When comparing CNG to petroleum-based fuels, the topic of cost always arises. Business owners want to know if it’s more cost-effective to choose CNG over other fuel options as well as why CNG is sometimes more or less expensive than traditional fuels at the fueling stations. Understanding the cost of compressed natural gas and traditional fuels is important when deciding which fuel choice makes the most sense for your fleet and your bottom line.
The biggest thing to understand about CNG and petroleum-based fuel costs is that the worldwide barrel of oil is decoupled from natural gas prices in the United States. There is absolutely no relationship between the two. Instead, they are priced separately, and understanding their respective costs will help you make a more informed decision for your fleet fueling needs.
Understanding the Price of Petroleum Fuel
Petroleum-based fuels rely on oil, and the cost of oil is the biggest factor when it comes to gas and diesel prices. Market volatility and commodity price increases have a large impact on the economics of gas and diesel fuel prices. As much as 70% of the cost of gas and diesel is directly related to the commodity cost of oil. This means that when the price of oil rises, the cost of gas and diesel at the pump will also rise—and they’ll do so immediately.
As long as these prices are dominated by the price of oil, diesel and gas prices will always fluctuate. While we may be enjoying the low gas prices now, there’s no guarantee that these prices won’t double or triple by this time next year. For companies that rely on diesel and gas for their fleet, the fluctuation in price can make it hard to maintain an accurate budget.
Understanding the Price of CNG
Unlike petroleum-based fuels, CNG does not rely on oil, so the cost is not affected by the rise or fall in oil barrel prices. Instead, the main factor that influences the price of CNG is the cost associated with compressing the natural gas into a usable fuel source, but a rise or fall in compression costs will not have the same dramatic effect on the price as changes in oil prices do for petroleum fuels. In fact, while 60-70% of cost for petroleum fuels is affected by commodity, only 20% of the cost of CNG is part of the commodity. This means you won’t see the same fluctuation in price as you do with petroleum.
CNG prices are also more stable than petroleum fuels. Natural gas wellhead prices have been relatively stable since about 2009, and forecasted prices have natural gas maintaining the same price per diesel gallon equivalent through at least 2025. Because of this, you won’t see much change in the cost of CNG at your local CNG station.
Unlike gas and diesel, natural gas prices can also be locked into a contract, which makes CNG more attractive for fleets. For example, you can lock a natural gas price into a contract for one, two, five, or however many years you want. This allows you to have a more accurate fuel cost for your fleet.
Although CNG may sometimes cost more at the fueling station than gas or diesel, it’s the consistency in price that makes it extremely valuable for fleets. While companies cannot predict the cost of gas or diesel in the next few weeks, let alone the next few years, knowing that CNG prices will remain consistent can make it easier for you to budget fleet costs and maintain them at an affordable price point.
If you’re interested in learning how CNG can save you money, use our CNG savings calculator.
