How the Economics of Natural Gas Vehicles Works


Converting a gas-powered vehicle to run on natural gas can add upwards of $10,000 dollars to the cost of a vehicle — depending on tank size, production volume and other factors. “It’s not exactly cheap,” BAF Technologies President John Bacon told us today. So why are companies like AT&T — which just tapped BAF for what Bacon says is the company’s largest-ever single order of natural gas vehicle conversions — taking the plunge and investing in this technology?

In the short term it comes down to fuel savings (based on current natural gas vs. gasoline and diesel prices), low enough emissions to let drivers use the HOV lane in California, and desire to use fuels produced in the U.S., said Bacon. Longer term, Rich Kolodziej, President of the trade group Natural Gas Vehicles for America explained to us today, fleet operators will continue to eye natural gas conversions as a way to increase their options for lower-emission vehicles than they’d have relying on the models that roll off automakers’ assembly lines.

AT&T’s Natural Gas Vehicle Bet

AT&T ‘s (s T) plan to invest up to $565 million deploying more than 15,000 alternative fuel vehicles — including 8,000 vehicles converted to run on natural gas — by 2019 means selected car makers and conversion providers will be able to sink their teeth into some juicy contracts in coming years.

BAF, a Clean Energy Fuels Corp. (s CLNE) subsidiary, has just taken its second prime cut of the $350 million natural gas vehicle portion of AT&T’s plan, announcing today that AT&T has awarded it the job of delivering 463 Ford E-250 vans converted to run on compressed natural gas, or CNG, in the first quarter of 2010 and another 463 converted vans the following quarter.

For the third quarter of next year, Bacon said BAF has gotten the go-ahead to purchase certain parts for an order of the same size. In all, Bacon said BAF will supply more than 1,800 converted vans to AT&T in 2010. This comes in addition to the 600 van conversions that AT&T ordered from the company earlier this year — a deal that BAF says remains on track for completion in 2009.

The Costs of Natural Gas Vehicle Conversions

Large fleet orders are a key to making natural gas vehicle conversions make economic sense not only for high mileage customers — which can reap savings on fuel — but also for the conversion provider. “Fleets generally operate a number of vehicles that are centrally maintained and fueled. They also travel more miles daily than the average personal use vehicle and therefore can take better advantage of the lower price per gallon of natural gas,” points out the NGVA.

Bacon said BAF’s retail price for converting a single van or pickup truck to run on natural gas is about $16,500, but the per-vehicle cost is less than that for a fleet order (he also said BAF would never really convert just one vehicle). According to Kolodziej, the biggest costs in the process lie in the environmental certification process and parts, in addition to labor and purchasing the vehicle itself. An aftermarket conversion provider like BAF has to get certification from the EPA and the California Air Resources Board for “every engine family, every year,” said Kolodziej — a process that he called “burdensome and much of it unnecessary” and can cost upwards of $100,000.

When it comes to parts, Kolodziej said fuel tanks represent one of the biggest costs. Bacon said AT&T’s vans will have four cylinders, and “when you put that much fuel on a vehicle, it drives up the cost.” While a regular gasoline tank “is really a rigid plastic bag,” said Kolodziej, natural gas fuel tanks are often made of metal, since the fuel has to be stored at a specific pressure. That means more cost, compared to a gas vehicle.

There’s a “big opportunity,” however, to bring the cost down as the market grows, he said: “You get the volume up, you get the economies of scale.” OEMs (original equipment manufacturers), of course, have capacity for high volume production. “If you make it on the assembly line, it’s a lot cheaper,” said Kolodziej. While he expects car companies to eventually introduce more natural gas models to the U.S. market (where the Honda Civic GX is currently the only natural gas vehicle from an OEM), Kolodziej expects aftermarket conversion companies to play a significant role for another several decades. OEMs will start out with 1-2 natural gas models out of their total lineup, he predicted.

Carbon Reduction Benefits

For corporations looking to cut fleet costs in a time when the prospect of Congress putting a price on carbon still looms — and for the companies competing for the job — there’s more to consider than direct costs: Potential emission savings could also factor into decisions about what types of vehicles to deploy. According to NGVA, nat gas vehicles emit only about 20 percent less carbon dioxide than a standard gas vehicle (BAF claims its fuel system reduces emissions by up to 25 percent).

Natural gas powered cars can qualify for a federal Alternative Fuel Vehicle tax credit of up to $4,000, but for some, the technology’s carbon-cutting potential falls short. Venture capitalist Vinod Khosla — a strong believer in supporting cleantech solutions that can scale quickly and cheaply enough to succeed in China and India’s markets — has called natural gas vehicles a “dead end.” AT&T holds a different view, citing estimates from the Center for Automotive Research that in total, AT&T’s 15,000 vehicle plan for the next decade will prevent as much as 211,000 metric tons of carbon emissions from the company’s fleet.



I don’t know what kind of components are used in the USA (maybe made of gold) but the most expensive conversion to natural gas in Perú costs no more than $2,000.00 including everything and it’s the same price for carburated or injection. In my country in the past 10 years THOUSANDS of cars have been successfully converted to Natural gas and LPG. It’s not difficult at all. The only problem is with older engines: natural gas it’s too cold (colder than LPG) and can break plastic or rubber parts, including pipes. In fact, it’s almost impossible to find a taxi or fleet vans working on gasoline! Even 4x4s. In march 2010 there will be a new public bus system for Lima and all the buses have been specially made to operate on natural gas. At first, this was problematic for the lack of suppliers, but now it’s OK. The design was made here and the manufacturing in China…(it was the only cheap alternative). Let’s see the outcome.


A $10,000 conversion sounds pretty high. The extra cost would be much less if they just built them in the first place.

Vinod Khosla is wrong about most energy issues. India is a huge user of NGVs! What DOES he believe in? Cellulosic ethanol? Good luck hauling all that bulky feedstock to the multiple, expensive refineries needed.

New storage technologies for NG include charcoal briquette-like substrates that allow for good storage volumes at a few hundred psi. That’s a low enough pressure to allow for conformal tanks, which improves storage efficiency.

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