Two Challenges Holding Back Natural Gas Vehicles

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More than two-thirds of the oil consumed in America goes toward transportation and accounts for roughly a third of total greenhouse gases produced. With currently high oil prices, cheaper, cleaner-burning natural gas seems to be the most obvious solution to this problem.

Just a decade ago, natural gas and oil traded at a similar price on an energy equivalent basis. But now – courtesy of the shale gas boom – oil is about seven times as expensive as natural gas on a dollar-per-BTU basis.

Given this historically unprecedented disparity between the two energy sources, large-scale production of natural gas vehicles, or NGVs, would appear to be the next logical step.

Natural gas making inroads in trucking
Already, natural gas as a transportation fuel has gained considerable traction in the market for commercial trucks. Waste management and delivery companies, as well as others that have large fleets, are switching over to natural-gas-fueled vehicles to lower costs.

For instance, Waste Management (NYSE: WM  ) expects that, over the next five years, four-fifths of the trucks it purchases will run on natural gas. By 2017, the company projects that its trucks will burn more natural gas than diesel. While these new trucks will run about $30,000 more than comparable diesel trucks, they should save the company $27,000 or more each year in fuel costs.

Other companies are also seeing tremendous opportunities in converting trucks and larger commercial vehicles to run on natural gas. Within a couple of years, truck manufacturer Navistar (NYSE: NAV  ) expects that a third of the trucks it sells will run on natural gas.

Yet despite these positive developments in the market for trucks and larger vehicles, overall usage of natural gas vehicles in the U.S. remains minimal. Currently, only about 0.1% of American vehicles use the cleaner-burning hydrocarbon as a fuel source. Adoption for natural gas passenger vehicles has been ever slower.

The biggest challenge has been in creating the right incentives for consumers and companies to make the transition. There are two main issues here: Natural gas vehicles are expensive and there is a dearth of refueling stations across the country.

High upfront costs
While natural gas and gasoline engines are quite similar, natural gas vehicles require more expensive fuel tanks. This is because natural gas has to be stored under high pressure, which requires fuel tanks that are heavier, larger, and sturdier than gasoline fuel tanks.

Since these are more expensive to build, the costs get passed on to the consumer. For instance, Honda's Civic GX, which is currently the only natural-gas-powered passenger vehicle available in the U.S. market, is about $5,200 more expensive than a comparable vehicle that runs on gasoline.

Still, private companies are working hard and investing heavily in research and development efforts aimed at reducing the costs of natural gas vehicles.

For instance, 3M (NYSE: MMM  ) and Chesapeake Energy (NYSE: CHK  ) joined forces last year to develop lighter and better natural gas fuel tanks. The tanks will have linings wrapped in ultra-light, carbon-composite materials, which could make them as much as 20% lighter than currently available tanks.

Limited refueling capacity
The paucity of refueling stations across the country reflects a fundamental problem that has to do with incentives. Why should consumers go out and buy NGVs if there are hardly any refueling stations? And why should companies invest millions of dollars in building these stations if nobody owns NGVs? It's a tricky dilemma.

Currently, there exist just over 1,000 natural gas stations in the U.S., as compared to nearly 160,000 gasoline stations. Of these natural gas stations, the vast majority are equipped for CNG-powered vehicles. But fewer than half of them are available to the public and more than a fifth are located in California.

Limited refueling capacity is also a bigger issue for some types of vehicles than others because of the physical properties of natural gas. One of the major drawbacks of using natural gas as a transportation fuel is that it's not very dense.

For instance, CNG is only about a quarter as dense as diesel and liquified natural gas, or LNG, is about 60% as dense. Hence, trucks need more storage space for natural gas in either form, which requires either more tanks or bigger ones. Otherwise, they have to refuel quite often.

For delivery trucks or city buses, this doesn't pose much of a challenge, since most of them usually return to home base – where there are refueling stations – at the end of each day. But for long-haul truckers that often have erratic routes, the lack of refueling stations remains a major issue.

Clean Energy Fuels (NASDAQ: CLNE  ) is aiming to change this, though. The largest provider of natural gas as a transportation fuel in the U.S., it already boasts more than 300 natural gas refueling stations across the country. Roughly 80% of these stations are equipped to refuel passenger cars and light-duty trucks that run on CNG.

And recently, the company announced its plans to develop a network of 150 LNG stations at Flying J truck stops throughout the country by the end of this year. In doing so, the company's goal is to allow long-haul trucks to get to any major city in the country on LNG alone. Given that long-haul trucks already have major financial incentives to switch to natural gas, the addition of new refueling stations should provide an additional boost to demand.

With the movement toward alternative energy gaining momentum, Clean Energy Fuels stands out as one of the biggest and potentially most lucrative opportunities. It's a first mover that's poised to make a big impact on an essential industry. Read all about Clean Energy Fuels in our brand-new report. Just click here to get started.

Read/Post Comments (11) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 04, 2013, at 1:17 PM, Paulson545 wrote:

    America is rich in coal. We know how to use coal gasification to convert coal into diesel fuel. When are we really going to reduce our dependance on OPEC oil.

  • Report this Comment On March 04, 2013, at 1:49 PM, jpmj wrote:

    We are back to the chicken or the egg, NGV or stations (NGS). Please, small steps at a time: family vehicles (with the ability to run on both), station that can be serviced by rail or trucked into ( Wal Mart for exemple). Big money is, and with good reason, already align themselves with commerical trucking - WM & NAV- to name a few. Lighter tanks- MMM & CHK- for instance; but, let's not forget my favouite play on nature gas, CLNE. I'll remain long and hope that we will all be rewarded well into the future. Thanks MF& Arjun Sreekumar. jpmj4847

  • Report this Comment On March 04, 2013, at 2:46 PM, imhipp105 wrote:

    What makes anyone think that once natural gas is a viable alternative, the price for this new fuel source will remain low? The market will push it to pennies below the cost of oil.

  • Report this Comment On March 04, 2013, at 4:38 PM, humanbeinghuman wrote:

    the 15 largest cargo ships put out more pollution then all of the cars in the world combined, there are over 30,000 cargo ships plying the oceans, seems like that is a richer, easier to hit target. why don't we start there.

  • Report this Comment On March 04, 2013, at 5:54 PM, spiritpen wrote:

    The first reason I can think of not to use natural gas cars is the destructive nature of natural gas exploration, which is seismic testing. That kills an enormous amount of marine life. (see on FB: stop the diablo canyon seismic testing)

    The second reason I can think of is electric cars, available for about 20 years now, completely clean, no dead whales, charged off home rooftop solar arrays and nickle batteries can be recycled w no new mining. Natural gas is a fools errand.

    Joey Racano, Director

    Ocean Outfall Group



  • Report this Comment On March 04, 2013, at 6:22 PM, Postaldog3 wrote:

    Everybody forgets the safety factor in driving with NG fueled vehicles. In crashes they tend to explode and if not well maintained they catch fire. You just have to look at the experience of Thailand and their 1000s of NGV and LPV vehicles to see the safety concerns.

  • Report this Comment On March 04, 2013, at 7:52 PM, stretchrunner147 wrote:

    in europe they have home fueling stations using their home gas, i think ngv is the way to go. electric still requires a fuel source to power the plant ng is a no brainer. Westport Innovations is the stock to own. wprt...............

  • Report this Comment On March 05, 2013, at 7:43 PM, xfoxxx wrote:

    GAS is to dangerous for hot parts in vehicles.

  • Report this Comment On March 06, 2013, at 7:06 PM, jerpaul65 wrote:

    I own a HVAC company in Utah, and we have 4 Dodge service vans that run about 25,000 miles per year. Also one ford F-150 pick up. All are NCV only. the vans are 1 ton 12 seat. We removed seats and installed service shelving. All were 7 years old and came from state or city fleets. The most mileage was 27,000 miles. The Ford had 12,000 miles when taken off transporter truck. Because the natural gas engine is so clean oil change is 7,000 miles. Why was the mileage so low? The state and local gov fleets are required to have "clean air fleets' by the feds if they take any Federal funds at all. The gov workers would not use the natural gas trucks if a gasoline truck was on the lot. Salt Lake City had about 20 duel fuel 7 years old, small Chev cars that they sold to gas company workers in 2005. These cars had a simple way to read out mileage used on natural gas, the highest was just above 200 miles! These cars had cost the taxpayers $7500 each extra! If the driver is not paying out of his own pocket it is human nature to cut conners.

    It takes twice the time to fill with natural gas. In Utah all natural gas is priced(March 6 2013@ $1,49 per gal) by the state public service com. Questar owns its wells and makes no profit on the gas. Questar Gas owns the pumps which are all along the I-15. Just about all are at gas stations, pay by card only. Natural gas is now along the I-15 south to Cal. All of Cal public buses are Natural gas. These busses are built in Wisconsin and driven by road through Utah. In Utah the price till 2 years ago was $.49 with the $.50 fed tax credit taken by the gas company. It is true that natural gas is much higher priced in parts of Cal because the state has different companies and I think the public service comm. in Cal only price sets for home natural gas. Over the last 7 years I have run the 5 trucks for 6 cent per mile. 625,000 miles total.

  • Report this Comment On March 15, 2013, at 12:51 PM, ARH213 wrote:

    I've visited Salt Lake City, Utah, a couple years ago and I saw a 1/2 ton post-production modified truck fill up with natural gas at a regular service station. The owner claimed to get 20 miles/gallon with natural gas and the price was ~$1.50/gallon at the time, when I paid ~$3.50/gallon for regular gasoline...I was jealous! A week ago I bought a new gasoline powered Subaru Outback. I live in Minnesota and have never seen a natural gas station in Minnesota. I would love to have an option of buying natural gas for my personal vehicle and would have bought such a car (provided it still had all wheel drive - hey I still live in Minnesota) were both car and fueling options available. Electric cars with current technology is just too limited in terms of miles/charge and cost of batteries.

  • Report this Comment On April 10, 2013, at 6:23 PM, Californian7 wrote:

    I own a 2010 Honda GX NGV. 60,000 miles. Not a single problem to date. It is the standard Civic with an additional gas cylinder for the fuel system. Fueling infrastructure is sparse, but near my home and my office, so not a problem. I live in Southern California. I pay from $1.23 to 1.99/gal for CNG and get about 35 miles per gallon (gas equivalent) at 3,600 psi. This vehicle works for me, but I have to make sure I plan my route accordingly so I'm not too low on fuel. Research the flash point and burn time of natural gas and you'll realize it is safer then gasoline. I received an amazing tax credit (credit, not rebate) and get to drive as a single in the carpool lane - what a benefit in So. Cal. I fill up for less than $10. Yes...single digits! the tank is only 7.9 gallons, so you get about 240 miles per tank. One other thing 113 hp, the car isn't going to win any races, but I probably drive better as a result. I HIGHLY recommend it if the refueling works for you. One other thing - the vehicle won't work under 4 degrees F, so this can't work in cold climates - this is a major problem not mentioned in the article.

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