A Made-in-America fuel source may soon be moving tractor-trailers across the U.S.
Carriers like Ryder System Inc. (R) are buying long-haul trucks that run on natural gas, around $1.50 a gallon cheaper than diesel. As adoption grows, Clean Energy Fuels Corp. (CLNE) and Westport Innovations Inc. (WPT) plan to profit from a marriage of technology and domestic energy that has the political blessing of President Barack Obama and the financial backing of T. Boone Pickens.
Using natural gas could cut fuel costs by more than $20,000 for a truck traveling a typical long-haul distance of 100,000 miles (161,000 kilometers) a year, according to JMP Securities LLC’s Shawn Severson. Shares in Clean Energy and Westport are up at least 30 percent since the end of last year.
“Natural gas is green in terms of the environment, but the real green is in the money,” said Severson, a San Francisco- based clean-technology analyst. “If you do not have this fuel in your fleet for whatever percentage is appropriate, you’re going to be at an economic disadvantage.”
Clean Energy is tackling the so-called chicken-or-egg problem by building the fueling depots that natural gas-powered fleets require before they can proliferate. Such a network sets in motion part of a four-year-old plan by Pickens aimed at cutting the nation’s fuel costs, reducing reliance on overseas energy and generating jobs.
“It’s a helluva deal for the country,” Pickens, the 83- year old founder and chairman of Dallas-based BP Capital LLC, said in a telephone interview. He’s also Clean Energy’s largest shareholder, owning 23 percent as of yesterday. “It’s low- hanging fruit. It’s just sitting there,” he said.
Revenue at Clean Energy climbed 58 percent to $72 million in the three months ended Sept. 30 from the same period in 2010.
Ryder, United Parcel Service Inc. (UPS) and Dillon Transport Inc. are among those purchasing the vehicles. Dillon began moving Owens Corning Inc. (OC) freight last month using LNG trucks. The Burr Ridge, Illinois-based carrier refills 14 trucks at a Clean Energy station along Irving Boulevard in Dallas slated to open for public use in May.
“Nobody can beat us on rates right now if we have the gas component in place,” said founder Jeff Dillon, who started the business 32 years ago with one truck and now owns 350. “We’ve probably got about a three-year window to have the advantage.”
Severson has a “market outperform” rating on Vancouver- based Westport, the maker of the only currently available 15- liter engine suitable for heavy-duty trucks. After the stock gained almost 50 percent this year, Severson has a “market perform” rating on Seal Beach, California-based Clean Energy.
The absence of natural gas filling stations along the nation’s more than 46,000 miles of interstate highway previously prevented long-haul truckers from investing in new fleets that run on the fuel. In the U.S., 18 stations open to the public dispense liquefied natural gas, 14 of which are in California, according to the Department of Energy. Clean Energy plans to open 70 LNG stations by the end of the year and another 80 in 2013.
The natural gas fuel provider is teaming up with closely held Pilot Travel Centers LLC’s to add the fueling facilities to Flying J stations already open along major U.S. interstates from Los Angeles to Houston to Chicago to Atlanta. Chesapeake Energy Corp. (CHK), the second-largest U.S. natural-gas producer, committed $150 million in July to help build the network.
To be sure, some engines have yet to hit the market and federal government incentives that make vehicle investments less costly have not yet been approved. A truck operating on natural gas costs about $40,000 more than the $110,000 price tag for a diesel-powered equivalent, Severson estimated.
700,000 for Hire
About 22,000 natural gas-powered heavy duty trucks were on U.S. roads in 2010, a number that also includes already abundant gas-powered Class 7 vehicles like garbage trucks, the Natural Gas Vehicles for America trade association estimates. There are about 700,000 long-haul trucks for hire on the road, according to the American Trucking Associations.
The cheaper fuel costs, nonetheless, “will force adoption,” Severson said. He calculated that it will take about two years for a long-haul truck to recoup the additional cost of the technology.
Liquefied natural gas typically costs about $1.50 per diesel gallon equivalent less than the same amount of diesel, according to James Harger, chief marketing officer at Clean Energy. Last month, natural gas futures traded on the New York Mercantile Exchange fell to the lowest price in almost 10 years.
Natural gas’s abundance within U.S. shale deposits has driven prices lower and underpinned the 2008 Pickens Plan, which aims to create more than a million jobs and cut oil imports by a third. The U.S. produced 18 percent of the world’s natural gas supply last year, the Energy Department estimates.
‘Attractive Almost Indefinitely’
The “economics of natural gas fuels will remain very attractive almost indefinitely,” said Pavel Molchanov, an analyst at Raymond James & Associates Inc. “The excess supply of natural gas is so persistent and so structural that it really will take a very, very long time before we have to worry about prices getting to levels where they are on par with oils.”
Clean Energy’s LNG sales should grow by 115 percent in 2013, estimates Houston-based Molchanov, who also has a “market perform” rating on Clean Energy.
Government incentives would help speed adoption. Obama has called for offering tax incentives to induce companies to buy more vehicles, working with industry to build fueling corridors and introducing a competition to encourage research.
“We’ve got to take advantage of this incredible natural resource,” Obama said during a Jan. 26 speech at a facility in Las Vegas for UPS, an early adopter of alternative fuels. “Think about an America where more cars and trucks are running on domestic natural gas than foreign oil.”
Last April, lawmakers proposed the NAT GAS Act, which included a tax credit for as much as 80 percent of a vehicle’s incremental cost, an excise tax credit for fuel suppliers and a 50 percent tax credit for building a station. To help pay for it and garner support, a revised Senate bill in November included the phase-in of a user fee in 2014 that would rise from $0.025 to $0.125 per gasoline gallon equivalent by 2022.
While Pickens said he expects supporting legislation to eventually pass, the adoption of natural gas will occur without government incentives because the savings can pay back the extra cost of new equipment within a year or two, he said.
“It’s going to take off because of the price,” Pickens said. “You can get there quicker if you get Washington to give some help on direction, but that isn’t necessary.”
UPS, the world’s largest package-delivery company, owns 59 tractor-trailers powered by liquefied natural gas. A majority of them travel from California to Nevada, stopping at Clean Energy fueling stations, according to Lynnette McIntire, the company’s director of sustainability.
Ryder, the biggest publicly traded U.S. truck lessor, purchased 202 heavy-duty natural gas vehicles last March. The Miami-based company owns about 45,000 Class 8 semis, about 246 of which use natural gas. The share should increase as the fueling infrastructure expands and competition drives down the price premium for natural gas technology, said Scott Perry, vice president of vehicle supply management.
“We have a lot of interest from customers who are represented by every industry group whether it’s food and beverage distributing or it’s textiles or it’s automotive, you name it,” Perry said in an interview. Mohawk Industries Inc. (MHK), Dean Foods Co. (DF), and Staples Inc. (SPLS) are among customers using natural gas trucks mostly in southern California.
Swift, the largest truckload carrier in North America, is also getting on board.
‘Cheering It On’
“We’ve been testing it for about a year, and we like what we see,” Jerry Moyes, chairman and chief executive officer of Swift, said in an e-mail. “We are still in the experimental stage, but it has great promise, it is gaining momentum, and we are cheering it on.”
Because the trucking industry is very competitive, purchasing plans often aren’t revealed, said Glen Kedzie, energy and environment counsel for the ATA in Arlington, Virginia. Members of his group have taken deliveries of an undisclosed number of trucks to gauge the feasibility of a fleet switch.
“We’re at the cusp of something growing exponentially in the industry,” Kedzie said. “Based upon everything we’ve been witnessing not only on the infrastructure front but also on the vehicle front, these gains are increasingly very rapidly.”
Meantime, Clean Energy is working to get 150 companies, including Home Depot Inc. (HD), Kohl’s Corp. (KSS) and Procter & Gamble Co., to ask carriers to adopt natural gas, said Chief Executive Officer Andrew Littlefair. Such companies are “looking for places to save a penny, two pennies a mile,” he said.
“We don’t need millions of trucks on day one,” Littlefair said. “We don’t need tens of thousands. We need a hundred at the right location to make these stations make sense from the beginning. It’s a targeted approach, and I think it’s very manageable, and we’ve done this a lot over the years so we know how to build them and grow them.”
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