Article

Change in Excise Tax Removes One LNG Stumbling Block

August 2015, TruckingInfo.com - WebXclusive

by Deborah Lockridge, Editor-in-Chief - Also by this author

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The temporary highway funding bill passed this summer included a provision known as "the LNG-diesel fix," which changes the tax code to tax liquefied natural gas at essentially the same rate as diesel. One provider of liquefied natural gas believes that will lead more fleets to consider using LNG as an alternative fuel.

Currently, the federal highway excise tax on both diesel and LNG is 24.3 cents per gallon. However, it takes 1.7 gallons of LNG to equal the same energy content as one gallon of diesel fuel. Because the excise tax is based on volume (gallons), not energy content, LNG is taxed at 170% of the rate of diesel on an energy equivalent basis. Fixing this disparity brings the LNG excise tax down to 14.1 cents per gallon, effective Jan. 1, 2016.

"One of the things that has really held LNG back, is that LNG was taxed on a per gallon basis, but it took 1.7 LNG gallons to have the same diesel equivalent of energy," explains David Jaskolski. "So we were paying over 40 cents in federal excise tax. When you have that disparity it makes it tough."

Jaskolski is senior account manager with Pivotal LNG, a division of AGL Resources, which sells liquefied natural gas as an alternative fuel. It's one of the largest producers of LNG in the United States, with the capability of making up to 540,000 gallons of LNG per day. It supplies more than 1 million gallons a month for truck fleets, including UPS LNG facilities in Tennessee and Florida.

The new law, he says, "leveled the playing field, which was what we were asking for. It doesn't subsidize it, it doesn't give us an advantage. For guys that would like to do LNG but didn't want to pay that extra tax, now that roadblock has been removed."

Although lower diesel prices have dampened some of the interest in natural gas, Jaskolski says with the tax inequities addressed, there are several types of fleets that may become more interested in LNG as a fuel.

"People who have a long-term outlook for fuel purchasing, especially private fleets that can't pass off costs through a fuel surcharge, they're still interested," he says. "The spread between natural gas and diesel prices affect interest level, absolutely. But the fleets I've talked to understand one thing with the current rapid drop in diesel prices: What goes down is going to come back up. It's just a matter of when."

He notes that world events that affect the price of crude oil, thanks to the way oil is traded on a global commodities market, also affect the price of diesel. LNG, as a domestically produced and domestically traded product, is far more stable in price, he says.

That makes LNG more attractive, especially in regional and super-regional applications, he says.

"If the operation is hub and spoke or even node to node, and they operate day cabs, they're probably a real good regular route fleet that's a potential customer for LNG," he explains. The trucks fuel at a central point, so the lack of widespread LNG fueling stations isn't an issue. And one of the benefits of LNG over compressed natural gas, he says, is the space taken up by the fuel tanks on the wheelbase, a concern for fleets in regional applications that want to keep the wheelbase short for a tighter turning radius. LNG takes twice the space on the frame as diesel fuel, he says – but CNG takes almost four times as much.

Intermodal drayage and distribution centers, he says, are other areas where LNG may see more adoption now that the taxes have been equalized.

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