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Como bets big on propane 'autogas'
PHOTO: Como COO Will Norman
The rise of crude oil prices has both helped and hurt Como Oil & Propane. On one hand, the high price of home heating fuel and the spread of natural gas pipelines has hurt that segment of its business. But that same factor is convincing fleet owners they’re spending too much on gasoline and diesel fuel, which has opened a new opportunity for Como to capitalize on propane sales for the vehicular market – a new segment the industry is calling “autogas.”
“A variety of users are looking for alternatives. School districts, fleets and taxi companies are flocking to propane,” said Como Chief Operating Officer Will Norman. His own company is leading the charge, converting one light-duty, one medium-duty and one heavy-duty truck to burn propane as a test of the alternative fuel’s ability to cut costs and reduce maintenance.
“We’ll take our findings and use them to market the concept to fleet owners,” he said.
Similar trials occurred nationwide from the 1970s to the1980s, when gasoline and diesel prices also began to climb. An early fleet adopter was Schwan Food Co., which to date has logged more than two billion fleet miles delivering frozen food door-to-door to residential customers.
“More than 70 percent of our home delivery trucks run on propane,” said Chuck Blomberg, communications manager for Schwan Shared Services. The late Marvin Schwan, company founder, “saw propane as a way to ensure a reliable fuel source for his trucks” that’s also much less expensive and burns much cleaner, he said.
Today’s autogas technology has improved significantly compared with the equipment available two decades ago, according to Jim Olson, Como’s director of safety, compliance and asset management.
“The price of gas was $3.80 the second week of Oct. On average, you can fill with LP at $2.20. You’re saving a $1.60 off the top,” Olson said.
When propane is burned in typical gasoline engines, drivers experience a 15 percent mileage decline, he said, “but maintenance costs are far lower.”
Up front, an investment is needed to convert vehicles from gasoline to propane, or to use both fuels. For diesel-powered vehicles, the equipment injects propane vapor into diesel fuel. An average conversion will cost about $5,500, according to Alliance AutoGas, a consortium of 50 partners of which Como is a member.
“For light duty trucks, the payback is 17 months. On a medium size truck, the payback is 12 months. For heavy-duty diesel trucks running 20-25 propane percent injection, the payback comes in six months. The payback is faster for vehicles that get the lowest mileage,” said Joe Stariah, Como senior vice president and CFO.
The conversion to propane seems to work best in diesel applications, increasing both mileage and power.
Converting people from gasoline or diesel – which have a 100-year transportation history – to an alternative fuel source won’t be easy, as Chevrolet learned with its electric-power Volt. Several factors come into play. Perhaps the hardest to overcome is the lack of a retail filling network. In the case of propane, there also is competition from liquefied natural gas (LNG) and compressed natural gas (CNG). LNG is being touted as a potential replacement for bunker oil for maritime fleets, and some over-the-road trucking firms including UPS also are using it. Companies such as Waste Management that travel shorter distances have adopted CNG.
“Natural gas is the cheapest product out there,” Norman explained, “but the infrastructure costs to put together a fueling station for natural gas or CNG is 10 to 15 times more expensive. Vehicle conversion costs are more than two times costlier than an LP conversion.”
Olson cited another factor that favors propane.
“It pumps at same rate as gasoline, but CNG or LNG takes a minimum of 45 minutes to two hours to fill up, depending on the system and the truck,” he said.
Como’s is working in conjunction with Alliance AutoGas to arrange for conversions and financing for fleet owners. Vehicles must be fitted with a propane tank, which typically is constructed 20 times stronger than a gasoline tank.
“They’re extremely safe,” Stariha said.
In pickup trucks, they’re typically mounted in the bed. On larger vehicles, they hang on the side.
Como provides the fueling station infrastructure to fleet owners at no cost, with Como retaining ownership. Fleets also have the option to purchase and own the refill station.
Location is significant advantage for companies in northern Minnesota and Wisconsin. An Enbridge pipeline from Canada routes natural gas liquids directly to Plains Marketing in Superior, which operates a propanizer near the Calumet Specialty Products refinery. The supply is plentiful. An alternate supply arrives via rail to a yard in Twig, Minn., just north of Duluth.
“Because of all the shale projects, the United States is a net exporter,” Stariha said. “If autogas really takes off, we don’t have to get it from overseas.”
Further, there are environmental advantages. Propane produces 60 percent less carbon monoxide during combustion. It reduces other greenhouse gasses 20 to 25 percent, he said.
“As this grows, you’ll see original equipment manufacturers making factory-ready propane systems,” Norman said. Some Rousch Ford vehicles already have received Environmental Protection Agency approval. Freightliner is expected to have a factory-ready engine ready in the first quarter of 2013.
“Based on all the indications about pending fuel independence in America, this is all going to work out. There’s nothing but stability in the LP market,” Olson said.
In fact, there’s so much stability that Como can purchase propane on a set price that doesn’t change for up to three years, Norman said, allowing fleet owners to better plan their budgets.
Despite the growing market for vehicular conversions, the U.S. government predicts consumers will adopt fuels and technologies that, in today’s world, largely don’t exist. Through the year 2035, growth will be greatest in biomass, at 3.3 percent annually, according to the U.S. Energy Information Administration. That compares with 0.4 percent growth for crude oil products and 1.4 percent growth for natural gas – even though massive new petroleum fields are being discovered every year.
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