Gas Price Drives Off Subsidy Talk

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Imagine you run a trucking operation, and it’s time to phase in some new trucks. Normally, that’s a fairly simple routine; you make the best deal you can for diesel rigs. But today, you’ve got a tough decision.

Why? Because the very low price of natural gas will tempt you to quit diesel. You can buy natural gas for $1.50 to $1.70 a gallon less than diesel, according to the front-page centerpiece article in last week’s Business Journal. In fact, a photo that accompanied the article showed a pump price of $2.82 for liquefied natural gas at a fueling station in Long Beach.

But here’s why it’s a tough decision: It costs more – $50,000 to $100,000 more – to buy a truck that runs on compressed natural gas or liquefied natural gas.

So you do the math. If your trucks use an average of 10,000 gallons a year, you figure your fuel savings will amount to $15,000 annually, as the reporter, James Rufus Koren, wrote in the article last week. Assuming one CNG or LNG truck costs $75,000 more than a diesel truck, it would take you five years to recoup your extra investment before you enjoy a payoff.

If you run an over-the-road operation, your trucks may use closer to 20,000 gallons of diesel. And that would make your savings more like $30,000 a year if you switched.

Of course, you’ve got other considerations. Among them: the cost of installing natural gas infrastructure and whether there are enough fueling stations to support you. (Although the article pointed out that Clean Energy Fuels Corp. in Seal Beach and others are installing 70 LNG stations across the country this year alone.)

Another consideration is the future. Of course, no one knows what will happen. The price of diesel could go down, wiping out your savings if you had gone to natural gas. Or, the price of natural gas could increase. On the other hand, the price of natural gas could stay low for years and you’d reap a bounty.

So what would you do? Stick with diesel or take a chance and go with CNG or LNG?

It’s a tough decision because you may spend a lot of money but save much more money. Or you may lose money. Based on your decision, you will be a hero or a goat. Indeed, your trucking company’s very existence could swing on your decision.

Here’s the refreshing part of our little exercise: This decision tree – weighing the pros and cons of the math, considering the costs against the potential payoff – is the way it should be. Business people should take risks based on price signals.

It’s refreshing because a year ago, even six months ago or so, we would be having a different exercise. It would have been based on the amount of government subsidies our trucking firm may have gotten by converting to natural gas. But today, with subsidies disappearing and natural gas prices collapsing, business people are weighing their options based on what is right and natural: the price.

There are plenty of reasons to be grateful for the boom in natural gas. It’s a cleaner-burning, less polluting fuel. It’s creating jobs and wealth in the United States. It is making the United States more fuel independent.

But another reason to be grateful is the effect that today’s abundance of natural gas is having on the businesses that use fuel. It is reintroducing price, not subsidies, as the driving reason for businesspeople to make decisions. And basing decisions on price is tougher, sure, but it sure beats the alternative of making decisions based on how much in taxpayers’ subsidies a business can get.

Charles Crumpley is editor of the Business Journal. He can be reached at [email protected].

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