Push in US for Natural Gas Vehicles
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As any investor in the energy sector knows, the United States currently has a glut of natural gas which may last for years all thanks to advances in drilling technologies. That glut may be alleviated somewhat in several more years as the country becomes an exporter of liquefied natural gas (LNG).
There is another factor which may come into play in the years ahead...one that has long been the dream of folks like T. Boone Pickens...natural gas-powered vehicles. Right now, natural gas accounts for a mere 1 percent of road fuel demand in the US. This is in sharp contrast to some emerging economies such as Brazil where natural gas is widely used a fuel.
The good news for advocates of such a change in American driving habits is that several major companies are jumping aboard the bandwagon. A few months ago two major companies – General Electric (NYSE: GE) and Chesapeake Energy (NYSE: CHK) – formed an alliance to promote the use of natural gas a fuel for vehicles. The two firms pledged to work together to develop the necessary infrastructure, including new units for compressing natural gas for use at filling stations. Their goal is to increase demand for natural gas.
This collaboration is just a small step, however, since the initial target is to install 250 of the units. Currently there are about 500 natural gas filling stations in existence. This is a miniscule amount when one considers there are approximately 160,000 retail fuel outlets in the United States. One may wonder why GE is interested in this smallish venture. It's simple – the company has identified energy infrastructure as one of its most important growth markets. Its general manager for unconventional fuels, Mike Hosford, said the alliance could have “a huge upside”.
He may be correct, especially if the major car companies begin producing vehicles which can run on compressed natural gas. In March, both Chrysler and General Motors (NYSE: GM) announced plans to sell pickup trucks that will run on compressed natural gas. GM said it would offer bi-fuel Chevrolet Silverado and GMC Sierra 2500 pickups in the fourth quarter of this year. However, these pickups are expected to be more expensive than conventional pickup trucks.
Demand for natural gas-powered vehicles is expected to be strongest for strongest for vehicles such as taxis, buses and all types of trucks. That can be seen by the push underway by energy companies themselves to convert their truck fleets to natural gas. Chesapeake, for example, has a program underway to convert all of its 5,000 vehicle fleet to compressed natural gas. The company said that converting its medium and light-duty trucks to natural gas would reduce fuel costs by up to $20 million a year.
Other companies are also converting their fleets to natural gas. US Steel (NYSE: X) in fact has installed a natural gas filling station at one of its major steel plants in Pennsylvania for its fleet of natural gas-powered trucks (and a natural gas-powered tractor) in the region.
ConocoPhillips (NYSE: COP) is another energy company pushing hard for natural gas vehicles. No surprise since 40 percent of its production is now natural gas. Last year it launched a promotional and educational campaign to talk up the use of natural gas as a fuel for vehicles. In the campaign, it stressed that companies using trucks can save $2 a gallon or more when compared to diesel fuel.
Its CEO, Jim Mulva, said that natural gas should be a very important part of US energy policy and stressed that the industry is “a big job creator”.
Mr. Mulva may be correct but likely the growth of natural gas-powered vehicles will be slow. Such vehicles are typically more expensive than conventional vehicles and have a shorter driving range. And of course, the necessary infrastructure (filling stations) is still not in place. Hopefully, with GE pushing hard to build out the infrastructure, that will change in the next few years.
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