Sales of Nat Gas-Powered Trucks Slow as Diesel Prices Plummet, Reports Say

Growth in the natural-gas truck market has stalled this year as the steep drop in diesel prices has cut into the potential savings offered by the alternative fuel.

Excluding vocational trucks and transit buses, ACT Research projected U.S. sales of natural-gas trucks for heavy-duty, on-highway applications will decline to about 3,300 units in 2015, down from about 3,500 trucks in 2014 but still well above the 1,100 sold in 2013. The firm predicted that sales would rebound to about 4,000 in 2016.

ACT said the precipitous drop in diesel prices that began late last year has lengthened the payback period for a more expensive natural gas-powered truck.

“With the price differential between diesel and natural gas narrowing, the [return on investment] to convert from diesel to natural gas is moving in the wrong direction,” said Ken Vieth, ACT’s senior partner and general manager. “However,

this doesn’t mean the adoption of natural-gas fuel has stopped or that there are no new developments that might lead to a future uptick in natural-gas truck orders.”

ACT said previous projections that natural gas would capture about 5% of the heavy-duty truck market in 2015 now appear to be “optimistic.”

The price spread between diesel and compressed natural gas was down to about 42 cents per diesel gallon equivalent as of April, compared with about $1.50 at the end of 2012, ACT said.

IHS Automotive said U.S. factory installations of natural-gas engines in commercial vehicles declined to 3,058 units during the first half of 2015, down 17% from 3,676 in the same period last year.

Cummins Westport, the primary supplier of natural-gas engines for trucks in North America, said it sold 5,225 engines worldwide in the first half of 2015, up 5% from 4,959 in the same timeframe last year.

In a statement to Transport Topics, Cummins said the 11.9-liter Cummins Westport ISX12 G — its engine best suited to most heavy trucking applications — has been on the market for only two years, and most fleets evaluate products for about 24 months before placing a substantial order.

“This year, many of the first adopters from 2013 are now ‘doubling down’ with significant ISX12 G engine orders, a trend we expect to see continue into next year,” Cummins said.

Average U.S. retail diesel prices plummeted by 82.9 cents in less than three months from Nov. 10 to Feb. 2, according to figures from the Department of Energy. By Aug. 10, diesel had fallen to $2.617 a gallon, its lowest level since October 2009.

That steep decline has been driven by a dramatic drop in crude oil prices, which took a nosedive from $107.26 a barrel June 20, 2014, to $44.45 on Jan. 28 on the New York Mercantile Exchange, a plunge of more than $62 in just more than six months. Crude briefly rose back above $60 in the second quarter of this year but was back below $45 by early August.

“Oil price volatility is going to continue, and eventually it is going to go up,” said Matthew Godlewski, president of NGVAmerica. “Natural gas continues to offer a low-cost, low-carbon, reliable energy source for fleets.”

Godlewski said fleets that already have adopted natural gas still are “moving full-steam ahead,” but those that are interested in the fuel but haven’t invested in it are pausing this year to see where fuel prices go.

Stephen Silverman, chief operating officer at Raven Transport, said the price difference between diesel and liquefied natural gas is “pretty much a wash” right now, but the fleet remains committed to the alternative fuel.

The Jacksonville, Florida-based truckload carrier operates 189 LNG-powered trucks and still plans to convert its entire 500-truck fleet to that fuel in the coming years.

“I think it is the right decision,” Silverman said, adding that all it takes is one geopolitical event to send the price of oil skyrocketing. In contrast, natural gas is a much more self-contained market based on domestic energy resources, he said.

At the same time, Raven’s move toward LNG has led to multiyear contracts with large shippers who believe in sustainability and reducing greenhouse gases, Silverman said.

Moving forward, the price spread for LNG is expected to benefit from a change to the way the fuel is taxed.

Starting next year, excise taxes on LNG will be based on energy content rather than volume.

NGVAmerica said that change will reduce the tax on LNG from about 41.3 cents per diesel gallon equivalent to 24.3 cents, representing potential savings of 17 cents per DGE.

In another natural-gas development, Westport announced in July that it conducted an engineering program with Daimler AG to assess its high-pressure, direct-injection technology for a Daimler heavy-duty, natural-gas engine.

Westport said the prototype HPDI engine met its performance targets but did not disclose further details for competitive reasons. Westport added that it received a payment of 2.4 million euros (about $2.7 million) from Daimler.

Daimler also said it had no further comment. In North America, Daimler builds Freightliner and Western Star trucks and Detroit engines and components.