As Commodity Prices Face Pressure and Oil Stays High, Will Farmers Embrace Natural Gas?

2012 promises to be a difficult year for farmers as an estimated 4.8% increase in U.S. corn production, coupled with increased planting of the crop worldwide, puts downward pressure on prices. Corn, which has doubled in the past two years due to demand for cattle feed, is expected to drop by 30% to $4.035/bushel next year in Chicago trading. The record U.S. wheat harvest which is also projected next year should depress wheat prices as well, according to a Bloomberg article.

But oil prices are expected to remain high.  Barclay’s senior economist Alia Moubayed said that the Saudis need $91 oil as a “break even point” in an interview on Bloomberg’s “Surveillance” yesterday. Social unrest swept the Middle East in 2011, and the Saudi government has attempted to quell dissent by promising increased social benefits. The Saudis need higher oil prices to keep those promises. Saudi Arabia’s massive production capacity means that they are a longtime swing producer who can influence the world oil price by simply increasing or decreasing production. U.S. oil producers also need $80 oil to stay profitable. Below $80 they begin slowing drilling and decreasing production.

This combination of higher input costs and lower grain prices, coupled with the recent price boom in farmland, promises to squeeze profits for farmers in 2012. This has many farmers looking for ways to cut costs.

Natural gas may be part of the answer. “Though there are costs to converting diesel powered machinery to run on a diesel/natural gas blend, a 20-30% savings in diesel fuel promises a quick return on investment for high volume diesel users.” said C&E Clean Energy Solution’s Brian Carpenter. “We sell simple kits that allow a stationary diesel to replace around 50% the diesel fuel in each piston stroke with natural gas. That number can be a little higher or lower, based on engine load and horsepower. Red diesel is around $3.65 a gallon for winter blend, and $3.85 for #1 in here South Dakota. The natural gas is around a dollar for each D.G.E.”

A D.G.E., or a diesel gallon equivalent, is the amount of compressed gas needed to generate the same thermal energy as a gallon of diesel fuel, said Carpenter.

The kits C&E sells have been used on irrigation pumps, generators, manure pumps, and feed grinders with great success, says Carpenter. He says they are simple to install and generally cost less than $2000. “They can pay for themselves in a few hundred hours of operation,” Carpenter said.

“We’ve also got a CNG system that will run a tractor or combine at about the same fuel replacement rate. We’re working on putting together a full conversion package, including the conversion kits, the tanks, and the compressor. If diesel stays high, and I think it will, we’re confident we can put together a combination of products that will allow big farms with access to natural gas to recover their investment in about a year.”

CNG, or compressed natural gas systems, require the natural gas to be compressed to 3600 psi and stored in tanks mounted on the vehicle. In order to get the gas to that pressure, a compressor unit is required.

“The compressor is the big expense,” said Carpenter. “There are several commercially available options, but to get the volumes of compressed gas you’d need for planting and harvest, you’re looking at a cost of between $60,000 and $80,000 dollars. We’re working on a ways to get that number down. A decent ROI can be achieved even at that price point for the big operators, but if we’re able to get the price of compression down, it would make this a heck of a lot more affordable for the smaller operator, too.”

C&E Clean Energy Solutions is based in Sturgis, South Dakota. They can be contacted at 308-339-0896, or by emailing info@cecleanenergy.net.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: