Truckers stand to save hundreds of thousands by ditching diesel for natural gas, as a continent-wide supply glut drops prices so low that gas is suddenly taking on new importance as a transportation fuel.
Swapping out engines is costly, but natural gas has grown so much cheaper than diesel that, according to a new analysis conducted by the Conference Board of Canada, a long-distance trucker could save nearly $160,000 over a decade by making the change.
Those savings exceed the value of a new diesel truck, which runs about $120,000, and show how compelling the case has grown for making natural gas into a transportation fuel. That has important implications for the energy sector, which has pushed gas as a transportation fuel to stoke demand, but has so far faced slow adoption.
But the industry's posture toward natural gas engines is changing. Last week, Frito Lay announced plans to convert much of its corporate fleet to natural gas over the next six to seven years. The company cited fuel savings of $2.50 (U.S.) a gallon, and a payback time for switching of a mere 18 months. UPS also runs a substantial natural gas fleet.
"The longer these prices hold low, the more momentum you're going to get in favour" of moving to natural gas, said Vijay Gill, principal research associate at the Conference Board, whose report will be published Tuesday.
The numbers are already swinging upward. Vancouver-based Westport Innovations and its partners shipped 5,739 natural gas engine units in 2011, up 46 per cent from the year before. Major energy companies like Royal Dutch Shell PLC have committed to building refuelling infrastructure in high-traffic areas in the Canadian West.
Yet many truckers remain skeptical, in part because though the savings are potentially substantial, there is also risk. The Conference Board did its math based on Alberta gas prices of about $3.50 (U.S.) per million BTU, which is more than double today's value. But gas has historically been prone to violent swings. It's been less than a half decade since gas prices exceeded $14, and even amid a large continent-wide gas glut, there are concerns that gas could swing upward again.
"There is a back-of-the-mind nagging: Is this price really a stable price? Or is it going to be volatile again?" said Peter Tertzakian, chief energy economist at ARC Financial.
Perhaps more importantly, much of the predicted savings in Canada comes from a tax quirk. Because natural gas has not been broadly used as a transportation fuel before, it is not subject to the same excise, or pump, taxes as diesel. The lack of tax is responsible for nearly $70,000 of the savings in the Conference Board scenario.
If governments begin to shift their tax codes, the savings diminish substantially. And there is good reason for governments to do so: If just 10 per cent of diesel use is transformed into natural gas, federal and provincial revenues would take a $350-million hit, the Conference Board found.
Still, it is becoming clear to truckers that there is merit to, at very least, taking natural gas for a test drive. Robert Trucking, for example, has set up refuelling facilities at its sites in Mississauga and just outside of Montreal.
Robert has been one of the early adopters of the technology. It announced plans to buy 180 natural-gas-powered trucks; it has since boosted that number to 200, and is currently at 55. Early operational and maintenance glitches have largely been ironed out, and "we feel that we are having the results we were expecting," said Jean-Robert Lessard, the company's vice-president of marketing and public relations. "This new equipment is very good for us regarding the cost of the fuel."
Still, one of the most imposing obstacles remains the construction of infrastructure. The U.S. refuelling industry has estimated a $70-billion cost to roll out LNG to gas stations and truck stops nationwide. That's largely because those stations simply don't exist today. Truck stop company Pilot Flying J, for example, currently pumps LNG at just three locations. But it's moving quickly: the company expects to hit 30 by year end, and 150 within two years.
So far, the pace of adoption "has been measured," said Mr. Gill with the Conference Board. But, he said, the economics of natural gas in trucks are beginning to look so good that "I wouldn't discount the potential of it speeding up suddenly."