Delivery companies, retailers, and auto manufacturers are just some of the industries hoping to gain from the U.S. natural gas boom. With record production levels and subsequently high supply, companies are utilizing natural gas, however possible, notably to drive their businesses to the next level.
Miles logged require large amounts of fuel
America's economy primarily relies on trucks and railroads to deliver goods, and both share the same common denominator—fuel. So, a shift away from traditional diesel and gasoline to more economical and environmentally friendly fuel sources is a no-brainer.
For example, United Parcel Service (UPS 0.53%) expects to obtain 700 trucks within a year and is projected to control the most extensive liquefied natural gas (LNG) fleet by the end of 2014. Here's a quick out-the-door calculation: General semi-trailers use 22,000 gallons of diesel fuel a year while the tanks in UPS's trucks will break down to 12.5% diesel and 87.5% LNG. Assuming the below prices, UPS will save $24,640 on fuel a year for each truck. So, 700 new trucks would equate to fuel savings of over $17 million.
| Diesel | Gasoline | CNG | LNG | |
|---|---|---|---|---|
| U.S. estimated cost/gallon | $3.78 | $3.28 | $2.28 | $2.50 |
Primarily known for its fleet of planes, competitor FedEx (FDX -0.21%) is fixed to grab some of the action too. In March, CEO Fred Smith announced that the largest express transportation company in the world is using four natural gas powered vehicles. Assuming costs for each truck are reduced over time and that the proper infrastructure is laid (fueling stations, for example), Mr. Smith estimates that FedEx could operate up to 30% of its U.S. long-distance ground fleet by natural gas within the next decade. Due to its heavy global network requiring jet fuel and its already existing electric and hybrid ground fleets, though,switching to natural gas simply does not make sense—at least yet.
Delivery companies are not the only firms looking for savings
Home retailer Lowe's (LOW -0.14%) is well on its way to achieve its goal of replacing all diesel-powered fleets with natural gas trucks by 2018. Lowe's partnered with Clean Energy Fuels, the largest provider of natural gas fuel for the transportation industry in North America, so it could more rapidly convert to natural gas. In fact, the transition should reduce greenhouse emissions 20%, decrease fuel costs, and streamline Lowe's fleet operations.
In mid-October, Lowes announced that one if its fleets in Texas, which delivers throughout Oklahoma, Louisiana, and Texas, now runs entirely on natural gas; it is the first major retail distribution center in North America run solely by the fuel.
Manufacturers of vehicles also recognize the shift. Ford's (F 0.69%) 2014 model of the F-150, its most popular vehicle, can be purchased with a compressed natural gas fuel tank.
While the truck will retail $10,000 above its gasoline-backed counterpart, the director of Ford's North American Fleet, Kevin Koswick, estimates that due to the lower natural gas prices the payback period will be within three years. On a corporate level, the auto manufacturer seeks to attract companies that want to operate fleets run by natural gas.
Competitors General Motors and Chrysler Group, for instance, already struck a deal with exploration and drilling firm Range Resources. As a Range executive said, they provided CNG powered vehicles "direct from the "factory." Around 5% of all heavy-duty trucks sold next year will run on natural gas, up from 1% this past year. As a result, these auto companies are hoping to ride the natural gas wave into new product lines, generating profit along the way.
Final thoughts
The U.S. natural gas boom boasts far reaching effects. Companies in a variety of industries, not just exploration and drilling firms, are already benefiting from the abundant resource. And, they hope they're only getting started.
