UPS expands alternative fuels momentum with $100 million CNG investment

(Reuters) - United Parcel Service Inc UPS.N on Tuesday announced a $100 million plan to buy hundreds of new trucks that will run on compressed natural gas, saying it did not want to lose momentum on alternative fuels even though diesel prices have tanked.

A United Parcel Service (UPS) employee walks past a sign bearing the company's logo at a job fair in Chicago, Illinois, October 18, 2014. REUTERS/Jim Young

The new program will fund 12 CNG fueling stations and add 380 CNG heavy duty trucks to the package delivery company’s fleet.

The announcement comes as a sharp slide in the price of crude oil has hampered demand for alternative transportation fuels such as CNG.

UPS said it has been encouraged by cost and technological improvements in natural gas vehicles in recent years, and did not want those advances to be shelved.

“We’d like to see the momentum continue,” Mike Casteel, UPS’ director of fleet procurement, said in an interview. “As long as we are able to do this and still have it be economically feasible, we’re going to do it. If you have to stop and start again, it will be that much more difficult.”

Although the price of diesel fuel has dropped nearly 30 percent in the last year, CNG prices have been relatively stable and are still slightly lower than diesel.

Diesel fuel averaged $2.23 a gallon in January, compared with $2.09 per gallon of gas equivalent of CNG, according to data from the U.S. Department of Energy. Natural gas futures NGc1 have fallen a quarter since January, while diesel futures HOc1 have risen 40 percent in the same period.

Because UPS owns its own stations, its CNG costs are substantially lower than public pump prices, Casteel said.

UPS said the CNG stations will be built by TruStar Energy of White Plains, New York, and the truck tractors will be supplied by Kenworth, a division of PACCAR Inc. PCAR.O

UPS has steadily been increasing its use of alternative fuel vehicles, which now make up 6 percent of its 100,000-vehicle global fleet.

Tuesday’s announcement came after UPS made an even larger expansion of its CNG fleet, adding about 1,400 vehicles and 15 fueling stations in 2015.

Reporting by Nichola Groom; Editing by Alan Crosby