Truckers are ordering new equipment in record numbers, but they are not turning to natural-gas-powered heavy-duty trucks as fast as had been projected two years ago, according to a new report from ACT Research.
The ‘Natural Gas Quarterly’ attributes the rapidly declining cost of diesel with making the return on investment (ROI) for adoption of natural gas less lucrative. Original projections were that 2015 would see a 5% penetration of natural gas heavy-duty trucks, but based on 2014 actual results and the sharp drop in oil prices starting in the fourth quarter of last year, the report calls that optimistic.
“With the price differential between diesel and natural gas narrowing, the ROI to convert from diesel to natural gas is moving in the wrong direction: payback periods are lengthening,” comments Ken Vieth, ACT's senior partner and general manager.
In fact, ACT estimates natural gas equipment paybacks have grown from three years to seven-plus years because equipment up-charges remain high.
Throughout its investigation into the use of natural gas in the heavy-duty vehicle market, ACT says one theme played repeatedly: that the adoption of natural gas was a “chicken or egg” scenario. However, ACT has concluded that although this phrase has validity, the bigger picture reveals a situation requiring simultaneous developments in multiple arenas for a majority transition to natural gas to happen.
ACT believes that diesel prices will eventually increase, widening the fuel price spread and making natural gas more desirable, while technological developments in fuel systems and their installation methods will result in lower equipment charges. When these two things occur, ACT says new fueling infrastructure that is still being planned is expected to ramp up again.
However, the report says if diesel prices remain relatively low while the up-charge for a new natural gas truck remains relatively high, the value proposition of switching to natural gas will remain challenged.
More information on the “Natural Gas Quarterly” is available here.