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Cheap Natural Gas Drives Truck Alternatives
by Brian Baskin    Dow Jones Newswires
Tuesday, September 22, 2009
NEW YORK (Dow Jones)

If you order a beer in New York, the odds are growing that it was delivered by a truck running on natural gas.

Beer distributors are among a growing vanguard of private trucking fleets encouraged by cheap natural gas and new government funding to adopt compressed natural gas, known as CNG, as a cleaner alternative to diesel.

Anheuser-Busch InBev N.V. (BUD) got a grant from a partnership between the state of New York and New York City in April to convert its Budweiser distribution fleet. Phoenix Beverages Inc., a distributor of Heineken and other brands throughout New York City, plans to convert at least 20 of its 150 trucks over the next year, with or without government assistance.

"We're going forward with it regardless," said Greg Brayman, Phoenix's vice president for business development. "It's good for the environment, and probably in the long run it's better for costs."

They join Manhattan Beer Distributors, operator of a fleet of over 300 vehicles that disperse Corona and dozens of other brews, which began to convert earlier in the decade.

CNG is one of the oldest "clean" fuel technologies, emitting nearly 25% less carbon dioxide than diesel or gasoline. In recent years, compressed natural gas - which is stored at a high pressure and released into the combustion chamber of an engine - was overtaken by electric-gasoline hybrid engines in the individual car market. As gas has become cheaper relative to oil over the last year, flagging momentum for CNG has been revived, nudging fleet operators like Brayman to take the plunge to convert. Government support has also grown as lawmakers plan to tackle climate change, with trucks increasingly seen as the perfect fit for CNG, as many are too heavy to run efficiently on electric power.

Although individual cars are by far the biggest source of emissions, significant carbon dioxide reductions can come from converting trucks as well. Trucks were responsible for 12% of emissions in California last year, according to the state's Environmental Protection Agency, which projected 2008 emissions based on data collected in 2005. National figures weren't available from the federal EPA.

"Our niche has really become private delivery fleets," said Christina Ficicchia, executive director of the New York City branch of Clean Cities, a public-private partnership that in August received $300 million in federal stimulus funds to promote alternative fuel vehicles. About half is likely to wind up supporting CNG, Ficicchia said.

It's easier for operators of delivery fleets to overcome the lack of CNG infrastructure than it is for drivers of automobiles, thanks to specific driving patterns. Urban delivery fleets start and end each day at a central depot and usually stick to a small geographic area, so the fewer number of CNG fill-up stations don't create the kind of barriers they do for roaming automobile drivers.

"You can put in one or two stations in an industrial park and serve a whole slew of fleets," said Richard Kolodziej, president of Natural Gas Vehicles for America, a trade association. Kolodziej said CNG backers are going for a "hub and spoke" network, first building infrastructure in major cities, then adding stations along highways to connect CNG-friendly burgs.

Paying for CNG conversions is still a problem. Federal funds are available to cover up to $32,000, or roughly two-thirds, of the additional costs associated with purchasing a CNG truck as opposed to a diesel one.

Brayman and others hoping to convert to CNG believe they will make back the initial cost faster if gas prices stay low relative to oil over the next few years as the U.S. exploits recently discovered domestic gas reserves.

CNG usually costs at least 20% less than diesel at the filling station, with the fuels roughly tracking gas and oil futures, respectively. During the summer of 2008, when oil prices hit a record high, CNG's discount stretched to 45%. In July, a gallon of diesel cost $2.54, where the equivalent amount of CNG cost $1.93, according to the most recent data from Clean Cities.

A company that gets the full $32,000 in federal funds should be able to make back its investment in less than three years, according to Natural Gas Vehicles for America.

Lawmakers in Congress are trying to shorten the time it takes to recoup costs on a CNG vehicle. Senate Majority Leader Harry Reid, D-Nev., is among legislators backing a bill, dubbed the NAT GAS Act, that would cover 80% of the incremental cost of a natural gas vehicle and give a $100,000 property tax credit to any company that builds a CNG fueling station. The bill has yet to come up for a vote.

(Brian Baskin covers the oil market for Dow Jones Newswires.)

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