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The Endgame for Natural Gas

Industrial usage for natural gas is at an all-time high – and growing. Same goes for consumer use and power generation.

But the commodity isn’t picking up nearly as much steam in the transportation sector.

In many parts of the world, using natural gas for transportation isn’t a new concept. (Heck, when I visited Mumbai in the 90s, every tuk-tuk in town ran on natural gas.)

In the United States, though, barely 1% of the transportation sector runs on natural gas – even though the financial benefits of making the switch are widely known.

Sure, fleets of light trucks at UPS (UPS) and FedEx (FDX) use natural gas. Companies like Waste Management (WM) run many of their garbage trucks on gas. But it’s barely a drop in the bucket.

The problem is, gasoline just isn’t expensive enough (yet) to make people pay attention to the benefits. And even if they did, there’s simply no infrastructure in place to support nationwide use.

But that’s all about to change…

The Pieces Are Already in Place

When it comes to powering vehicles with gas, there are three forms of the commodity to choose from: compressed natural gas (CNG), liquid natural gas (LNG) and methanol.

In terms of fuel costs, CNG and LNG are the cheapest compared to gasoline – coming in at just over half the price per equivalent gallon. Methanol is about 10% to 20% cheaper than regular gasoline.

Each form comes with its own issues, though.

  • CNG-powered vehicles don’t have the range of gas- or diesel-powered vehicles. The gas just can’t be compressed enough to make a full tank go very far.
  • LNG is natural gas that’s liquefied after being cooled to 260 degrees below zero. In this form, you can fill more gas into a tank compared to CNG. So it’s a better option for range. But it costs a lot more to build and operate LNG tanks. Not to mention, the added weight of the fuel means that cars and trucks would need beefier suspensions.
  • Methanol’s properties are much closer to gasoline. And it produces fewer carbon emissions. But as I mentioned above, it doesn’t cost that much less. So there isn’t as much incentive to make it the fuel of choice.

Ultimately, CNG will likely be the first type of natural gas to enjoy widespread use – mainly because the price to retrofit a gasoline-powered car is minimal.

Indeed, it costs less than a few hundred dollars in aftermarket parts (even lower if the manufacturers decide to step in, which GM is pondering). When I was in Egypt earlier this year, my contact, Hani Halim – the former Air Force Officer who got me into the restricted zones of the Suez – was driving me around in a CNG car. He had paid about $800 to retrofit the vehicle.

Of course, retrofitting your car is just one step. To really pick up usage in the transportation sector, we need to build a nationwide network of natural gas stations. At that point, adoption should pick up naturally.

Luckily, we’re already seeing some major steps in that direction…

The Beginning of An Industry-Wide Change

Clean Energy Fuels (CLNE) is building a nationwide network of CNG/LNG stations, starting in California.

It’s going to be a long process, but the company has already put up hundreds of stations – and it’s making its way across the country in high-traffic corridors that are used by the trucking industry.

Plus, over the past decade, many of the major oil companies, like Exxon (XOM), have been buying up natural gas assets. And now that they have a foothold in the industry, they have more incentive to retrofit their own existing stations.

Bottom line: When it comes to natural gas adoption in the transportation sector, it’s not a matter of “if,” but “when.” And if you want exposure to this future high-growth sector, Clean Energy Fuels is one of the best bets you can make.

The ride will be bumpy. So you’ll have to be able to stomach the volatility that usually comes with early-stage growth opportunities.

And “the chase” continues,

Karim Rahemtulla