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Diesel or compressed natural gas? A real options evaluation of the U.S. natural gas boom on fuel choice for trucking fleets

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  • Xian, Hui
  • Karali, Berna
  • Colson, Gregory
  • Wetzstein, Michael E.

Abstract

Prior to the current U.S. shale gas boom, compressed natural gas played only a minor role as a vehicle fleet fuel despite government policies supporting adoption. With new hydraulic-fracturing methods resulting in a natural gas supply surge, a structural shift has occurred in compressed natural gas price dynamics and its relation with diesel prices. This study analyzes the impact of this shift on the optimal fuel choice by return-to-base trucking fleets considering pre- and post-boom compressed natural gas and diesel price dynamics in a real options analysis framework. Optimal decision thresholds for differing size and vehicle miles traveled indicate that even in the absence of supportive government policies, compressed natural gas is a viable and profitable alternative to diesel under the new market conditions.

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  • Xian, Hui & Karali, Berna & Colson, Gregory & Wetzstein, Michael E., 2015. "Diesel or compressed natural gas? A real options evaluation of the U.S. natural gas boom on fuel choice for trucking fleets," Energy, Elsevier, vol. 90(P2), pages 1342-1348.
    • Handle: RePEc:eee:energy:v:90:y:2015:i:p2:p:1342-1348
    DOI: 10.1016/j.energy.2015.06.080
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    Cited by:

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    2. Markéta Mikolajková-Alifov & Frank Pettersson & Margareta Björklund-Sänkiaho & Henrik Saxén, 2019. "A Model of Optimal Gas Supply to a Set of Distributed Consumers," Energies, MDPI, vol. 12(3), pages 1-27, January.
    3. Josifovic, Aleksandar & Roberts, Jennifer J. & Corney, Jonathan & Davies, Bruce & Shipton, Zoe K., 2016. "Reducing the environmental impact of hydraulic fracturing through design optimisation of positive displacement pumps," Energy, Elsevier, vol. 115(P1), pages 1216-1233.
    4. Chen, Siyuan & Zhang, Qi & Wang, Ge & Zhu, Lijing & Li, Yan, 2018. "Investment strategy for underground gas storage facilities based on real option model considering gas market reform in China," Energy Economics, Elsevier, vol. 70(C), pages 132-142.
    5. Girma T. Chala & Abd Rashid Abd Aziz & Ftwi Y. Hagos, 2018. "Natural Gas Engine Technologies: Challenges and Energy Sustainability Issue," Energies, MDPI, vol. 11(11), pages 1-44, October.

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    More about this item

    Keywords

    Compressed natural gas; Diesel; Real options analysis; Trucking fleet;
    All these keywords.

    JEL classification:

    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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