UPS invests $70M in propane-powered trucks

Source: Julia Pyper, E&E reporter • Posted: Monday, March 10, 2014

This summer, propane will light up barbecues and grills across the nation. It will also be fueling hundreds of new package delivery trucks.
United Parcel Service Inc. (UPS) this week announced plans to purchase 1,000 propane-powered package delivery trucks and build at least 50 fueling stations at UPS facilities, an investment of about $70 million.The propane industry is hailing the UPS acquisition as not only the single largest purchase of propane vehicles, but also the single largest purchase of any alternative-fuel vehicle at one given time.Vehicles running on propane autogas will replace vans running on diesel and gasoline, displacing about 3.5 million gallons of conventional fuel per year, according to UPS. These trucks will be used mostly in rural areas of Louisiana and Oklahoma, with the possibility of expansion. The rollout will begin in mid-2014 and be completed by early next year.

UPS already has one of the largest corporate alternative-fuel fleets in the United States, having made significant investments in electric-drive powertrains, biofuels, compressed natural gas (CNG) and liquefied natural gas (LNG).

“The propane deployment is just another tool in our toolbox, so to speak,” said Mike Casteel, director of fleet procurement at UPS, in an interview. “We are still very interested and very active in natural gas deployment, but propane is more applicable to us in outlying areas where we may not have or do not have the large fleet profile and economies of scale to deploy a CNG or an LNG station on-site.”

Propane is ideally suited to more remote areas because fueling stations are relatively inexpensive to build and the fuel is easy to ship and handle. According to UPS, propane is also $1.25 to $1.50 cheaper per gallon than gasoline.

The shipping company tested 20 propane vehicles last winter before committing to its latest purchase. FedEx, UPS’s direct competitor, announced Wednesday that it will deploy its first propane autogas delivery vehicle in partnership with ROUSH CleanTech later this year.

Savings in fuel costs

Propane, a byproduct of natural gas production, is currently used to heat about 5 percent of American homes. Residential use of propane is expected to level off in the coming years; however, it’s projected to see increased adoption in the transportation sector as a domestically produced, clean-burning fuel.

Last year, about 14,000 propane vehicles were sold in the United States, up from fewer than 5,000 in 2011, according to the Propane Education and Research Council (PERC), a nonprofit propane technology incubator.

PERC estimates that the propane vehicle market will grow to 18,500 units this year and could reach as many as 40,000 units by 2020.

“We have seen sales continue to rise year over year over year,” said Tucker Perkins, chief business development officer at PERC. “Now UPS has taken a giant step, and we see other fleets willing to make total commitments to propane. That’s exciting to us.”

Lake Michigan Mailers, which operates in the United States, Canada and the United Kingdom, has committed to converting the majority of its fleet to run on propane autogas. Mesa Public Schools in Arizona, which currently has 89 propane-powered buses, has also pledged to buy more until its fleets are completely converted.

Part of the reason propane is making its way further into the transportation sector is that it’s now available on more vehicle platforms, from vans to taxicabs, shuttles to school buses. Ford Motor Co. also announced this week that it will begin offering a propane-powered version of its F-750 pickup.

Because propane vehicles cost more up front than comparable gasoline-powered vehicles, they make the most sense for fleets, which drive long enough distances to see a cost savings from the cheaper fuel.

Lowered emissions

Another reason propane autogas has become more attractive is that it’s relatively climate friendly. Compared to gasoline, propane autogas produces up to 25 percent less greenhouse gas emissions and 40 percent less hydrocarbon emissions, which create smog.

But the real driving force is price. Compared to gasoline and diesel, most users have reported around 30 percent operational cost savings, according to PERC. And compared to cheap natural gas fuels, propane wins in reduced infrastructure and maintenance costs.

A new propane refueling facility costs between $37,000 and $175,000 per station, according to the Department of Energy. CNG stations can cost up to $2 million to install, and LNG stations can cost up to $4 million.

Ultimately, however, these two breeds of alternative fuels are better friends than foes. Thriving shale plays in the United States are expected to increase the supply of domestically produced propane by 4 billion gallons per year by 2025, according to Perkins. U.S. production is currently above 17 billion gallons per year.

The gas boom has made the United States a net propane exporter, Perkins added. The United States exported 20 percent of domestically produced propane in 2013, up from 5 percent in 2008.

Increased exports, combined with this winter’s deep freeze, triggered a propane supply shortage in the Midwest and forced the Federal Energy Regulatory Commission to order emergency shipments to keep homes heated. But despite this unprecedented event, UPS and many other fleet operators see propane as an affordable, reliable fuel.

“We are domestic, and we’re abundant,” said Perkins. “That has tremendous implications for the U.S. economy as well as price sta