Current Spot Price Spikes Not Likely to Affect Vehicle Fuels
Spiking prices for natural gas on the spot market are unlikely to have much effect on the cost of compressed natural gas for vehicles, says Patrick Couch, project director at Fleets & Fuels publisher GNA – Gladstein, Neandross & Associates.
Due to pipeline congestion issues, natural gas on the spot market is hitting $120 per million BTU delivered to the New York area. Media reports are rife, and “This is raising concerns,” Couch says, “about the volatility and long-term pricing of natural gas.”
The high prices, Couch says, “are generally confined to the spot market, the place where large gas customers typically go to buy natural gas on a last-minute basis.
NGV Providers Don’t Generally Buy Spot
“These customers,” he notes, “have not reserved sufficient pipeline capacity to cover their immediate needs.”
The situation is affecting the Northeast and Midwest. “If these price increases were due to fundamental shortages of natural gas in the U.S., we’d see similar dramatic increases in other regions,” Couch says.
As for CNG, most source gas comes from local utilities, and often under a long-term contract. Citing an example in Illinois, Couch shows a January utility price of about $4.60 per million BTU – “well below the average spot price of $41.31 per million BTU to the Chicago Citygates for [Tuesday] and about half of the January average spot price of $8.38 per million BTU.
‘Short-Term Price Spike’
“The bottom line here is that this is a short-term price spike that won’t significantly affect customers with longer term fuel price contracts or purchases through local utilities.”
“Long-term,” Couch says, “the discussion in the energy and production sector is that natural gas will probably stabilize around $5 to $7 per million BTU. At $6 per million BTU, the commodity cost of natural gas is about 86¢ per diesel gallon equivalent.
Compared with the shale gas-era benchmark of about $4 per million BTU, “This long-term gas price would only represent an additional 29¢ per DGE because the commodity cost of natural gas is only about 25 % to 35% of the pump price of CNG.”
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Source: Gladstein, Neandross & Associates with Fleets & Fuels follow-up