Shale Boom Nudges Propane-Powered Trucks From Dream to Reality
Blue Star won’t be alone. UPS Inc. already has more than 1,000 propane-powered delivery trucks on the street, with plans to buy more.
The change is propelled by a glut of propane from shale wells. It comes as prices for the fuel trade close to a 13-year low and are 75% cheaper than diesel. At the same time, propane offers an environmental gain, emitting 12% less carbon dioxide than gasoline at a time of growing global warming concerns.
“There’s a dramatic increase in the rate of adoption in fleets,” Jeff Stewart, the president of Santa Rosa, California-based Blue Star, said in a telephone interview. “It’s really the economic savings that people can achieve even compared to the lower gasoline prices.”
U.S. sales of propane-powered vehicles will reach 20,000 units in 2015, according to ICF International Inc., a Fairfax, Virginia, consulting firm. That’s about a 35% jump from 2014, and slightly higher than sales of fleet vehicles using natural gas.
While those numbers represent only a slice of the 3 million expected fleet vehicle purchases in 2015, there’s “no question that propane is going to grow its market share over time,” said Michael Sloan, a principal at ICF.
“Right now, we’re in a period where there are significant savings to propane in many applications,” Sloan said in a telephone interview.
Propane production has ramped up as a result of a drilling boom that targets shale formations. Much of one of the largest formations in the United States, the Marcellus, is known as a “wet gas play” because gas extracted from the rock is often accompanied by liquids, including propane, butane and ethane.
The production has been so robust that companies have stored 89 million barrels of propane they couldn’t immediately use, according to a government report that tracked storage through July 24.
In the United States, propane production averaged about 1.6 million barrels a day, about a 50% leap from 2010 at the nascent stages of the shale boom, according to the Washington-based Energy Information Administration.
Even as U.S. oil production reaches record levels, the glut of propane is causing it to trade at a 67% discount to the price of domestic crude, compared with a 59% discount a year ago. The spread may narrow as export markets absorb the oversupply, although prices will probably keep sliding in relation to oil until demand is more robust, ICF’s Sloan said.
Last year, UPS bought 1,000 autogas delivery trucks that are now on the road, along mostly rural routes, in five states. Mike Casteel, head of fleet procurement, said the company plans to buy about 150 more. Autogas powers 2.7% of his vehicles.
“Our adoption of natural gas and propane really took a leap forward as a result of the natural-gas production boom,” Casteel said, although cheap oil has slowed conversions.
There are obstacles. It can cost as much as $14,000 to refurbish a vehicle to run on propane, and infrastructure in the United States has been built mostly to distribute natural gas and oil, which have historically been cheaper, according to the National Propane Gas Association.
Additionally, propane is less energy-intensive than gasoline. A gallon of autogas, which is made mostly of propane, takes a vehicle 0.73 mile for every one mile a gallon of gasoline would, according to the Propane Association.
In July 2008, T. Boone Pickens, the chairman of BP Capital, proposed a plan to outfit fleets of trucks and other heavy vehicles with natural gas. He said natural gas was cheaper than gasoline and would reduce emissions.
The plan has made little headway. Excluding private stations, there are only 850 natural-gas refueling stations, compared to about 115,000 gasoline stations, and the cost of building a station that doles out propane is a fraction of the price of a new natural-gas distribution center.
There will likely be a time lag between the drop in propane prices and the widespread adoption of its use on the road, Sloan said. For now, fleet vehicles, such as school buses, are at the forefront of the trend.
Meanwhile, Blue Star’s propane-fueled trucks are delivering more than double last year’s volume to its customers, according to Stewart, the company’s president.
“Propane has been the stealth fuel,” Stuart Weidie, CEO of Ocean Springs, Mississippi-based propane distributer Blossman Gas, said by telephone. “We’ve lived in sort of obscurity for the last six to eight years. What I’m seeing is momentum that we’ve not had.”
