Moving Natural Gas Fuel Distribution Inside the Home
Nihar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I'm sure you have been reading all about natural gas and the stations that are being built to deliver fuel to natural gas vehicles. These stations are just a natural gas version of traditional gas stations. Even natural gas itself is just another fossil fuel. While one part of me completely understands its importance, especially in the U.S., another is thinking that it's more of the same. Well, months ago, news appeared that seemed designed to rid me of my senseless complaints.
General Electric (NYSE: GE) and Chesapeake Energy (NYSE: CHK) have partnered to develop a fuel system that could allow people to refuel their cars at home. As someone who hates the hassle of filling up the tank I want this to work and be affordable. I also want my car to have about 500 miles per fill up, though I might have to wait longer for that one. The ability to refuel in the house really does blast through an obstacle for widespread adoption of natural gas vehicles.
The crux of the partnership, though, is easy to install refueling stations for fuel retailers. The home refueling stations is a nice addition, but probably the slowest thing to be realized. These fueling stations "in a box" are actually meant to fit in shipping containers and be deployed quickly. Instead of building underground tanks, the device makes compressed natural gas on-site from a pipeline. The step after that is liquefied natural gas, then finally home refueling stations.
Stations are being built at a steady pace now, and eventually the "lack of fueling stations" will disappear as a criticism of natural gas. However, if you can stick a refuel point at a residence for around $500, then it lets the general public adopt natural gas. The one under development by GE and Chesapeake is about 4 or 5 times that price. It is a start, but I do not see widespread adoption, especially if natural gas vehicles are also more expensive. With the rise in fuel efficiency for traditional cars, it will take longer and longer for cheap natural gas to pay for the price increase with savings. Assuming that the price of natural gas is significantly lower than gasoline.
Before talking about the specifics of companies it is always important to glance at the macro picture. It is likely that natural gas will be exported overseas. Apparently the Department of Energy found that exports will benefit the U.S. economy. Considering it will help close the U.S. trade imbalance, this is not surprising. However, having the gas cheap and domestic could revitalize some flagging industrial sectors. Exporting a raw material like that might have a short-term benefit due to the higher prices commanded overseas, but it can come at the cost of long-term domestic improvements.
It might lead the price of natural gas to head upwards. Natural gas vehicles and other related things cost more than their gasoline counterparts. If natural gas becomes more expensive, then it will be more uneconomical to shift to it. However, oil is not a domestic resource and is subject to conditions in other nations largely out of our control. Then again the higher prices might lead natural gas producers to start expanding production. Depressed prices probably kept some of them on the sidelines or caused feet to be dragged. There are positives and negatives to most things, and as investors we have to be aware of them. Exports will be good for Chesapeake, because it can sell to the highest paying market, while setting up its long-term strategy. The export process will take some time, so no need to make rash decisions due to an impending growth of exports.
Moving back to a domestic focus, fueling stations are being built on major highways, because there is more certainty that they will be used. Commercial consumers are more predictable than private consumers, since truck routes are somewhat fixed. Highways are where Clean Energy Fuels (NASDAQ: CLNE) has its construction efforts. The company just agreed to buy two systems to produce liquefied natural gas for long haul trucks from GE. When up and running, the systems will produce 500,000 gallons a day. The company should have 70 stations up and running by the end of this year, and another 64 are in the works for next year. That number might go up as more building is approved.
There are some technical aspects of LNG that I want to look into, since it relies on insulation to keep it in liquid form. Insulation slows temperature change, but it is not like refrigeration, which actively maintains a certain temperature. LNG tanks also have less pressure than CNG tanks, meaning the walls might be thinner, and I wanted to see if minor leaks occur in LNG tanks if they sit idle for too long. I have not read about any of this happening, but the concern came to me when I was reading the technical specifics.
Clean Energy might appear to at odds with the "in a box" approach of Chesapeake, but it is aimed toward small and medium retail locations. Clean Energy is focused on fueling more heavy-duty vehicles that would need larger stations. I see the two companies as more complementary than direct competitors, though there is some overlap. I do really like Clean Energy for its plans and its execution. Until I started digging into natural gas I had just heard bad things about Chesapeake, as I am sure investors remember. That is the past though, and Chesapeake produces plenty of natural gas, giving it potential for the long term.
TheArchivist has no positions in the stocks mentioned above. The Motley Fool owns shares of Clean Energy Fuels and General Electric Company and has the following options: long JAN 2013 $16.00 calls on Chesapeake Energy, long JAN 2014 $20.00 calls on Chesapeake Energy, long JAN 2014 $30.00 calls on Chesapeake Energy, and short JAN 2014 $15.00 puts on Chesapeake Energy. Motley Fool newsletter services recommend Clean Energy Fuels. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!