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Thursday, December 4, 2014

Falling Diesel Prices Putting Brakes On Natural Gas Sprint

The continued drop in diesel fuel prices has been a constant for the better part of the last eight months with no end in sight. Good news for owner-operators and fleet managers watching bottom lines.

However, the falling price of traditional diesel could spell a bit of an unexpected slowdown in the continued transition of vehicles to alternative fuels. The cost of abundant natural gas has been enticing when compared to diesel prices that were closing in on $5 gallon a year ago. My, how things change.

The adoption of natural gas as an alternative to diesel fuel in the heavy-duty truck segment will continue to grow, but at a slower pace than first expected. That, according to the latest report from ACT Research, NG Reality Check: Moving from Infancy to Adolescence.

The first such report issued by ACT projected faster growth for natural gas trucks, however softening diesel prices have had an impact, the industry forecaster admits.

The U.S. energy boom has been the primary catalyst for the dropping diesel prices. The levels of the U.S. boom have exceeded all previous industry forecasts and show little sign of slowing down. As long as the U.S. is producing oil that is creating excess on the trade market, the diesel price can be expected to fall. While OPEC has made some initial attempts to control the free fall by trying to run U.S. Shale operations out into the realms of “unprofitable” margins, diesel prices have continued to drop weekly.

“The previous long-term penetration overstatement does not mean natural has not grown. It has and will continue to grow, but at a slower rate the next few years,” said Ken Vieth, ACT Research’s senior partner and general manager. “NG Class 8 truck/transit bus penetration was 3% in 2013 and should reach 4% in 2014, or about 11,000 units.”

Class 8 truck and bus vehicles sold by 2025, will account for 23% of natural gas vehicles, according to ACT. If total Class 8 demand totals 200,000 units that year, then 46,000 of them will be fuelled by natural gas. While other segments may add to the percentage of nat gas vehicles, the vast majority will be comprised by the Class 8 and bus categories.

“That’s a large quantity that will be shared by those with an understanding of tomorrow’s truck transportation needs and plans to get there,” Vieth said. “Depending upon the emissions and greenhouse gas needs of the nation and the regulations put in place in coming years to achieve those needs, NG penetration could even be higher.”

The growth of CNG fueling stations has been a big part of keeping the formerly minute infrastructure from being a limitation for expansion of the alternative fuel. Major company investors have been installing fuelling stations for natural gas across the nation and plans for more are rolling out each month.

The full report is available by e-mailing trucks@actresearch.net.