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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 right 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 month.

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 is around 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.

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