The U.S. Senate Finance Committee has included, as part of its ‘must-pass’ highway trust fund package, a provision that would equalize the tax treatment of Liquefied Natural Gas (LNG) used by semi-trucks as an alternative to diesel fuel.
If Congress provides fair tax treatment of LNG, it could dramatically boost LNG as a long-haul truck fuel, resulting in cleaner air, less dependence on imported oil, and more jobs in America.
Predictions vary on the actual size of U.S. gas reserves, but it’s clear from even modest estimates that the reserves are significant enough to solidify a prominent role for natural gas long into America’s energy future. That role will be a diverse one, with widespread adoption in power generation and transportation sectors.
LNG is natural gas that has been purified and then liquefied. As a liquid, natural gas is easily transported and 600x more energy dense – that means more can be fit into a fuel tank, giving LNG vehicles a range on par with diesel.
The economic, national security and even environmental benefits of natural gas are very attractive, and the barriers to widespread adoption – especially in the transportation sector – are falling.
Barrier #1: Economics – While natural gas has been in use as an alternative vehicle fuel for over 20 years, the upfront costs of purchasing or converting a vehicle to run on natural gas largely stifled widespread adoption.
In the last 5 years, rising gasoline and diesel prices, coupled with falling natural gas prices (due to increases in production), have resulted in a price gap between traditional fuels and natural gas wide enough for users to justify the premium on natural gas vehicles. An LNG semi-truck fueling in Salt Lake City pays $2.59 for an equivalent of one gallon of diesel; compare that to an average diesel price of $3.95/gallon and it is easy to understand why companies like UPS and C.R. England are integrating LNG trucks into their long-haul fleets.
Barrier #2: Infrastructure – It does not matter how attractive the economics are if there are no fueling stations selling LNG fuel.
Companies like Utah-based Blu LNG and Boone Pickens’ Clean Energy are building out robust networks of LNG fueling stations. Blu operates a network of 30 stations with more coming, including 9 in Utah. These stations make the I-15/I-84 corridor in Utah, and up through Idaho, the most developed stretch of LNG highway in the country.
Barrier #3: Federal Tax – The third barrier to widespread adoption of LNG has been the federal fuels tax. LNG is taxed at a rate of $0.41 per diesel gallon equivalent. That is 70% more than the $0.24 paid by diesel. To put that into perspective, an LNG truck averaging 160,000 miles per year, currently pays $65,000 more in taxes over its lifetime than the diesel truck it is replacing. $65,000 is more than the initial up-front cost of purchasing a natural gas rather than diesel truck, making federal tax disparity perhaps the greatest barrier to domestic LNG adoption.
The Senate Finance Committee has addressed the issue, as part of its ‘must-pass’ highway trust fund package. The bi-partisan provision championed by Senators Orrin Hatch and Ron Wyden, with strong support from Majority Leader Harry Reid, was included in the committee’s proposal to fund the Highway Trust Fund through the end of year.
The House Ways & Means committee has yet to signal whether or not it will support the Senate’s LNG proposal.
Securing fair tax-treatment for LNG through passage of this legislation will represent the clearing of a major barrier for adoption of domestic LNG by America’s trucking fleets.