THE SOURCE - Summer 2015 - (Page 14)

feature VOLATILE Oil T By John Crawford, Westport he rapid drop in crude oil prices since June 2014 has been headline news and has rocked both the oil industry and even oil-producing countries. It has also prompted a significant amount of talk about the effect on the natural gas vehicle (NGV) industry. While lower oil prices have created challenges in specific markets, the current situation may be more positive than some people realize, and the future is already looking brighter. From its recent peak of $107.95 on June 20, 20141 , crude oil plummeted to $44.08 on January 28, 2015, a decline of 59 percent. usually, gasoline and diesel prices closely follow oil prices, and thus their prices have also dropped-gasoline by 45 percent and diesel by 28 percent. You might ask why gasoline and diesel prices have fallen less-at least in percentage terms-than crude oil prices. using gasoline as an example, the answer is that crude oil makes up only a fraction of the total cost of gasoline at about 57 percent as of December2. The additional costs include refining, distribution, marketing, taxes, and of course profits. since these costs change less than the cost of crude oil, it is clear that the total cost of gasoline must decline less, in percentage terms, than crude oil does. moreover, some seasonal factors and some particular one-time factors further push diesel fuel prices upward. These factors include: the different seasonal patterns of demand for gasoline and distillate fuels, which are diesel fuel and heating oil; historically low stockpiles of diesel fuel; an unusually large harvest in the midwest that increases diesel demand there; new stricter limits on the sulfur content of heating oil, which means that some of the ultra-low sulfur diesel (uLsD) normally dedicated to trucks is now blended into home heating oil; and, the higher levels of diesel exports, which partially link u.s. prices to higher diesel prices abroad.3 meanwhile, prices for compressed natural gas (CNG) and liquefied natural gas (LNG) have not moved much, narrowing the price gap with gasoline and diesel fuel. This is the challenge for the whole NGV industry right now. But there are plenty of reasons to be optimistic. First, the 150,000 NGVs on the road in the u.s. today4 still need fuel, which is certainly good news for fuel-providers who will continue to move their product. second, fuel providers still believe in the future of NGVs, as shown by the fact that they continue to build and open new CNG stations5. Third, one of the clearest lessons from the past six months is that CNG and LNG prices have excellent stability as crude 14 THE SOURCE | THE vOICE and CHOICE Of pUblIC gaS oil prices have more than halved. even when natural gas commodity-Henry Hub-prices fluctuate wildly, CNG and LNG prices hardly move. For a business or consumer who is running NGVs, that means far more predictable costs than they would have with volatile gasoline or diesel fuel. Fourth, CNG and LNG prices are still remarkably competitive in the right markets and applications. most of the headlines focus on fuel prices at public stations, perhaps because their price data are easiest to find. But many, if not most, NGV fleets rely on private fueling contracts. They have either a station on their own property or a fuelling contract with a fuel provider. According to data from the Alternative Fuels Data Center (AFDC)6, CNG at private stations is on average 18 percent cheaper than at public stations. Key market segments such as refuse and transit can enjoy even lower CNG prices. so the fuel price differential with gasoline and diesel fuel is, for most fleets using NGVs, more attractive than what is generally recognized. Fifth, governments are still lending a hand. According to NGVAmerica, "many states now provide tax incentives to assist fleets in purchasing natural gas vehicles and also to encourage the development of fueling stations. Numerous states also provide lower fuel tax rates to encourage increased use."7 These reasons are probably why fleets that already have NGVs are still adding more. Natural gas has become the standard in the refuse and transit markets, for example.

Table of Contents for the Digital Edition of THE SOURCE - Summer 2015

Problem Solving
First Person
APGA Events
Q&A with Chairman Bay
Natural Gas: The Fuel of Choice
Volatile Oil Prices
Home-Based Reporting
The Learning Curve
What Is Net Zero?
Legislative Outlook
The Pipeline
Marketing Matters
Advertisers’ Index/
At Last

THE SOURCE - Summer 2015