Shale Boom Propels Propane-Powered Trucks From Dream to Reality

For almost 80 years, Blue Star Gas distributed propane throughout the U.S. West Coast on trucks mostly powered by gasoline. Now the company is working to convert its 55 vehicles to run on the same stuff they deliver.

They won’t be alone. United Parcel Service Inc. already has more than a thousand propane-powered delivery trucks on the street, with plans to buy more.

The change is propelled by a glut of propane from shale wells. It comes as prices for the fuel trade close to a 13-year low and are 75 percent cheaper than diesel. At the same time, propane offers an environmental gain, emitting 12 percent less carbon dioxide than gasoline at a time of growing global warming concerns.

“There’s a dramatic increase in the rate of adoption in fleets,” said Jeff Stewart, the president of Santa Rosa, California-based Blue Star, in a telephone interview. “It’s really the economic savings that people can achieve even compared to the lower gasoline prices.”

U.S. sales of propane-powered vehicles will reach 20,000 units in 2015, according to ICF International Inc., a Fairfax, Virginia consulting firm. That’s about a 35 percent jump from 2014, and slightly higher than sales of fleet vehicles using natural gas.

While those numbers represent only a slice of the 3 million expected fleet vehicle purchases in 2015, there’s “no question that propane is going to grow its market share over time,” according to Michael Sloan, a principal at ICF.

‘Significant Savings’

“Right now we’re in a period where there are significant savings to propane in many applications,” Sloan said in a telephone interview.

Propane production has ramped up as a result of a drilling boom that targets shale formations. Much of one of the largest formations in the U.S., the Marcellus, is known as a “wet gas play” because gas extracted from the rock is often accompanied by liquids, including propane, butane and ethane.

The production has been so robust that companies have stored 89 million barrels of propane they couldn’t immediately use, according to a government report that tracked storage through July 24.

In the U.S., propane production averaged about 1.6 million barrels a day, about a 50 percent leap from 2010 at the nascent stages of the shale boom, according to the Washington-based Energy Information Administration.

67% Discount

Even as U.S. oil production reaches record levels, the glut of propane is causing it to trade at a 67 percent discount to the price of domestic crude, compared with a 59 percent discount a year ago. The spread may narrow as export markets absorb the oversupply, although prices will probably keep sliding in relation to oil until demand is more robust, ICF’s Sloan said.

West Texas Intermediate oil, which has fallen by more than half from a year ago, added 24 cents to $45.99 a barrel on the New York Mercantile Exchange at 12:57 p.m. London time.

Last year UPS bought 1,000 autogas delivery trucks that are now on the road, along mostly rural routes, in five states. Mike Casteel, head of fleet procurement, said the company plans to buy about 150 more. Autogas powers 2.7 percent of his vehicles.

“Our adoption of natural gas and propane really took a leap forward as a result of the natural gas production boom,” Casteel said, although cheap oil has slowed conversions.

There are obstacles. It can cost as much as $14,000 to refurbish a vehicle to run on propane, and infrastructure in the U.S. has been built mostly to distribute natural gas and oil, which have historically been cheaper, according to the National Propane Gas Association.

Energy Intensive

Additionally, propane is less energy-intensive than gasoline. A gallon of autogas, which is made mostly of propane, takes a vehicle 0.73 mile for every one mile a gallon of gasoline would, according to the Propane Association.

In July 2008, T. Boone Pickens, the chairman of BP Capital LLC, proposed a plan to outfit fleets of trucks and other heavy vehicles with natural gas. He said natural gas was cheaper than gasoline and would reduce emissions.

The plan has made little headway. Excluding private stations, there are only 850 natural gas refueling stations, compared to about 115,000 gasoline stations, and the cost of building a station that doles out propane is a fraction of the price of a new natural gas distribution center.

Time Lag

There will likely be a time lag between the drop in propane prices and the widespread adoption of its use on the road, according to Sloan. For now, fleet vehicles, such as school buses, are at the forefront of the trend.

Meanwhile, Blue Star’s propane-fueled trucks are delivering more than double last year’s volume to its customers, according to Stewart, the company’s president.

“Propane has been the stealth fuel,” Stuart Weidie, CEO of Ocean Springs, Mississippi-based propane distributer Blossman Gas, said by telephone. “We’ve lived in sort of obscurity for the last six to eight years. What I’m seeing is momentum that we’ve not had.”

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