UPS expands alternative fuels momentum with major CNG investment

March 15 (Reuters) -- United Parcel Service (UPS) on Tuesday announced a $100-million plan to buy hundreds of new trucks that will run on compressed natural gas (CNG), saying it did not want to lose momentum on alternative fuels even though diesel prices have tanked.

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/gal in January, compared with $2.09/gal of gas equivalent of CNG, according to data from the US Department of Energy. Natural gas futures have fallen a quarter since January, while diesel futures have risen 40% 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.

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.