Wednesday, April 11, 2012

Record oil-gas ratio may spur truck-fuel shift

Natural gas is the truck fuel of the future because crude oil and related products have become
increasingly costly in relative terms, according to Alexander E. Potter, an analyst at Piper Jaffray Cos.

The above chart tracks the price ratio between a barrel of oil and a million British thermal units of gas on the New York Mercantile Exchange. The ratio rose above 50 yesterday for the first time since gas futures began trading on the Nymex in April 1990.

     Average U.S. pump prices for the diesel fuel used in trucks have risen about three times as much as crude since 2008, when the chart begins, according to data compiled by the American Automobile Association.
     “Natural gas is replacing diesel as the preferred truck fuel,” Potter, based in Minneapolis, wrote in a report two days ago. He estimated that trucks running on compressed or liquefied natural gas may rise to 20 percent of sales in five years. They accounted for only 0.9 percent of North American sales in 2010, according to Frost & Sullivan, a consulting firm.

     Trucking companies can save as much as $32,000 a year by fueling their vehicles with gas rather than diesel, the report said. The savings approach the $35,000 cost of converting to a gas-powered truck.

     “Diesel will one day be considered obsolete when it comes to fueling truck fleets,” Potter wrote. He recommended buying shares of Westport Innovations Inc., the maker of a gas engine suitable for heavy trucks, to profit from the shift.

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