CNG Vehicle

I recently took a cab ride in an unusual vehicle. I talked to the driver and he told me that it ran on compressed natural gas (CNG). You can see the blue CNG logo below the Ford logo on the right side. The driver said that the vehicle was assembled overseas in Turkey.

Compressed Natural Gas (CNG) Fuel Prices & Performance

Per the driver – he filled up with approximately 8 “gallons” of CNG. This is measured as a “gasoline gallon equivalent” or GGE to try to provide an understandable metric for typical car owners. He said that this took him around 200 miles and cost around $2 per GGE. In Chicago terms this is probably about 1/2 the costs of what a gasoline powered truck would cost per mile (ignoring the higher acquisition costs of this custom SUV). This site shows the range of costs that customers are seeing per GGE. Per this site there are 6 CNG stations in Chicago with costs between $2 and $2.50 per GGE (costs are sometimes out of date by station and it is not always clear if prices are up to date). The driver also said that the power that the engine put out declined as it got emptier; I believe that this is different than how gasoline or diesel engines behave. The city of Chicago has a program to open CNG filling stations and subsidize cab companies to pay the extra up front costs of purchasing these customized vehicles.

The competitiveness of the CNG vehicles depends on several factors, most notably the price of natural gas. Since the price of natural gas is around $2 / MCF, it is at an all-time low. The price of natural gas (pre-fracking) peaked at around $14 / MCF, more than 7x its current price. Assuming that CNG “at the pump” moves with the cost of the underlying commodity, then you would go from about 1/2 the cost of gasoline (today) to up to 3x+ higher, if we had another price swing like that again in the United States, OR if we were exposed to the “market clearing” price of natural gas around the world.

Per this article in Reuters, the gap between the US rates and what foreign buyers (particularly Japan and Korea) are willing to pay is very significant.

The surge in gas output has made companies such as Chesapeake and Exxon Mobil’s XTO victims of their own success, unleashing a surplus of supply that could keep prices — and therefore profits — depressed for decades. For them, selling gas to Japan or Europe — which buys imported LNG at five or six times the domestic price of $2.50 per million British thermal units — is essential to continue expanding their U.S. business, creating jobs in the process. The shale gas boom is on track to support 1.5 million jobs across the United States by 2015, according to an industry-funded study by IHS Global Insight. Export licenses will make big winners out of some firms such as Cheniere, which last year secured the first and, so far, only export permit from the Energy Department.


Another element in the relative competitiveness of CNG vs traditionally powered vehicles is taxation. I am unaware of any specific taxes imposed on CNG when sold to fleets or vehicles as a retail product. For gasoline and diesel, however, taxes are imposed on each gallon. Per this source:

The United States federal excise tax on gasoline is 18.4 cents per gallon (cpg) and 24.4 cents per gallon (cpg) for diesel fuel. On average, as of April 2012, state and local taxes add 31.1 cents to gasoline and 30.2 cents to diesel for a total US average fuel tax of 49.5 cents (cpg) per gallon for gas and 54.6 cents per gallon (cpg) for diesel.

While it varies by state, it is safe to say that between 15% and 30% of the total cost of gas in “GGE” terms represents state and local taxes (depending on the price of gasoline, since some tax levies are “fixed” and some are a portion of the retail price). Thus if CNG prices “at the pump” are not taxed at a similar rate, this will provide a comparative advantage to CNG vehicles. Correction – there is a Federal excise tax on CNG approximately equal to that on gas or diesel. I don’t know about the state levies. Thanks to an alert commenter here at Chicago Boyz!

CNG and Policy

You can expect to see a growing debate on CNG in the future. There are many articles across the web about use of CNG vehicles for local fleets (which is growing), and other articles about use of CNG for long haul trucking (the infrastructure is not there today and the range is relatively short). There are proposals for incentives in the form of tax credits to push further investments in trucks, engines, and retail infrastructure. The issues around allowing US natural gas to be liquified and sold to foreign countries for its “market” price rather than being limited to the US, where it fetches 1/5 of the world-wide price, is another topic that will become a campaign and policy issue.

It is likely part of America’s relative descent that we are even considering closing our borders and not allowing natural gas to sell at a market rate, thus benefiting our domestic customers. Typical economic medicine that free-market experts recommend generally calls for removing subsidies that distort local economies, especially those tied to food and fuel. The fact that America is seriously considering forcing US owners of natural gas assets to sell their products to a captive market (by restricting the building of LNG export facilities and pipelines that would enable distribution) at a very large discount to what they would fetch overseas is the type of economic distortion that should raise eyebrows but is sadly all too typical of our current interventionist regulatory policies.

Cross posted at LITGM

9 thoughts on “CNG Vehicle”

  1. The CEO of Dow thinks it would be a good idea to limit nat gas exports to 10%.

    One of the products his company makes using gas as a feedstock is ethylene.

    I bet I could find some US companies among his ethylene customers who think it would be a good idea to limit exports of ethylene in order to keep their input prices low…

  2. A state excise tax is imposed on each gallon gasoline equivalent (GGE) of CNG. To view an interactive map of state taxes:

    The map shows that some states impose the same tax per GGE as gasoline, some states less.

    I think the the federal excise tax is 18.4 cents per gallon of gasoline, diesel, or GGE of CNG.

    The Truth About Cars has a review of the CNG-powered Honda GX. The review includes a video showing the refueling process.

  3. I’ve never driven a CNG vehicle but I have driven one powered by LPG (liquified petroleum gas). It lacked acceleration, but that may have been the individual car – a converted Range Rover.

  4. Historically, one of the reasons to get a diesel vehicle was that if you had space for a tank you could run it on heating oil and avoid motor-fuel excise taxes. I wonder if you could do something similar with CNG.

  5. Clean Energy Fuels (CLNE) expects to have 75 NG refueling stations nationwide by the end of 2012. Partnered up with Pilot/Flying J stations, they’ll only serve big rigs running on NG, at least in the near future. Waste Management has 1000 NG trucks now (with their own refueling stations) and plans on a 90% NG fleet.

    The big engines are more expensive than diesel to manufacture but are decreasing in price. Current payback is about one year @ about 100,000 mile/yr. CLNE executive expects 3-7% market penetration per year. All OEMs are manufacturing NG engines.

    CNG has an energy density/volume of about 1/4 that of gasoline so a 4x larger tank is required. CNG is much more stable than gasoline. One car can run on NG and gasoline although I’m not sure of the conversion costs and issues involved.

  6. Any discussion of CNG vehicles ought to reflect the fact that while the cost of installing a conversion kit that allows a gasoline vehicle to run on CNG or to flip a switch and go back to running on gasoline is around $1000 to $2000 per vehicle, EPA requirements raise that cost to about $25,000 per vehicle conversion. In case you are tempted to do a conversion without the EPA blessing, that is regarded as unauthorized tampering with a pollution control device and even if your vehicle runs cleaner after the conversion you will still be subject to the fine which is $5000 per day.

    In answer to Jonathan’s question, yes you can buy a compressor that takes natural gas from the same line that supplies gas to your stove, furnace and water heater and compresses it into the CNG tank in your vehicle. These things cost a few thousand dollars installed. They require someone who is both familiar with plumbing natural gas appliances and wiring electrical devices.

    This is yet another case in which we would all be a lot better off if some agency of government would just stop doing what they are doing. If the cost of adding CNG capability to a vehicle was no more than $2000, a lot more people would do it. Those people would consume less gasoline causing the price to drop for the rest of us. The emissions of the vehicles running on CNG are lower than when they run on gasoline so the air would be cleaner. Shops installing CNG conversion kits would do a lot more business and employ more people who would pay taxes and not collect unemployment benefits. The increased demand for natural gas would probably cause the price to rise, leading to more natural gas pipeline construction and more development of natural gas resources which also lead to greater employment. All of these good things would happen without any new government program or expenditure. All that needs to happen is for the federal EPA to stop preventing it.

  7. One gallon of gasoline has 114,000BTUs and one MCF of gas has 1,000,000 BTUs. Ergo one MCF is almost 9 GGE. The cost per GGE should be less than 30cents before delivery and compression charges are added. It would seem there is plenty of room for CNG costs to come down if things were done on a larger scale. Also the major cost now is not that of the gas itself, and , in fact that price could triple and it would still be very competitive. This is just physics,but I have no idea of how of how the gas industry works.
    Correct me if I am wrong.

    Restricting exports of gas is what would expect of our politicians. Mark Twain called them our native criminal class.Of course this couldn’t happen if many of their donors didn’t also have larceny in their hearts.

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