Jibson explained that Questar Corporation (NYSE:STR) saw a huge opportunity in 2008, when the governor of Utah approached the company for solutions after gas hit $4 for the first time, while natural gas was at $0.67. He said that with natural gas prices running about 55% below gas prices, it’s a pretty safe assumption that you’ll continue to see a spread of $1-$2. When asked what would happen if natural gas prices increased, Jibson said we’d probably see the correlation with oil and gas prices hold, but he expects the spread to hold, too.
Major fleet operators like FedEx Corporation (NYSE:FDX) are keen early adopters. According to William Logue, president and CEO of FedEx Freight, FedEx is currently testing conversion of fleet vehicles to LNG and compressed natural gas, or CNG. FedEx had been a large diesel user all along but, when fuel hit $4, the company saw a lot of opportunity in cheaper natural gas.
Logue noted that when converting vehicles from diesel to natural gas, it’s critical to understand the economics of that transition. Littlefair said that Clean Energy Fuels had done its first vehicle conversion for Waste Management, Inc. (NYSE:WM) roughly a decade ago, taking the vehicle out of service for four to five months. The incremental costs to Waste Management at the time were about $45,000 — now that number is down to $20,000. The incremental cost of conversion is critical to fleet operators’ uptake of NGVs.
Littlefair pointed out that today, 90% of Waste Management’s new fleet purchase is natural gas. Others will follow when they see the benefit. He said that savings of $1.25-$1.50 per gallon is hard to ignore. There’s a chicken-and-egg problem, though: How do we get folks to buy natural gas trucks and get the infrastructure going at the same time? Each is dependent on the other.
Nevertheless, fueling stations are on their way. Since 2010, CNG stations under construction are up 193% and LNG under construction up 8,800%. (CNG is better for short-range fleets that return to the same base every day, while LNG is better for long-range fleets, and thus suits the heavy-duty vehicle market better.)
Clean Energy Fuels Corp (NASDAQ:CLNE) has teamed up with General Electric Company (NYSE:GE) on America’s Natural Gas Highway. Clean Energy Fuels Corp (NASDAQ:CLNE) is using GE’s MicroLNG Technology. GE’s plug-and-play modular units are designed to liquefy natural gas rapidly while minimizing a site’s physical footprint. GE Energy Financial Services is also providing up to $200 million in financing for the MicroLNG plants.
What could go wrong?
This whole story hinges on the success of natural gas, and there are risks to that. A single major fracking accident could have Fukushima-like effects on the industry as a whole. And if the natural gas price doesn’t in fact remain below that of oil, a big part of the economic case evaporates. Still, all in all things look bright for NGVs. Now might be just the time to consider an investment.
The article Being Part of the 1% Just Isn’t Cutting It for NGVs in America originally appeared on Fool.com.
Motley Fool contributor Sara Murphy has no position in any stocks mentioned. Follow her on Twitter @SMurphSmiles. The Motley Fool recommends Clean Energy Fuels, FedEx, and Waste Management. The Motley Fool owns shares of General Electric Company and Waste Management.
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