Part 2: Natural Gas as a Transportation Fuel

bigstock-News-4213394The Penn State Extension looks at how natural gas is priced and how market changes affect that pricing in Part 2 of “Natural Gas as a Transportation Fuel.”

CNG Pricing and the GGE Concept: At the retail level, CNG is bought and sold in units of ‘gasoline gallon equivalent’ or ‘GGE.’ The National Conference of Weights and Measures has standardized and defined the GGE unit of measurement as 5.660 pounds of natural gas. Simply stated, one GGE of CNG contains the same amount of energy as one gallon of gasoline. Although there is some variability between models, vehicles generally achieve the same levels of engine performance
and efficiency (miles per gallon) on CNG and gasoline.

 How do Market Changes Impact the Price of CNG at the Pump? One of the leading benefits of CNG is its cost-competitiveness at the pump compared to gasoline or diesel. However it’s important to understand how prices at the pump are impacted by natural gas market fluctuations. Below are two examples that illustrate a current price scenario (Example A) and a scenario with increased natural gas prices (Example B):

Example A: At a natural gas wellhead price of $4 per Mcf, a CNG station owner could buy natural gas on the market for approximately 94 cents per GGE. The station owner would add compression, maintenance, taxes, equipment and capital costs totaling $1.50 per GGE. So in this example the retail price at this CNG station would be $2.44 per GGE.

 Example B: Now let’s assume the wellhead price of natural gas doubled and becomes $8 per Mcf. In this case, a station owner could buy natural gas on the market for $1.44 per GGE. The station would then add the same costs for compression, maintenance, taxes, equipment and capital totaling $1.50 per GGE. So in this example the retail price of CNG would increase to $2.94 per GGE.

Author: David T. Messersmith, Extension Educator, Penn State EXTENSION.

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