Should the federal government subsidize natural gas 18-wheelers?

Natural gas seems poised to make dramatic inroads into the transportation sector for long-haul trucks, given a powerful combination of high diesel prices, a company making large investments in building a nationwide network of stations, and major manufacturers eagerly producing the trucks. A widespread shift to natural gas would have a substantial impact on America’s oil consumption; long-haul trucks, i.e., “big rigs” or “18-wheelers,” transport goods all around the country, and they consumed about 1.9 million barrels a day b/d of oil in 2010.

Should the federal government try to get involved, either to make this future more likely or hasten its arrival? Right now, the answer is no — market forces seem sufficient to build the infrastructure and trucks, and the fuel supply of LNG that will power these long-haul trucks is becoming more available. As Alan Krupnick of Resources for the Future concluded in a presentation last June, this industry is “not the best candidate for subsidies.” (This blog post does not analyze whether to support compressed natural gas [CNG] vehicles or related infrastructure.)

The government still has a role to play. It must ensure the products being sold and installed are safe. Additionally, it must continue to look into the question of methane leakage from shale gas to provide clear data on the climate implications of LNG trucks, and it needs to keep an eye on the market, especially if companies currently planning to build the infrastructure encounter problems.

The infrastructure

Vehicle technologies that require a new fuel source need new infrastructure. If few companies are willing to pay for infrastructure, a chicken-and-egg problem that bedevils most competitors using oil for transportation arises: few consumers buy trucks because of a lack of infrastructure, and little infrastructure is built because few trucks are on the roads.

Yet Clean Energy Fuels is a company currently in the midst of installing 70 LNG stations this year and 80 next year all around the country, as shown in the image from its website above. As a comparison, there were only 53 LNG fueling stations in the country as of May 2012, a majority of which were not open to the public. Shell also announced its intention to build up to 200 pumps at 100 locations in June. With companies taking the risk on their own to build the infrastructure, the government has relatively little need to hasten the process.

The trucks

The federal government could have a reason to subsidize trucks if it needed to spur technological innovation or encourage competition/economies-of-scale that could lower the price. However, the 2012 Annual Energy Outlook does not see much potential for innovation. “Natural gas fuel storage technology is relatively mature, leaving only modest opportunity for cost reductions,” it notes. The industry for LNG trucks is also already fairly competitive, according to Jim Harger, chief marketing officer of Clean Energy Fuels. In an interview, Harger said four of the five major truck companies that engineer the chassis are currently producing trucks fitted to carry LNG or CNG, and the fifth one will begin by the end of the year.

These companies are using a 9-liter engine made by Cummins Westport suitable for intra-city heavy-duty vehicles (such as dump trucks, which will often use CNG) or long-haul routes over flat terrain. A 12-liter engine that will be able to handle more long-haul routes is scheduled to go into production next year.

Harger estimated that with economies of scale of a few thousand trucks produced each year from each company, additional incremental costs for LNG trucks should fall by half. In 2011, sales of Class 7 and 8 trucks (those with gross vehicle weights at least 26,000 pounds) were 212,000, so according to his estimates, a relatively small penetration could lower costs substantially.

The fuel

Another option to encourage both infrastructure and trucks is to subsidize the fuel itself. Besides the oddity of subsidizing an underlying fuel source that is currently very inexpensive (natural gas), Clean Energy Fuels has two LNG production plants in Texas and California, and Shell built a plant in Calgary that makes the equivalent of 300,000 gallons of diesel each day for its first network of LNG stations in Canada.

The role for government

Even though the federal government does not have a clear need to subsidize LNG trucks or infrastructure right now, it still has important roles to play. There may be some safety concerns, and these must be analyzed. New unpredictable public concerns are likely to creep up (e.g., wind turbines killing bats, or fracking tainting drinking water) that will have to be studied. The government must continue to fund studies looking into methane leakage from shale gas. According to a 2012 Proceedings of the National Academies of Sciences report, if fugitive methane leakage from shale formations is greater than 1 percent, there are no immediate climate benefits of using CNG from shale gas in heavy-duty trucks relative to diesel. Considering that CNG fuel has lower carbon intensity per unit energy than LNG, concerns that LNG will exacerbate climate change are very possible. Finally, the government should pay attention to the market in case the commercial plans of Clean Energy Fuels or Shell change, leaving few companies willing to build infrastructure without initial government support.

James D. Coan is a research associate for the Center for Energy Studies at the James A. Baker III Institute for Public Policy. His research interests include renewable energy, U.S. strategic energy policy and international relations.

Houston Chronicle