Carriers Switching to LNG Can Reap Significant Cost Benefits, Says Canadian Report

| Canada, Ottawa

Calgary-based Ferus Inc. introduced an LNG tractor to its fleet in March 2012

The Conference Board of Canada, an independent, not-for-profit applied research organization, estimates that converting fleets to natural gas could generate savings of approximately $150,000 per truck over a 10-year period. This saving is nearly twice the cost of installing a natural gas engine – estimated at $80,000 per vehicle.

“Our models indicate that while the capital costs are high, the savings from lower fuel costs make natural gas an economically viable fuel for the trucking sector,” said Vijay Gill, co-author of Cheap Enough? Making the Switch From Diesel Fuel to Natural Gas. “Trucking firms could reap significant net benefits in operating costs while also reducing their environmental impact.”

This report considers the potential for natural gas as an alternative to diesel as a transportation fuel for heavy-duty trucks in particular, as well as for rail and marine operations. To become a viable transportation fuel, natural gas must be compressed or liquefied, which restricts a vehicle’s range or makes a larger fuel tank necessary (which reduces the truck’s carrying capacity). This report focuses primarily on modelling the impacts of trucks powered by liquefied natural gas (LNG), since it out-performs compressed natural gas (CNG) in terms of range.

The financial impact of converting trucking fleets to natural gas includes the expected operating cost savings over the life cycle of the vehicle, the additional upfront capital costs, and the impact of fuel taxes and capital cost allowances.

Historically, natural gas has traded about half the price of crude oil per unit of energy. That gap has steadily widened and continues to grow, which leaves room to cover the additional costs of compressing or liquefying gas for transportation fuel.

While natural gas is a non-renewable fossil fuel that contributes to overall GHG emissions, it is “cleaner” than oil and more readily available in the short term than zero-carbon alternatives. GHG emissions would be expected to fall by more than 50 tonnes per truck per year, assuming no additional demand is generated as a result of the lower operating costs.

Other than the additional cost of the trucks themselves, potential hurdles to the wholesale adoption of natural gas as a transportation fuel include tax policy and refueling infrastructure. Nearly half of the estimated savings from natural gas vehicles are in the form of fuel tax savings, as natural gas is currently exempt from the equivalent of a road diesel excise tax. Uncertainty over whether natural gas could lose its tax exemption compounds the disincentive created by the high capital cost of converting to natural gas engines.

As well, refuelling infrastructure that is both prevalent and competitive with other fuels will have to be developed to make LNG a viable energy source for vehicles – especially as liquefaction adds to costs and reduces the life-cycle energy balance.

The report concludes that while carriers willing to convert their fleets to natural gas do face significant capital costs and continuing risks related to relative fuel prices, availability of fuelling infrastructure, and tax policy, they could reap significant net benefits in operating costs while also reducing their environmental impact.

The Conference Board’s Centre for Transportation Infrastructure (CTI) promotes the development, maintenance, and efficient operation of transportation networks. It brings together business and government leaders to discuss critical issues, ranging from the challenge of financing transportation investments, to the efficient and sustainable use of existing capacity. It also provides a platform for in-depth research to shed light on these issues.

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