    It would be easier just to turn the natural gas into diesel. The technology to turn gas into liquids (diesel, lubricants, jet fuel) has advanced greatly in the past decade. Shell’s Pearl GTL plant went online last year.

    Shell and a competitor, Sasol have plans to build GTL plants in the USA as well.

      • IMO, more like around $60 from the research I have done. I have read claims that GTL can be competitive down below $30 per bbl, but I am very skeptical of those claims.

        For gasoline, Exxon partnered with Gigamethanol and proposed a project in Alaska. Natural gas would be converted to methanol and transported via the crude oil pipeline (mixed with the oil). Then the methanol would be separated and processed into gasoline.

        http://www.greencarcongress.com/2011/05/janus-20110501.html#more

        I have no idea what the status is of the above project.

        • well, all these comparisons depend heavily upon the price of natural gas and it’s worth keeping in mind that that price will rise considerably if any meaningful portion of vehicle miles are fueled by GTL fuels.

          my understanding based on the shell plant in qatar is that with $4 gas, GTL fuels become competitive with oil at around $125/bbl if you load in the capital costs of the plant. (talk of $75 excludes this)

          “ick Manner, a vice president at consultancy KBC Advanced Technologies who has contributed to gas-to-liquids studies for Sasol and other companies, estimated that the projects must keep capital costs at $100,000 for every barrel a day of production capacity to be worthwhile economically at current prices of about $100 a barrel for oil and $4 per thousand cubic feet for natural gas.

          By that formula, Shell needed to cap costs at its plant in Qatar, which can make up to 140,000 barrels a day, at $14 billion. Instead, the project has cost at least $19 billion, which suggests that it will need a sustained crude price of about $125 a barrel, or lower natural gas prices, to be economic, Mr. Manner said. “There’s not a big future in it,” he said. ”

          XOM has expressed very public doubts that GTL will be competitive for 20 years.

          that said, i have pretty scant knowledge here, so if there are better figures, i’d be interested to see them.

          this seems like an open and contested issue.

          • My worry about natural gas prices is that we may see another major price spike in a few years. Below $4 per million btu, gas drillers barely break even or lose money. I have been reading the reports issued by companies such as Ultra Petroleum, Chesapeake, etc. and they are cutting back on the dry gas wells.

            Shale gas wells also have a much sharper decline rate than conventional gas wells. So we could see a sudden drop off in supply dry gas well drilling continues to scale back.

          • i share your concern, but the pricing picture will be more complex.

            it’s difficult to ship huge amounts of gas by anyhting other than a pipeline. thus, pipeline capacity is the other key factor.

            if you have wells that produce 100mm mcf of gas a day but only have a pipeline that can ship 80, then increases in production cannot be brought to market. this is part of what makes gas prices so volatile.

            what pipeline capacity will look like in the future is anybody’s guess.

            to my mind this is part of what makes GTL interesting. if you can locate refineries next to gas wells and rail, you suddenly may have somehting you can transport more effectively.

  3. Yes, natural gas can be converted into methanol ($1.55 a gallon, right now from Methanex) or other liquid fuels.

    It will be interesting to watch this one play out. Oil can not go much higher, but may not come down that much either. Natural gas will stay cheap, may get cheaper.

    Sooner or later, people and businesses will start migrating to natural gas.

    Beyond that, batteries are betting better and better all the time. Doubling in capacity and ability every 10 years.

    Sooner or later…you may not want to be in the oil biz….

    • maybe, maybe not.

      even if the rate you describe continues (and that looks pretty questionable) it’s going to be 30-40 years before batteries are ready for cars and far longer for trucks and you still have not addressed the big downtime for charging and the replacement costs of batteries as they lose the ability to take a charge.

      we’re going to need a major breakthrough in batteries to make them work for cars and trucks, not just incremental chemistry tweaks.

      • Boone Pickens in his proposal says that big rigs can’t be run on batteries, so natural gas is the best thing according to his proposals.

      • Morgan-

        Hope all is well.

        It may be a while for battery-cars. At $6 a gallon, I think we see PHEVs sell in 10 years. At $4 a gallon, then ordinary high mpg cars are fine.

        Still, the long-term trend is about 7-8 percent improvement in batteries annually. You are right, this may or may not hold. But if you read greencarcongress of newenergyandfuels, you will see there is a lot of action in batteries, and also other fuels. Oil may be a dinosaur.

        • ben-

          i am less convinced. i have some friends that actually work in the industry and have had to develop their own battery tech. the cost and the capacity are just not there nor is there any obvious sign they are about to be.

          (as an aside, if you want to see somehting cool, check this out: https://www.faster-faster.com/index.html this is the fastest bike on dirt for about 35 miles)

          there is always some new “breakthrough” getting trumpeted by a start up looking for funding, but somehow it never seems to go to production.

          even if battery capacity doubled tomorrow, that’s not going to be nearly enough. we need more like 10X to give cars acceptable range at highway speeds unless you want to pay $80k for a car. at present, just the batteries are $30k.

          there are also the serious issues of how many charges a battery can take before it starts to degrade heavily and, the real killer for any kind of long trip, recharge time.

          a chevy volt takes 14 hours to charge at 110v. even if you have some much heavier current, it’s still going to take HOURS. that’s just not practical in many applications.

          note that that charge will take you a whopping 35 miles.

          even at the massively powered tesla charging stations, it takes an hour to charge a model s if you believe their literature and more like 2 hours if you believe the NY times.. if you do it at home or anywhere else, you’re looking at more like 5-8 hours. the range claims are based on driving 55mph w/ cruise control. drive at 70-80 as most highways tend to move and your mileage plummets and suddenly the claimed 300 turns out to be about 170, which is really not much of a drive.

          this is a severe practicality issue.

          imagine how much you would hate spending 1-2 hours putting gas in the car and having to do so every 2 hours of real highway driving.

          climate extremes play havok with the batteries as well and electric vehicles really suffer in the winter.

        • “Oil may be a dinosaur.”

          i think it’s mostly prehistoric plants, but yeah, there is likely some dinosaur mixed in there too.

    • If the airlines can scrape by off their narrow profit margins then there’s absolutely no way people stop drilling oil for a long, long time. And for a lot of countries oil is all they have to sell, I doubt they will throw in the towel because they’re only getting 50% of what they used to receive for the same barrel.I would imagine they would just output more to recover the cost, prices go down again, although China and India joining the rest of the modern countries with everyone driving vehicles will spoil these hopes.

      Fingers crossed prices go down, I want my Super-Duty back!

  4. It is amazing. If you read any of the industry literature (check out TruckingInfo), it’s all about natural gas powered vehicles. In many ways, this is revolutionizing the heavy trucking industry.

    • jon-

      sort of.

      using a full nat gas engine for a class 8 truck has some serious issues around torque and horsepower.

      tryign to climb the rockies with an all nat gas engine does not work at present. their are hybrids that can do it that use a mix of gas and diesel and inject the gas through he turbo, but no full gas engines as of yet.

      the biggest provider is wesport. WPRT they do maybe $400mm in revs, but also lose staggering amounts of money (around $60 mm a year) and have burned through many hundreds of millions so far building what is still a niche product.

      • If you go to the westport HD site the have details on the lng based engines. They start with a cummins block. Also Peterbilt uses these engines, and given that Peterbilt sells to a lot of owner-operators, if the trucks were not up to snuff word of mouth at the truck stops would kill the idea.
        Here is a link to their web site which has torque and horsepower curves http://www.westport-hd.com/
        Now it may be that a different set of transmission ratios are needed however, but that is part of designing the truck.

        • lyle-

          if you compare the WSPT range to the cummins range, you will see that they are not at the high end. they peak at 400-475 hp (and those are very new), not the 600+ hpand 2000+ lbs of torque you’d need for a big load up the rockies. the cummins isx15 on which the biggest wspt engine is based comes in a lower power config (akin to wspt) but also in a 600hp 2050 lb torque version that wspt cannot build at present.

          this is why they got blown out in trials for the australian autotrain contract.

          it’s not that wspt doesn’t work, it’s that it has limited applicability and until someone can figure out this heat issue (assuming they can) they are only going to be in the low end of the class 8 market.

  5. Not mentioned in the article, but all major U.S. rails are now testing NG powered trains. Burlington Northern is America’s #2 diesel consumer–the United States Navy is the #1 diesel consumer. Expect the USN to make the conversion over the next decade.

    Caterpillar Tractor believes that NG is the future and they have a major commitment to convert many of their heavy earth movers over to NG power. Deere, Komatsu and others are moving in that direction. Retrofits are now available.

    Demand and its for NG will be skyrocketing over the next few years, This is especially true as the export of NG based products to places like China begins to massively kick in. Do not expect to see NG’s price to remain at presently depressed levels.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>