U.S. natgas engine sales lagging fuel's steep price plunge

Fri Oct 17, 2014 5:07pm EDT
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By James B. Kelleher

CHICAGO Oct 17 (Reuters) - Natural gas-fueled engines, touted as a clean, low-cost alternative to diesel, continue to struggle for acceptance in the U.S. transportation sector despite a surge in gas production that has sent the alternative fuel's domestic price plunging.

U.S. natural gas prices closed on Friday at $3.766 per million British thermal units, down 42 percent since February. At its current levels, natgas is about $1.50 a gallon cheaper than diesel fuel, according to the U.S. Energy Information Administration. For U.S. railroads alone, which consumed 3.6 billion gallons of diesel in 2012, the potential savings are huge.

Yet more than a year after Warren Buffett's BNSF Railways Corp generated big headlines with a plan to test a handful of natgas locomotives, the railroad has made no large follow-up purchases of the technology.

The slower-than-expected adoption has forced key manufacturers, including General Electric Co and Caterpillar Inc, to focus on niche markets for their engines while they wait for higher-margin customers such as railways and maritime shippers to make the switch.

Experts say a number of factors, like the high initial cost and the extended payback periods involved, have slowed adoption.

David Ross, a vice president for demand development at EQT Corp, a Pittsburgh-based company that produces, compresses and distributes natural gas, said the lack of a natural gas refueling network as extensive as the one that exists for diesel has also been an obstacle.

"It's still not there," Ross says of the service station problem. "But it's heading in the right direction."

A steep decline in crude oil prices over the past few months, which sent diesel prices lower across the country, has added to the challenge, making it easy for customers to do nothing.   Continued...