Please ensure Javascript is enabled for purposes of website accessibility

1 More Reason Natural Gas Should Be Fueling Trucks

By Matthew DiLallo - Sep 21, 2013 at 2:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

We already know natural gas is cheaper and cleaner than diesel. Here’s just one more reason we need to switch our nation’s trucking fleets to natural gas.

The United States has an abundance of natural gas supplies. Some estimates suggest we have enough in reserve to supply our economy for more than 100 years. What we don't have is an ample supply of oil, and we're up against stiff global competition for every barrel that's produced. That mix of tight supplies and increasing global demand is the economic recipe for higher prices.

This trend, when combined with what I'm about to point out , will put significant pressure on our nation's trucking fleets in the coming years. That's because demand for the diesel used to fuel those fleets is rapidly increasing around the globe. As the chart in the bottom right corner of the following slide shows, demand for diesel is growing at twice the rate of gasoline.

Source: Valero Investor Presentation (link opens a PDF).

Diesel's growth rate is creating an incentive for U.S.-based refiners such as Valero (VLO 0.96%) and Phillips 66 (PSX 1.89%) to increase production of the fuel. That incentive is amplified by the fact that it's much more profitable to produce diesel, as the chart on the left of the preceding slide indicates. It's probably not surprising that Valero and Phillips 66 are both investing to increase access to world export markets. What this means is that diesel's price will continue to be driven by global demand.  

The following slide shows how quickly Phillips 66 is expanding both its export capacity and the volumes it is exporting. Further, note that distillates such as diesel currently make up most of the export volume.

Source: Phillips 66 Investor Presentation (link opens a PDF).

Given how fast diesel demand is growing, exports are going to put a floor under the price of the fuel as more makes its way into world markets. That's just one more reason it makes sense to use natural gas instead of diesel to fuel our nation's trucking fleets.

Leading the way to make that a reality is Clean Energy Fuels (CLNE -1.21%). The company is building America's Natural Gas Highway, a network of 150 truck refueling stations along the interstate highway system. As the following slide points out, the cost savings by switching from diesel to natural gas is a big economic advantage.

Source: Clean Energy Fuels Investor Presentation (link opens a PDF).

As a nation, there are a lot of trucks that could be fueled through this switch. In fact, there are currently 3.2 million Class 8 trucks on the road, which consume 25 billion gallons of diesel each year. On the other hand, only 1,700 trucks have converted to natural gas, which suggests a phenomenal future opportunity.

The bottom line: The economic savings of switching to natural gas could make even more sense in the future as diesel exports continue to pick up. That's why I say we let other countries have our dirty and expensive diesel. I'd much rather see our nation make a concerted effort to get off imported oil and make better use of the clean and abundant natural gas we have here at home.

Fool contributor Matt DiLallo owns shares of Phillips 66. The Motley Fool recommends Clean Energy Fuels. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Valero Energy Corporation Stock Quote
Valero Energy Corporation
$115.19 (0.96%) $1.10
Phillips 66 Stock Quote
Phillips 66
$90.00 (1.89%) $1.67
Clean Energy Fuels Corp. Stock Quote
Clean Energy Fuels Corp.
$8.17 (-1.21%) $0.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/15/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.