Cheaper American alternatives are already here

As President Obama is spending billions of taxpayer dollars to prop up his preferred sources of energy—solar, wind, and algae—American truckers are offering a lesson in transitioning to new sources of fuel in the real world.

Without even being ordered to do so by President Obama, trucking companies are starting to convert parts of their long-haul fleets to natural gas, an American energy source of which we have more than a hundred years’ domestic supply. And Clean Energy Fuels, in cooperation with Chesapeake Energy, is investing tens of millions to build more than 150 liquefied natural gas (LNG) stations to service them.

America’s truckers and energy producers are doing all of this without half-trillion-dollar loan guarantees from the federal government. They’re doing it without the skyrocketing taxpayer giveaways the president has offered his favorite “greenback energy” pet projects.

They’re doing it for one simple reason: it makes sense for their bottom lines.

In my newsletter several weeks ago, I wrote of the incredible increase in America’s estimated supply of natural gas in the last few years, and the resulting collapse in its price. In 2008, the average price was $7.97 per thousand cubic feet. The spot price last Friday was roughly $2.07. That’s about a 75 percent drop in price in just four years, attributable in large part to improvements in technology which have made more gas recoverable than ever before.  

As a result, natural gas today is almost 90 percent cheaper than oil on an energy equivalent basis. That adds up to between $1.50 and $2.00 per gallon cheaper than diesel. 
With natural gas less expensive relative to oil than it has ever been, many public transportation and urban truck fleets have already converted to Compressed Natural Gas (CNG). And with diesel prices nearing record highs, the rationale for long-haul trucking companies to convert part of their fleets to LNG is more compelling every day. 

 Fuel is one of the highest costs for any transportation business today, and the rising cost of oil is taking a toll on trucking companies that are heavily dependent on diesel.  Since natural gas is now a dramatically cheaper alternative, companies that convert part of their fleets are discovering they have a growing price advantage over competitors that refuse to make the leap.  Jeff Dillon, the founder of Dillon Transport, which owns hundreds of trucks and is investing in LNG, told Bloomberg last month that “nobody can beat us on rates right now if we have the [natural] gas component in place.”

Many trucking companies will have a hard time resisting competitive pressures to offer LNG-based long haul services when the difference in cost is so immense . Already, UPS is using LNG-fueled trucks on one of its long-haul routes. Heckmann Water Resources is deploying a fleet of 200 LNG trucks for its water tank trucks. And Walmart is testing LNG vehicles for hauling in California.

Energy suppliers and truck manufacturers are racing to meet what they anticipate will be a fast-growing demand for LNG stations and equipment.  Chesapeake Energy has invested more than $150 million in Clean Energy Fuels, which is partnering with Pilot to provide LNG refueling at Flying J truck stops across the country, helping to build out America’s natural gas highway. Clean Energy plans to have over 70 stations in 33 states by the end of this year, and at least 150 stations in 2013—eventually one every 200-300 miles along the country’s major roadways.  Long-haul LNG trucks have a range of about 600-800 miles before needing to refuel, so this network will enable LNG trucks to complete cross-country trips.

Despite the long-term incentives for trucking companies to invest in LNG vehicles, the economic downturn has been a drag on the transition. For the 97 percent of trucking companies that are small businesses with 20 or fewer trucks, the current premium for LNG vehicles over diesel can be hard to swallow, even though the economics make sense over the course of the truck’s lifetime.  

With badly-needed tax reform and 100 percent expensing for American businesses (which would allow companies to write-off new equipment in one year) we can help ease the burden of investing in all new equipment, including natural gas trucks. This simple change would allow businesses to recoup the extra cost of new natural gas trucks faster—with no federal subsidy. And by reducing demand for oil, a switch to natural gas for freight trucks would put downward pressure on gasoline prices.

There’s only one real model for achieving American energy independence, and it’s not the president’s top-down, bureaucratic greenback energy approach. When we do reach that goal, it will be because of investments like those the trucking and natural gas industries are already making right under the president’s nose.