(John Kemp is a Reuters market analyst. The views expressed are
By John Kemp
LONDON Aug 19 Cheap natural gas is starting to
revolutionise traffic on U.S. roads, cutting bills for some of
the country's heaviest fuel users while reducing carbon
emissions and other pollution.
The revolution is still in its very early stages. Gas
remains a niche vehicle fuel, with last year's nationwide
consumption less than the amount of gasoline and diesel
dispensed in the tiny state of Vermont.
But gas consumption by motorists, taxis, refuse trucks,
transit operators and logistics companies is growingly rapidly
at a time when overall gasoline and diesel sales are flat.
Like other bold gambles on new technology, there is no
guarantee that this one will pay off. But the steady rise in
natural gas sales suggests that gas-fuelled vehicles are making
Gas as a transport fuel is sometimes portrayed as a cottage
industry, but the truth is rather different. Gas-fuelled
vehicles have strong support from some of the biggest and most
powerful names in truck manufacturing and petroleum.
Royal Dutch Shell is constructing a network of
natural gas fuelling stations at truck stops along the
interstate highway system in association with TravelCenters of
America, an existing truck refuelling operator.
Love's Travel Stops, Blu LNG, Kwik Trip, Questar Fueling and
TruStar Energy are also adding gas-refuelling systems at
locations across the United States as well as parts of Canada.
The concept has powerful strategic and financial backing
from engine manufacturer Cummins, gas producer
Chesapeake Energy and equipment maker and financing
company General Electric.
Leading truck manufacturers including Freightliner,
International, Kenworth, Peterbilt, Mack and Volvo
all offer natural gas trucks using Cummins' ISX 12G engine,
which one major fuel supplier hopes will be a "game changer" for
Gas-fuelled vehicles typically cost significantly more than
conventional gasoline and diesel-powered equivalents, while
fuelling stations dispensing compressed natural gas (CNG) or
liquefied natural gas (LNG) to the public remain rare.
Set against these disadvantages, however, is the
substantially lower price of natural gas.
Between 2011 and 2013 compressed CNG and LNG delivered cost
savings of more than $1 per gallon on an energy equivalent basis
compared with gasoline and diesel to California customers.
For individual vehicles and fleet operators that use a lot
of fuel each year, the savings on fuel can more than offset the
increased equipment costs and inconvenience arising from
restricted refuelling infrastructure.
Switching to gas makes most sense for high-mileage vehicles
and those with very large engines, which explains why taxi
fleets, transit operators, refuse collectors, airport shuttles
and trucking companies have shown the most interest in
Gas conversion, however, has been plagued with the teething
problems typical in any new technology and there is still
competition between companies promoting either CNG or LNG as the
The transition has not been helped by early gas-fuelled
engines not always being suitable for certain customer groups.
Cummins, the leading engine manufacturer, supplied 8.9 lire and
15 litre engines suitable for LNG, but the former did not
deliver enough horsepower and the latter was too large for
efficient operation by most potential users.
Gas-fuel vendors are pinning their hopes on a new generation
of 12 litre Cummins engines, led by the ISX 12G, to speed the
spread of gas-fuelled vehicles.
Notwithstanding the problems, sales of gas as a road
transport fuel are rising rapidly. Clean Energy Fuels,
the leading provider of natural gas as an alternative fuel for
vehicles in the United States and Canada based on sales volumes
and the number of refuelling stations, has reported rapid and
sustained growth in the amount of CNG and LNG sold since 2009.
Clean Energy Fuels sold almost 65 million gasoline gallons
equivalent (GGE) of natural gas fuels in the second quarter of
this year, up from 50 million in the same period of 2012 and 25
million in 2009.
CNG accounts for two thirds of the company's sales, but
deliveries of both CNG and LNG have been rising steadily over
the past five years (link.reuters.com/sat62w).
Roughly half of all natural gas sales for transport fuel are
in California, according to the Energy Information
Administration, and gas sales remain tiny compared with other
U.S. drivers purchased 174 billion gallons of gasoline and
diesel last year, according to the Federal Highway
Administration. So if Clean Energy manages to sell 170 million
gasoline equivalent gallons in 2014, it will still amount to
less than 0.1 percent of all U.S. fuel sales.
But Clean Energy has big ambitions and believes it is well
positioned to capture expected future growth in demand for
The company owns, operates and supplies 516 refuelling
stations dispensing CNG, LNG or biogas, up from 224 at the start
Some of these stations are open to the public, but the
majority are private stations operated on behalf of transit and
refuse companies or other fleet operators.
In 2013 Clean Energy served 779 fleet customers operating
approximately 35,000 natural gas vehicles and had fuelling
stations in 39 states across the United States, plus the
provinces of Ontario and British Columbia in Canada.
In the first six months of this year the company added
another 43 CNG fleet customers, accounting for an extra 9.8
million gallons of sales, and 11 new LNG customers, adding an
extra 6.5 million gallons.
Clean Energy has been building a network of refuelling
stations along major transportation corridors, which it calls
"America's Natural Gas Highway" (ANGH). The idea is to guarantee
refuelling facilities for coast-to-coast trucking companies.
More than 80 ANGH stations have been built, though only a
minority are open to the public, with the company waiting for
customer demand to increase.
Building so much infrastructure has pushed Clean Energy deep
into debt. The company posted a pre-tax loss of $60 million in
the first half of this year, bringing total pre-tax losses since
the start of 2011 to $271 million.
"We have a history of losses and may incur additional losses
in future," the company admits, adding in regulatory filings
that it might never achieve or maintain profitability and that
investment in the business "involves a high degree of risk".
The company had consolidated debt of more than $600 million
on June 30, according to its quarterly filing with the
Securities and Exchange Commission.
Clean Energy is essentially a concept company dedicated to
the idea that cheap gas could grab a significant share of North
America's giant fuel market.
The main risks are that the company will run out of cash
before natural gas vehicles go mainstream or oil prices fall
enough to spoil the economics of switching.
But otherwise the concept is a good one. Gas is cheap and
abundant in North America and the engine technology is mature.
Gas will not be suitable for all motorists, but for a group
of the heaviest users there is a compelling argument for making
(Editing by David Goodman)