Opinion: Weigh Natural-Gas Equipment’s Costs, Benefits
This Opinion piece appears in the Nov. 19 print edition of Transport Topics. Click here to subscribe today.
By Joe White
The sold-out Natural Gas in Trucking Summit attests to the phenomenal growth of interest in compressed natural gas and liquefied natural-gas equipment from both sides of the loading dock (10-29, p. 6; 11-5, p. 4). Trucking company executives and shippers alike are aggressively analyzing what they see as the two major benefits of natural-gas equipment: lower fuel costs and reduced carbon emissions. The obvious question that analysis needs to answer now is this: Do the benefits of natural-gas equipment outweigh the additional costs of the equipment?
For trucking companies, the fuel cost advantage can be very significant — or only slightly significant, depending on the carrier and the type of operation. Natural gas is cheaper than diesel fuel. The current national average CNG pump price is $2.40 per diesel gallon equivalent, compared with $4.10 a gallon for diesel. Significant savings in fuel costs are critically important if a trucking company is going to pay an additional $40,000-plus for each CNG tractor.
However, the lower pump price of CNG is not nearly the financial incentive for public fleets as it is for private fleets because of the effect fuel surcharges have on the net fuel cost of for-hire carriers. Here’s why:
Differences between current average pump prices for diesel ($4.10) and CNG ($2.40) suggest a $1.70 a gallon savings with CNG. However, most for-hire trucking companies have fuel surcharges in place that reimburse them for diesel costs above a base price of $1.25 a gallon (base prices differ, but $1.25 is representative). Often, fuel surcharges are structured to effectively make a carrier’s net cost of fuel equal to their base price — $1.25 a gallon — regardless of pump price. Therefore, it does not matter what the for-hire carrier pays at the pump — $4.10 (diesel) or $2.40 (CNG). Their net cost after surcharge will be about $1.25 per gallon.
Consequently, if most or all of the fuel cost savings associated with CNG equipment eventually go to shippers in the form of lower surcharges, the for-hire trucking company will end up paying the same net price for CNG as for subsidized diesel.
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