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March 8, 2012

Is a natural-gas car a cents-ible choice?

The Obama administration is proposing a $10,000 tax credit for consumers buying a car running on alternative fuels. That includes electricity, hydrogen, and natural gas. It so happens that I was at the local Honda dealer yesterday, getting answers to my questions about the reality of ownership of a car running on compressed natural gas (CNG). Such cars are cleaner to run, and the price of natural gas, already low, is going down.

Cries of pain are heard at gasoline stations all around the nation as the price of a gallon of regular unleaded is close to $4 again. It's time to get used to it: 2012 is the year that oil consumption of OECD countries is surpassed by that of non-OECD countries. China is ready to add 125 million cars to its roads in the next five years, and all those extra cars will compete for the same pool of oil with everybody else's cars on the planet.
Remember Economics 101? Supply same, demand up: price up.

So the proposed tax credit for alternative technology vehicles comes at a good time (also, it's an election year). Its generous nature can be taken as a sign of the administration's outlook on the price of gasoline: it is not optimistic.

On the other hand, natural gas is starting to look more and more attractive. Whatever your opinion of modern fracking methods, they are effective at unlocking the vast reserves of natural gas in ancient North-American shale deposits, and that success is reflected in the steadily declining price of gas. Natural gas that is, mostly a mixture of methane (CH4) and ethane (C2H6).

Never mind, for now, how a natural-gas engine works. First let's look into some practical issues. Such as price, and where to get fuel.

Several auto manufacturers are fielding natural-gas cars, but because I was just at the Honda dealer I'll use as an example the Honda Civic, which comes in various flavours, including a hybrid version and one running on natural gas. The natural-gas version starts at $26,155, and I will compare that to the basic Civic (MSRP $15,805). This is not strictly an apples-to-apples comparison, as the CNG Civic has a 110hp engine whereas the conventional gasoline engine in the basic Civic gives 140 hp. On the other hand, the CNG version comes packaged with some bells and whistles such as Bluetooth capability that are extra-cost options on the basic Civic.

Personally, I'm not into bells and whistles, so I'm comparing the simplest conventional Civic, the version I would normally gravitate to, to the simplest CNG Civic. Let us ignore the $10,000 tax credit (which for now is only a proposal, anyway), and see if the purchase of a CNG makes sense.

My first question to my friendly dealer: where do I fill up?

My dealer's face lit up; he was happy to inform me that if I buy Honda's optional navigation system (for an additional $1500), it can direct me to the nearest CNG filling station. Recharging the pressurised gas tanks is a matter of minutes. However, in the demo it turned out that I live about 25 miles from the nearest station. Oops.

A car is for my convenience: if I have to drive 25 miles to fill it up, that is not convenient.

However, the heat and hot water in my house are fuelled by natural gas. One option would be to install my own filling station, which is just a pressuriser hooked up to my existing gas supply line, and I can fill up right on my own driveway. I can buy such a device for around $5,000 including installation.

Between the price difference with a conventional Civic, the navigation system, and the charging system, I would be paying about $17,000 more to own the CNG Civic. No wonder there aren't that many of those on the road, despite the fact that a CNG car puts out significantly less emissions: no soot particles, no SOx, and about 20% less CO2.

But the rising oil prices, and the declining natural gas prices, might just put a different slant on that. So let's do the math and see how it works out. (By the way, never take a blogger's word for it: Always check my math - I would be grateful for any corrections, for one - and that way, at the end you can input the numbers that are appropriate to your situation, and come to your own conclusions).

First issue: the fuel efficiency of the CNG car. Here, as with EVs, there is a "gasoline gallon equivalent", or GGE, which is easy on the brain but is pretty much meaningless until you figure out how to convert that to the therms reported on your home utility bill. 1 GGE = 127 cuft. natural gas = 1.27 therms.

Last month, our house used 150 therms for which we paid $150, so household gas costs us about PCNG = $1 per therm. (Remember, this is a rough estimate, I'm happy to get within 10% of the actual number).

Okay. The brochure says the CNG Civic gets 31MPGGE (miles per GGE), so each mile I would drive this car would cost me

($1/therm) * (1.27 therm/GGE) * (GGE / 31 mile) = $0.04/mile

That sounds good! especially compared to the cost of driving a mile in the conventional Civic which gets 32 mpg on average:

($4 /gal) * (gal / 32 mile) = $ 0.125 / mile

So the per-mile cost of running the CNG car is only a third that of a conventional car. But is that difference enough to offset the higher purchase price?

A few nitty-gritty details: I'm going to call the price of gasoline Pg (in $/gallon) and the price of natural gas PCNG (in $/therm). Both prices can and will change over the lifetime of the car. I take the "lifetime" of the car to be 150,000 miles, the current average mileage at which US cars are retired from service. And I will call D the difference between the total purchase price of the CNG and that of the conventional car. For my personal case with the Civic, D = $17,000.

The cost difference C between driving 150,000 miles in the two kinds of cars is

C = 150,000 * [  (Pg / MPG) − (1.27 * PCNG / MPGGE) ]

Fill in the numbers: For the Civic I was looking at, MPG=32mpg for the conventional version, MPGGE=31mpGGE for the CNG version, so at the current gasoline price of $4/gallon, it's C = $15,000 cheaper to run the CNG Civic than its conventional brother, over their average lifetime: that's almost enough to cover the D = $17,000 price difference.

If gasoline were to cost $6 / gallon, the CNG car would be more than $22,000 cheaper to run: that's $5,000 more than the price difference, even if the tax credit never made it into law.

The break-even price, or the price of gasoline at which owning the CNG costs as much over its lifetime as owning the conventional car (C = D), is:

Pgb = MPG * [ (D / 150,000) + (1.27 * PCNG / MPGGE) ]

So for our example, without tax credit and having to install your own charger at your house (D=$17,000) Pgb = $ 4.90. If the price of gasoline rises above that, you would be better off with the CNG car.

Now: If you did get the full proposed tax credit (D = $7,000) then Pgb = $ 2.77. In that case it would make financial sense to buy the CNG Civic right now, since regular unleaded is at $4/gallon, higher than Pgb. And if the price of gasoline were to rise to the $6/gallon level, you would come out ahead big time. IF, that is, the price of gas remains low. As a caveat: it has been volatile in the last decade; for instance, in late 2008 it was more than 4 times higher than is it now.

My last question to the Honda dealer: has he ever actually been behind the wheel of a CNG Civic? (I wanted his opinion on the handling of the CNG with its 100hp, versus the 140hp in the conventional Civic). But he had to admit that he had never done so: the one remaining CNG at the dealership had only a little bit of gas in its tank, and it would have to be put on a truck and hauled 25 miles away for a recharge. My mercantile instincts, never far from the surface, came bubbling up, and I told him that if I ended up buying a CNG car and installing a charging station at my house, I would be willing to sell him my locally compressed gas.

If you do live close enough to a public CNG charging station, you can buy a recharge at about $2.40 per GGE. That's more than what you pay if you used your own charging station, but then, you don't have the expense of installing the charging station.

If you got this far in this post, you should now be able to figure out how the comparison shakes out in that case. You can also include the effects of any tax credits or rebates. More than that, you can put in numbers for your choice of CNG car, as well as your own estimates for how gasoline and gas prices will behave in the next decade, and make up your own mind as to whether or not CNG makes sense for you.

 

 

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