Implementing A Successful Natural Gas Policy
Many foreign countries have already realized the economic benefit of
using clean-burning and inexpensive natural gas to power
trucks, buses and generators, especially when the gas is from
indigenous sources. Countries that have not yet made the switch to natural gas are increasingly active in evaluating
options and best policies to encourage the use of natural gas.
To facilitate rapid implementation of a successful natural gas
vehicle (NGV) policy, supporting government policies and financial assistance to fleets are helpful. Even with
conversion costs for diesel trucks and buses around $20,000 to $30,000, savings from using less expensive
natural gas over diesel will generally pay for the conversion in 6 to 18 month, especially in countries where
natural gas costs are 40 % to 70 % less than diesel.
It is extremely important to put the right NGV policies in place
from the start, since it could be very costly to change technologies and/or policies later. Unless
government policies mandate that natural gas be used to replace diesel as fuel,
be it for emissions, economic or energy security
reasons, incentives may be necessary to support the market.
In countries where the government subsidizes the cost of diesel fuel,
which can run in the billions of dollars annually, the government may decide to finance the conversions through
low- or no-interest loans. This scheme is especially advantageous for countries that import oil and/or diesel
fuel, but have their own supply of natural gas. To expand on this further we may
consider a scenario where diesel subsidies amount to $18,000 annually per city bus. To convert this
diesel bus to natural gas may also cost
$18,000, which is paid by the government. The converted bus now uses natural gas from indigenous sources, essentially
saving the government $18,000 annually per converted bus
after a relatively short pay-back period of less then 12
To further encourage fleets to convert to natural gas, priority may be given to natural gas vehicles when commercial contracts are awarded.
Under a different scenario, a bank or gas company may finance 100%
of the cost to convert a car, heavy-duty truck or bus to natural gas. Commercial fleets and bus companies offer the
lowest credit risk, with loan defaults virtually non-existing.
The implementation of this mechanism is straight forward. The
converted vehicles are equipped with a computer chip, which identifies them when refueling at the CNG station. The gas
station computer is connected to a central database, where records show that a conversion-loan is outstanding. The CNG price is
now increased, however, this price may still be lower than the cost of diesel. The vehicle owner enjoys fuel savings,
without having to pay for the conversion up front. The financing entity may charge a premium for NGV conversion
loans, but even with these high rates, the natural gas is cheaper than the diesel fuel. Since such NGV conversion
loans are fully paid back in a relatively short period of
time, this scheme is especially attractive.
Considering a heavy-duty vehicle driving 6000 miles per month uses
1000 gallons, or $4,000 of diesel per month ($4.00/Gal.). If CNG costs 50% less than diesel, a $20,000 conversion loan
can be paid back in full in only 10 month.
The cost of natural gas should be substantially lower than the cost of diesel
fuel in order to
realize a rapid increase in the natural gas vehicle population.
In countries where no natural gas conversion kits are produced, the
government may decide to wave import duties for conversion kits and associated components.
For a NGV policy to be successful, build-out of the refueling
infrastructure is of paramount importance. Many times it is underestimated the number of CNG stations
required to move
vehicle fleets away from diesel fuel and into natural gas.
Considering that the average refueling time for a truck or bus
15 minutes, each fueling hose can only fuel 4 vehicles per hour. If we further consider that buses mostly
refuel during off-hours, which may fall between 11 PM and 5 AM, each fueling hose may only refuel 24 buses per
each 24 hour period, which means that 10 fueling hoses and a
high-capacity compressor is needed to refuel a fleet of 240 city buses
in such a short time. The rest of the
time the station is available to taxies and commercial trucks.
It is easy to see that infrastructure and conversion costs to implement
a successful NGV policy can reach in the millions. However, the economic benefit to countries that have been successful
with their NGV policy report great savings and many times transportation companies are only profitable in today’s
high-oil-price economy because they had the foresight to convert their fleets from diesel to natural gas.
Countries where financial support from the government, or loans from
banks or gas companies were available, realized more rapid growth of their NGV population.