By Edward McAllister
NEW YORK, March 9 (Reuters) - Propane, once considered a low value by-product of U.S. oil and natural gas production, is finding its niche as a transport fuel in rural America where other gasoline alternatives struggle to gain a foothold.
The propane being pumped into trucks and buses that ply America's backroads is generally cheap, abundant and requires a simple infrastructure to deliver. That gives it an advantage over natural gas and electricity, the non-oil power sources often used for vehicles in cities or on major highways.
On Wednesday, United Parcel Service made the biggest bulk purchase of propane-powered vehicles in the United States, taking 1,000 such trucks to replace gasoline and diesel vehicles in rural parts of Louisiana and Oklahoma. In the $70 million deal, UPS also plans to build 50 fueling stations.
UPS has already shifted some of the firm's trademark brown-van fleet to using natural gas, which remains the cheapest alternative fuel at current prices. Those running more rural routes have proved more difficult to wean away from oil.
"All this time we have been looking for opportunities to deploy in smaller scale and propane fits that bill perfectly," said Mike Casteel, director of fleet procurement at UPS. "The propane infrastructure is very low cost, it's a fraction of natural gas."
The shift shows how the U.S. shale energy boom continues to change the way America uses energy, with abundant natural gas and other by-products like propane further eroding oil's decades-long dominance as a transportation fuel.
Natural gas remains the leading alternative for heavy duty vehicles, including ships and potentially even locomotives, but interest in propane is slowly rising, especially in rural regions where many homes still rely on the gas for heating.
Roush CleanTech, which makes propane fuel systems for trucks and buses, this week unveiled its first propane-fueled Ford F-59 van. It expects total propane unit sales to rise to 6,500 units this year, up from nearly 4,000 last year, according to Todd Mouw, a VP of sales and marketing at Roush.
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UPS's move comes as fleet owners look to cut fuel bills by moving to cheaper alternatives. A drilling boom has pushed down the price of propane and natural gas way below gasoline.
Propane offers savings of on average $1.25 per gallon at the pump. Natural gas can be even lower.
Interest does not appear to have been dimmed by the sharp but brief spike in price during this year's bitter winter, which shone a light on infrastructure constraints and export projects that contributed to shortages across the Midwest.
"Propane supplies are growing in the U.S.," said Roy Willis, president of the nonprofit Propane Education and Research Council. "The problems this winter were just driven by extraordinary demand for heating."
The interest is propelled in part by the ease of building a propane fueling station. Natural gas or liquefied natural gas fuelling stations can cost hundreds of thousands of dollars to build. An above-ground propane tank, meanwhile, can be installed in a day for less than $50,000.
Propane, delivered to filling stations in trucks, does not need to be hooked into a pipeline system, as is the case with natural gas.
"The more rural the area, the less likely it is that a gas line is going through it," said Mouw. "They don't have any opportunity for natural gas in those rural locations so they are starting with propane."
Natural gas has grown in popularity for heavy duty vehicles like refuse trucks that run on predictable routes. Companies like Clean Energy, backed by oil tycoon T. Boone Pickens, have invested heavily in fueling stations in major cities and along main highways.
But fueling stations remain in clusters in transport hubs like Los Angeles and New York that can guarantee regular customers.
"The homes that use propane for heating tend to be in more rural areas as well," said Dave Hurst, analyst at Navigant Research. "So it doesn't surprise me that vehicle refueling follows that same path."