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

Power Solutions International

17/10/2014 22:07

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  GE.N  and 
Caterpillar Inc  CAT.N , 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  EQT.N , 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. 
    Last month Westport Innovations  WPT.TO , which makes a key 
natgas engine technology used by Caterpillar, Volvo AB 
 VOLVb.ST  and Delphi Automotive Plc, slashed its outlook, 
citing a delay in new program launches by customers.  
    Yet the industry's biggest players insist their products are 
gaining traction in the marketplace. The wins are just not 
occurring in areas like transport where swift adoption was 
expected because of the huge potential cost savings. 
    Caterpillar, which has sold more than 100,000 of its 3500 
series diesel engines in recent decades, has successfully 
retrofitted nearly 1,000 of those units to burn both diesel and 
natural gas for customers in the energy drilling and pumping 
business.  
    GE has sold more than 3,000 of its Jenbacher-brand gas 
engines to farmers, who use them to provide power and heat for 
flower and vegetable greenhouses. 
    "It isn't going nearly as fast as the hype had people  
expecting," says Joel Feucht, Caterpillar's general manager  
of gas engines. 
    "But it's probably going faster than most people 
appreciate." 
 
 (Reporting by James B. Kelleher in Chicago; Editing by David 
Greising, Alden Bentley and Marguerita Choy) 
 ((james.kelleher@thomsonreuters.com;)(312)(408-8130; Reuters 
Messaging: james.kelleher.thomsonreuters.com@reuters.net)) 
 
Keywords: USA NATGAS/ENGINES