Welcome to Part II of our series where we take a look at how compressed natural gas (CNG) is doing in the age of low diesel prices. It’s no secret that oil prices have gone down, thus weakening the demand for alternative fuel vehicles.
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As fleets across the country work to reduce their environmental footprint, alternative fuels are a great way to do it. The fact that alternative options don’t suffer the volatility of the oil market, the change can’t be brought on soon enough for some.
Recent technological advancements – whether you are talking about near-zero NOx engines or other forms – making the conversion just makes sense for many fleets… or does it? Some say, is there a return on my investment?
Cons to the Pro
While every advancement has its detractors, there are those that say a move to CNG simply doesn’t cut the ROI mustard. Not only is a move to natural gas easily justified in the short term, but the capital investment required to purchase Class 8 natural gas trucks can come in around 50 percent higher than a similar diesel-powered truck.
With the current diesel price hovering around $2.20 for the diesel gallon equivalent of CNG, it’s hard for some fleets to justify the capital investment. Generally, one would look for a differential of around $1.00 to justify making the switch.
Another problem lies in resale value. Typically, considering the lack of infrastructure, resale cost for such vehicles amounts to scrap. For this reason, those purchasing CNG vehicles need to ponder operating them on a longer than normal life cycle, say five to seven, rather than the three to five-year cycle.
Some say it has never been more difficult to calculate a positive ROI for CNG conversion in this age of cheap diesel. Yet, the future doesn’t look completely bleak for this alternative fuel.
There are upsides to converting your fleet to CNG. After all, there are more things at play here than a simple short-term return on investment calculation.
Making the Case
Take, for instance, how much a $1.50 per gallon differential may sway any potential doubters. While two or three years ago fleets were more concerned with whether there was really an economic benefit versus using diesel, many are now coming around, tossing away old ideas that fueling infrastructure and maintenance costs are problems.
In our last look at CNG, we examined how UPS is managing their expansion into CNG and alternative fuels. Today we will examine how another large truck operator is doing: Ryder. As one of the undisputed industry leaders in truck rentals, Ryder has been making a big push into CNG.
Ryder puts a specific emphasis on maintenance when evaluating its transition. As with any major decision, a move to natural gas must take all aspects into account. Even though investments in training and infrastructure might cause some short term pain, will there be long term gain?
Perhaps not. Consider that fleets are better able to forecast fuel costs when they are working with a fuel option that doesn’t suffer the same market volatilities as oil.
Many states also offer incentives for switching to CNG. In some, a purchaser can get refunded up to 80 percent back on their initial purchase price for CNG vehicles. There’s also a federal credit that amounts to 50 cents for each diesel gallon equivalent the operator uses in the course of normal operations.
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In the end, there are several factors at play when a fleet decides to make the switch to CNG. Whether or not the numbers pan out for your operation is up to your back office to figure out. In the meantime, expect CNG to continue its expansion as diesel prices continue to wildly fluctuate.