With the price of oil continuing on its volatile ride, some fleets are wondering if they should make the switch from good old fashioned diesel fuel to an alternative fuel, or perhaps an electric or hybrid powertrain.
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Sure, when diesel was up, the numbers aligned much easier and suddenly alternative fuel technologies began to gain ground. Consider that less than half-a-decade ago, industry pundits were predicting that natural gas would power almost a fourth of all heavy-duty truck fleets today. Then diesel dropped, fueling infrastructure never developed and a greater emphasis zero-emissions trucks took hold. Suddenly compressed natural gas (CNG) never took over and oil is still the main man.
Just as fleets were putting their plans in place to make the transition over to these advanced new fuels, the precipitous drop in the price of oil added a layer of complication into the mix. We all know that diesel prices will rise again, but what they don’t know is when the rise will occur and how much it will hurt.
The New Requirements
The first thing on most carriers’ minds are the upcoming greenhouse gas/fuel economy regulations set to take hold. The final Phase 2 rules are set to cover model years 2021 to 2027 trucks. Trailers regulations kick in a lot sooner, at 2017 to 2027. The requirement will be that new stepped engines reduce their CO2 emissions by 4 percent. The Phase 2 rules will also cover natural gas emissions, the main sources of which on such vehicles being the crankcase and LNG boil-off.
But these changes go beyond a desire to meet regulatory requirements or lower fuel spending. Never underestimate the power of corporate sustainability goals. Sustainable transportation goals gain more ground by the day.
The future holds promise. Imagine natural-gas utilities utilizing their own waste product to power their vehicles. Alternative fuel incentives and stringent regulations further turn up the pressure. But where does price come into place?
Digging into the Price
As always, the best measurement is a head-to-head pricing match up. In this area, CNG is currently around 15 cents higher than its diesel counterpart. But will the price of diesel remain that low over the long term?
Consider that over the past five to ten-year period crude oil prices in around $65 to 75$ per barrel, or around $2.60 to $3.00 per gallon, nationally. Then prices dropped. Still, many industry analysts expect that oil will return to and remain at that level for some time to come.
There are many reasons for this, but the main one is that as wells age, they produce less oil. The only way to justify drilling new wells to sustain global demand is to keep the price at that level. Could oil reach $65 a barrel by the end of this year and into next?
Indeed, some say a medium-term trend could be around $70 a barrel within one- to two-years. Don’t expect the price to travel in a straight line. Right now volatility is the name of the game. But are there examples out there to learn from?
What Can Brown Do?
The fact is, UPS operates one of the largest CNG fleets in the country. With over 7,000 vehicles currently in operation and a plan to build 12 more fueling stations, their lead is one to follow. Considering the company is making a $100 million investment in the project, it isn’t hard to see where they are taking their company as it moves into the future.
What makes this possible is UPS’ ability to fund its own infrastructure with long-term plans in mind. In the end, UPS believes that a commitment to sustainability just makes economic sense. By diversifying its fuel source, UPS makes itself more agile as new greenhouse gas regulations take hold.
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But will we see CNG completely take over in the age of cheap oil? Join us in Part II of our series where we answer just that question.