If you think natural gas prices could wreak havoc on companies like Clean Energy Fuels (NASDAQ:CLNE) and Questar's (NYSE:STR) refueling division, you probably don't understand how it all adds up "at the pump."

Andrew Littlefair is the CEO and co-founder of Clean Energy Fuels, the leading provider of natural gas for transportation in North America. Clean Energy provides CNG and LNG fuels to solid waste, trucking, and transit fleets, among others, and currently operates some 500 fueling stations in the United States and Canada, as well as manufacturing related equipment and technologies.

Is natural gas losing its ability to compete as a transportation fuel? In this video segment, Littlefair explains the commodity cost of natural gas, and how it really compares to diesel -- and what a change in the price of natural gas ultimately means at the pump. 

Jason Hall: Talking about the economics of fuel, a popular misconception -- you've addressed this numerous times, but for people that may not be following the story for very long -- if you can talk a little bit about the commodity costs of natural gas versus diesel and oil; how does that work?

Andrew Littlefair: That's a good question because you read ... In fact, I was listening to CNBC this morning and they were talking about how natural gas has gone up dramatically, and therefore it can't compete with coal and all that.

Let's just take a couple of steps back. Natural gas versus oil, if you were to burn them -- just on a BTU basis -- they should trade at about 6:1. What does that mean? To make it easy, if you had $100 of oil, natural gas on a BTU equivalency should be around $15 or $16 an MCF.

Hall: Per unit of energy.

Littlefair: Per unit of energy.

But you sit here today with oil banging around $100 a barrel, and natural gas I think this morning was $4.37 on the NYMEX, so you're seeing something where the spread is dramatically different.

For years and years, oil and natural gas traded more like 7:1 or 8:1, and today they're trading more like 20:1, 22:1. What does that mean? That means, today, natural gas has a huge advantage -- the commodity does -- versus oil.

When you look at it in our business, here's the way ... and this, to me, is the most important piece. When I'm talking to investors -- I know it sounds like high school and elementary -- but I always want to make sure they understand it. You get eight gallons of gasoline equivalence.

Hall: That $4 and change is worth an eight gallon equivalent?

Littlefair: Exactly; $4.37, you divide by 8, so the commodity today to take that car -- you have the same energy as a gallon of gasoline -- your commodity is $0.53.

Now, without getting into all the detail of how the margins build up, you have to do some stuff to it. You've got to compress it, and you've got to pay for the gas from the local utility, and you need a compressor on it, and you do O&M, the maintenance -- so there's cost in there. But you're at the nozzle tip dramatically cheaper than the competing fuel.

Today, in the L.A. Basin, gasoline is $4.19. We're selling natural gas -- and we have 60 stations here in Southern California -- we're selling CNG, depending on who you are and where it is, at about $2.50, so the customer is enjoying almost $1.70 a gallon savings. It's dramatic, so you do have economics today.

Here's a way to think about it, because people are saying, "Well, the summer, the heat, the (fill) season may put pressure on natural gas. Natural gas could go up." It may go up as much as $1.00 in the summer, which usually would be not normal -- usually you'd see the price of gas go down, but you had a cold winter and storage is low.

Hall: They've got to build back up.

Littlefair: They've got to build back up.

But anyway, let's say there is $1.00. Well, $1.00, when you divide by 8, is $0.12. So, it's $0.12; that's easily captured in that big spread that we see today. The oil and gas industry would love to see about $5.50. Really, that doesn't affect us. Do we love $3.50 gas for what we do? Of course.

Hall: But the reality is, that's not sustainable. But it doesn't really impact the business.

Littlefair: No, it really doesn't.

We saw some very high gas prices for a couple days, and maybe even a week during the winter. Remember, we're usually buying it a month at a time, on a utility tariff ahead of time. Just like a hurricane season, you used to see spikes in natural gas prices. We don't really see that. We could at our plants, where we're buying pipeline gas and making LNG, but we have the opportunity if we see a spike coming, or if there is a spike, we don't buy that much that day.

Jason Hall owns shares of Clean Energy Fuels. The Motley Fool recommends 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.